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CHICAGO.  ILLINOIS 


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CURRENT  ECONOMIC 
PROBLEMS 

A  SERIES  OF  READINGS  IN  THE  CONTROL  OF 
INDUSTRIAL  DEVELOPMENT 


EDITED  BY 

WALTON  HALE  HAMILTON 


REVISED  EDITION 


X 


THE  UNIVERSITY  OF  CHICAGO  PRESS 
CHICAGO,  ILLINOIS 


Copyright  IQ14  By 

Walton  Hale  Hamilton 

Copyright  iqis  and  1919  By 

The  University  of  Chicago 


All  Rights  Reserved 


Preliminary  Edition  Privately  Printed  By 
The  University  of  Michigan  1914 


Published  August  191 5 

Second  Impression  February  191 6 

Third  Impression  September  1916 

Revised  Edition  September  1919 

Second  Impression  August  X920 

Third  Impression  March  192 1 


Composed  and  Printed  By 

The  University  of  Chicago  Press 

Chicago,  Illinois,  U.S.A. 


HB 


TO 
FRED  M.  TAYLOR 


To  hold  the  balance  true 
between  the  material  and  the 
human  values  of  life  is  the  oldest 
and  the  newest  economic 
problem. 


PREFACE 

If  intent  has  found  expression  in  accomplishment,  this  volume  is 
best  described  by  its  subtitle,  "A  Series  of  Readings  in  the  Control 
of  Industrial  Development."  The  theory  upon  which  the  book  has 
been  constructed  can  be  reduced  to  a  few  simple  propositions  which 
an  increasing  number  of  economists  (and  many  in  kindred  disci- 
plines) will  regard  as  axiomatic.  They  are  that  our  society  is  a  de- 
veloping one;  that  the  institutions  which  make  up  its  structure  are 
interdependent ;  that  industry  occupies  a  place  of  prime  importance  in 
determining  its  nature ;  that  current  problems  rest  upon  the  triple  fact 
of  an  immutable  human  nature,  a  scheme  of  social  arrangements  based 
upon  individualism,  and  a  world-wide  industry  organized  about  the 
machine  technique;  that  current  problems  represent  a  lack  of  har- 
mony between  these  elements ;  and  that  conscious  attention  to  these 
interrelated  problems  is  the  means  through  which  industrial  develop- 
ment is  to  be  controlled. 

In  this  belief  the  editor  has  gathered  together,  adapted,  and 
arranged  the  readings  which  follow.  Variety  and  multiplicity  are 
not  inconsistent  with  unity.  The  experience  of  other  teachers  with 
this  volume  indicates  that  the  thread  of  the  economic  discussion 
which  the  editor  has  tried  to  present  in  the  words  of  the  many  writers 
whom  he  has  used  has  not  been  lost,  and  that  the  argument,  despite 
its  multiplicity  of  authorship,  moved  forward  from  chapter  to 
chapter. 

It  hardly  needs  to  be  said  that  at  most  this  book  gives  only  a  per- 
spective of  economic  problems.  It  aims  to  reveal  the  outstanding 
features  of  economic  organization,  not  to  make  a  detailed  study  of  the 
institutions  which  make  it  up.  Its  intent  is  to  translate  current  eco- 
nomic problems  into  the  problem  of  the  control  of  industrial  develop- 
ment, not  to  deal  with  these  problems  separately  or  conclusively. 
Since  one  cannot  know  his  subject  without  seeing  it  from  the  outside, 
it  aims  to  present  an  outside  view  of  questions  of  the  day  and  to  indi- 
cate their  places  in  the  larger  universe  which  contains  them.  It  aims  to 
give  the  perspective  which  precedes  specialized  study  and  to  maVe  it 
real  and  relevant.    It  is  no  substitute  for  that  specialized  study  itself. 


xii  PREFACE 

Many  teachers  of  economics  found  this  collection  useful  in  the 
form  in  which  it  was  published  three  years  ago.  In  this  revised  form 
it  is  hoped  that  the  volume  has  regained  some  of  the  values  of  which 
the  swift  march  of  events  has  robbed  it  in  the  last  three  years.  The 
fundamental  idea  upon  which  the  book  is  constructed  has,  of  course, 
been  modified,  but  its  identity  has  not  been  lost.  The  materials  now 
included  are  of  more  immediate  value  as  illustrations,  but  the  con- 
ception of  economics  which  runs  through  them  is  much  the  same. 
It  hardly  seems  necessary  to  point  out  the  many  changes  which  have 
been  made.  The  new  reader  will  take  the  book  for  whatever  it  is 
worth,  oblivious  to  its  past.  The  curious  one  (if  such  there  be)  can 
easily  discover  the  nature  of  the  revision  by  a  comparison  with  the 
first  edition. 

It  remains  for  the  editor  to  make  some  mention  of  his  many  obli- 
gations. He  has  drawn  largely  upon  the  classroom  experience  of 
those  who  were  associated  with  him  at  the  University  of  Michigan 
and  the  University  of  Chicago.  He  is  under  particular  obligations 
to  Mr.  Fred  M.  Taylor,  of  the  University  of  Michigan,  and  Mr.  J. 
Maurice  Clark  and  Mr.  Harold  G.  Moulton  of  the  University  of 
Chicago.  His  obligations  to  L.  R.  Hamilton  are  too  many  to  be 
catalogued  here.  The  editor's  obligations  to  various  authors  and 
publishers  who  have  generously  permitted  the  use  of  much  valuable 
copyright  material  are  set  forth  in  detail  in  the  bibliographical 
footnotes.  W.  H.  H. 

Amherst  College 
August  12,  1919 


TABLE  OF  CONTENTS 

I.    The  Problem  of  Control  in  Industrial  Society 

PAGE 

Introduction ^ 

A.    Modern  Industrial  Society 

1.  The    Essential    Characteristics    of    Modern    IndustriaHsm.    An 
editorial 2 

2.  The  Current  Stage  in  Social  Development.    An  editorial         .       .         5 

B.    The  Nature  of  Economic  Problems 

3.  What  an  Economic  Problem  Is  Like.    An  editorial    ....       13 

C.    The  Nature  of  Progress 

4.  What  Is  Progress  ?    James  Bryce 18 

5.  Evolution  or  Progress  ?    L.  T.  Hobhouse 19 

6.  Criteria  of  Progress.    James  Bryce 22 

D.    The  Control  of  Economic  Activity 

7.  The  Agencies  of  Social  Control.     Elizabeth  Hughes  ....  26 

8.  The  Family  as  an  Agency  of  Control.    An  editorial  ....  29 

9.  The  State  as  an  Institution  of  Control.    Edwin  Cannan  ...  30 


E.    The  Theory  of  Laissez  Faire 

10.  The  Fundamental  Law  of  Nature.    WiUiam  Blackstone  . 

11.  A  Diatribe  against  Human  Institutions.    J.  J.  Rousseau 

12.  A  Plea  against  Governmental  Restraints.     Adam  Smith  . 

13.  A  General  Condemnation  of  Government.     Wilham  Godwin  . 

14.  The  Identity  of  Individual  and  Social  Good.     Piercy  Ravenstone 

15.  A  Protest  against  Useless  Restrictions.    Jeremy  Bentham 

16.  Opportunity.    John  J.  Ingalls 


32 
33 
33 
35 
36 
36 
37 


F.    The  Interpretation  of  Laissez  Faire 

17.  The  Philosophy  of  Individualism.    Albert  V.  Dicey  .       ...  38 

18.  The  Individualistic  Theory  of  Government.    John  Stuart  Mill  40 

19.  The  .Authoritative  Basis  of  Laissez  Faire.     An  editorial    ...  45 

G.    The  Protest  against  Individualism 

20.  The  Tyranny  of  the  Machine.     Joseph  Harding  Underwood    .        .  46 

21.  The  Passing  of  the  Frontier.     Thomas  B.  Macaulay,  James  Bryce, 

and  Peter  Finley  Dunne 47 

22.  The  New  Issues.    WiUiam  Garrott  Brown 48 


xiv  CONTENTS 

H.    The  Reappearance  of  the  Problem  of  Control 

PAGE 

23.  The  Individualistic  Basis  of  Social  Control.    Thomas  Hill  Green  .       52 

24.  Laissez  Faire  in  Practice.    L.  T.  Hobhouse 54 

25.  Liberty  and  Interference.    W.  Jethro  Brown 57 

n.    The  Antecedents  of  Modem  Industrialism 
Introduction 60 


A.     Pre -INDUSTRIAL  Economy 

26.  The  Manor,  a  Self-sufficient  Economy.    William  J.  Ashley 

27.  Wage  Work  and  the  Handicraft  System.     Carl  Bucher     . 

28.  Ordinances  of  the  Gild  Merchant  of  Southampton 

29.  Ordinances  of  the  WTiite  Tawyers 

30.  Preamble  to  the  Ordinances  of  the  Gild  of  the  Tailors,  Exeter 

31.  Household  Industry  in  America.     RoUo  Milton  Trj'on 

B.    Pre -INDUSTRIAL  Commerce 


61 
64 
66 

68 
69 
69 


32.  A  Definition  of  Commerce.     J.  Dorsey  Forrest 71 

2,3.  The    Attitude    of    the    Mediaeval    Church    toward    Commerce. 

WiUiam  J.  Ashley 72 

34.  The  Contribution  of  the  Church  to  Commerce.    J.  Dorsey  Forrest  74 

35.  Italian    Commerce    in    the    Fourteenth    Century.     Thomas    B. 
Macaulay 76 

C.    Pre-industrial  Policy 

36.  Property  and  Service  on  the  Manor.    An  editorial  .       .       .  77 

37.  Solidarity  in  the  Mediaeval  Town.    An  editorial        ....  80 

38.  Articles  of  the  Spurriers  of  London 83 

39.  Mediaeval  Tricks  of  Trade.    Berthold  von  Regensburg    ...  83 

40.  The  Control  of  Industry  in  the  Gild  Period.     L.  F.  Salzmann  85 

41.  Labor  on  the  Southern  Plantation.     An  editorial       ....  89 

D.    Pre-industrial  Rights  and  Duties 

42.  The  Classic  Statement  of  the  Organic  Nature  of  Society.     St.  Paul  90 

43.  The  Gospel  of  Stewardship.     St.  Thomas  Aquinas  .  91 

44.  The  Bill  of  Rights.     Statutes  of  the  Realm 92 

45.  The  Theory  of  Natural  Rights 93 

a)  The  Declaration  of  Independence.     Continental  Congress  .  93 

b)  The  Rights  of  Men  and  of  Citizens.     National  Assembly  of 
France 94 

c)  The  American  Bill  of  Rights.     Constitution  of  the  United  States  94 

d)  Some  Addenda.     Constitution  of  the  United  States     •       •       •  95 


CONTENTS  XV 
in.    The  Industrial  Revolution 

PAGE 

Introduction ^     ...  97 

A.    The  Antecedents  or  the  Revolution 

46.  English  Industry  on  the  Eve  of  the  Revolution.    Arnold  Toynbee  98 

47.  Geographical  Discovery  and  the  Revolution.    William  Cunningham  102 

B.    The  Nature  and  Scope  of  the  Revolution 

48.  Technology  and  the  Revolution 103 

49.  The  Comprehensiveness  of  the  Revolution.    J.  H.  Clapham    .  107 

C.    The  New  Industrialism 

50.  The  Function  of  Capital.    J.  Dorsey  Forrest no 

51.  The  Factory  System.     Carl  Biicher 112 

52.  The  Machine  Process.    Thorstein  Veblen 113 

53.  The  New  Domestic  System.    Herbert  J.  Davenport  115 

D.    The  World  of  Labor 

54.  Why  Labor  Resists  Machines.    Edwin  Cannan          ....  118 

55.  Labor's  Willing  Slaves.     Edwin  Arnold 120 

56.  The  Wage  Slaves.    Allan  L.  Benson 121 

E.    National  Expressions  of  Industrialism 

57.  Individualism  and  American  Efficiency.    Arthur  Shadwell      .       .  122 

58.  German  Socialized  Efficiency.     Samuel  P.  Orth         .        .       .       .126 

F.    The  Extension  of  Industrialism 

59.  The  Competitive  Victory  of  Western  Culture.     James  Bryce  .  130 

60.  The  Economic  Conflict  of  Western  and  Primitive  Culture.    Freida  S. 
Miller 131 

61.  Industrial  Penetration.    Henri  Hauser 134 

62.  Concessions  and  the  War.    Alvin  Johnson 137 

IV.    The  Pecuniary  Basis  of  Economic  Organization 

Introduction 141 

A.    Price  as  an  Organizing  Force 

63.  The  Social  Order.    Edwin  Cannan 142 

64.  Competition  and  Industrial  Co-operation.    Richard  Whateiy         .  144 


xvi  CONTENTS 

B.    The  ORGANiZAnoN  of  Prices 

FACE 

65.  The  Nature  of  the  Price-System.    An  editorial 146 

66.  The  Constraints  of  the  Price-System.    Walton  H.  Hamilton   .       .150 

C.    Pecuotary  Competition 

67.  Economic  Activity  as  a  Struggle  for  Existence.    Arthur  Fairbanks     156 

68.  Competition  and  Organization.     Charles  H.  Cooley  .       .       .       .     158 

69.  The  Ethics  of  Competition 

a)  The  Beneficence  of  Competition.     Charles  Kingsley 
h)  The  Selfishness  of  Competition,    S.  J.  Chapman  . 
c)  The  Utility  of  Competition.    An  editorial 

70.  The  Plane  of  Competition.    Henry  C.  Adams    . 


D.    Price-Fixing  by  Authority 


F.    Speculation 

78.  The  Gamble  of  Life.    John  W.  Gates  .... 

79.  The  Twilight  Zone.    Harry  J.  Rowland 

80.  The  Ethics  of  Speculation.     The  Outlook 

81.  Hedging  on  the  Wheat  Market.    Albert  C.  Stephens 

82.  The  Ups  and  Downs  of  Securities.     Francis  W.  Hirst 

83.  The  Functions  of  Exchanges.     Charles  A.  Conant 

G.    The  Corporation 


159 
IS9 
160 
160 
161 


71.  The  Statute  of  Laborers.    Statutes  of  the  Realm         ....     163 

72.  The  Futility  of  Price-Fixing.    John  Witherspoon       .       .       .       .165 

73.  The  Problem  of  Controlling  Prices.    J.  Maurice  Clark     .       .       .166 

E.    The  Function  of  the  Middlemen 

74.  A  Condemnation  of  Forestallers.     Statutes  of  the  Realm         .       .  169 

75.  If  Forestallers  Had  Their  Deserts.    George  Washington  .       .       .  169 

76.  The  Function  of  the  Middleman.    Hartley  Withers  ....  170 

77.  Middlemen  in  the  Produce  Trade.     Edwin  G.  Nourse      .       .       .  171 


173 
173 
176 
178 
180 
183 


84.  The  Nature  of  the  Business  Corporation.    Harrison  S.  Smalley  185 

85.  Corporate  Distribution  of  Risks  and  Control.    W.  H.  Lyon    .       .188 

86.  The  Management  of  the  Corporation.    Wesley  C.  Mitchell     .       .     190 

87.  The  Function  of  the  Corporation.    J.  B.  Canning     ....     192 

H.    The  Organization  of  Trades 

88.  Competition  and  Association.    Henry  Clay 195 

89.  The  Relations  between  Trades.    John  A.  Hobson  .       .197 

90.  The  "Planlessness"  of  Production.    Wesley  C.  Mitchell  .       .       .     200 


CONTENTS  xvii 


V.    Problems  of  the  Business  Cycle 


PAGE 


Introduction 203 


A.    The  Delicate  Mechanism  of  Industry 

91.  The  Delicate  Organization  of  Industry.    Thorstein  Veblen  .  204 

92.  The  Spirit  of  Business  Enterprise.    Wesley  C.  Mitchell    .  .  .206 

93.  The  Interdependence  of  Prices.     Wesley  C.  Mitchell        .  .  .     208 

94.  The  Sensitive  Mechanism  of  Credit.    Harold  G.  Moulton  .  .     211 


B.    The  Economic  Cycle 

95.  The  Sensitiveness  of  Industrial  Society.    Leon  C.  Marshall  .     215 

96.  The  Rhythm  of  Business  Activity.    Wesley  C.  Mitchell  .  .216 


C.    The  Course  of  a  Crisis 

97.  The  Irrepressible  Crisis.    W.  H.  Lough,  Jr 222 

98.  The  Arrested  Crisis  of  1907.    Edwin  R.  A.  Seligman        .       .       .226 

99.  The  Course  of  the  Panic  of  1907.    Ralph  Scott  Harris     .       .       .228 
100.  The  Order  of  Events  in  a  Crisis.    Arthur  T.  Hadley  .230 


D.    Industrial  Conditions  during  a  Depression 

loi.  Panics  versus  Depressions.     George  H.  Hull 232 

102.  The  Extent  of  the  Depression  of  1907-8.    Moody's  Magazine  233 


E.    War  and  the  Cycle 

103.  The  Beginning  of  the  War.    Federal  Reserve  BuUetin 

104.  Eight  Months  Later.     Federal  Reserve  Bulletin    . 

105.  The  Winter  of  191 7-18.     Federal  Reserve  Bulletin 

106.  The  End  of  the  War.    Federal  Reserve  Bulletin  . 

107.  Production  and  Prices.    Wesley  C.  Mitchell 

F.    Control  of  the  Industrial  Cycle 


234 
235 
236 
238 
239 


108.  Panic  Rules  for  Banks.    Walter  Bagehot 240 

109.  How    a    Panic    Was    Averted    in    1914.     Journal   of  Political 
Economy •       •  241 

no.  Emergency  Elasticity  of  Credit.    Harold  G.  Moulton       .       .  243 

111.  Bettering  Business  Barometers.    Wesley  C.  Mitchell  .  245 

112.  The  Severity  of  the  Trade  Cycle  in  America.    W.  A.  Paton    .       .  248 


xviii  CONTENTS 

VI.    The  Problem  of  Economic  Organization  for  War 

PAGE 

Introduction 251 

A.    The  Nature  of  Modern  :War 

113.  War  and  the  State  of  the  Industrial  Arts.    Adam  Smith          .       .  252 

114.  War  and  Economic  Organization.     Clarence  E.  Ayres      .       .       .  256 

115.  The  Larger  Economic  Strategy.     An  editorial 259 

B.    The  Sinews  of  War 

116.  The  Demands  of  War.     An  editorial 264 

117.  The  Organization  of  Man  Power.     Mark  Sullivan     ....  266 

118.  The  Insatiable  Demand  for  Munitions.    Edwin  Montagu        .       .  269 

119.  The  Scientific  Basis  of  War  Technique.     George  K.  Burgess    .       .  270 

C.    Methods  of  Industrial  Mobilization 

120.  Voluntary  Army  Recruiting.    Andre  ChevrUlon        ....  274 

121.  Voluntary  Enhstment  of  Factories.    Harold  G.  Moulton         .       .  275 

122.  Voluntary  Mobilization  of  Labor.    Leon  C.  Marshall       .       .       .  278 

123.  Work  or  Fight.     General  Enoch  Crowder 279 

124.  Priorities.     Alvin  Johnson 280 

125.  Industrial  Conscription.     Harold  G.  Moulton 281 

D.    Mobilization  in  Liberal  Countries 

126.  The  Penalty  of  Taking  the  Lead.    Thorstein  Veblen  .        .284 

127.  Social  Customs  and  Efficiency  in  War,    Harold  G.  Moulton   .       .  286 

128.  A  Nation  of  Amateurs.    Leon  C.  Marshall 288 

129.  The  Consumer's  Dilemma 291 

a)  The  Appeal  to  Spend.     Advertisement  in  New  York  Times  291 

b)  Practical  Patriotism.    Advertisement  in  New  York  Times  .  292 

c)  Consumptive  Slackers.    Thomas  Nixon  Carver     .        .       .       .293 

130.  The  Curtailment  of  Nonessentials.    Federal  Reserve  Bulletin    .       .  293 

E.    Getting  Out  of  War 

131.  The  Rate  of  Demobilization.    Journal  of  Political  Economy    .       .  295 

132.  Keeping  Production  Up.    David  Friday 299 

133.  The  Fetish  of  Reconstruction.    An  editorial 303 


CONTENTS  XIX 
Vn.    The  Problem  of  International  Trade 

PAGE 

Introduction 307 

A.    The  Basis  of  International  Trade 

134.  International  Co-operation.     Charles  Gide 309 

135.  The  Law  of  Comparative  Costs.     Fred  M.  Taylor     .       .       .       .311 

136.  The  Theory  of  Free  Trade.     An  editorial 313 

137.  The  Favorable  Balance  of  Trade.    Thomas  Mun  and  Charles  W. 
Fairbanks 3^5 

138.  The  Mystery  of  the  Balance  of  Trade.    Hartley  Withers         .       .  316 

B.    The  Perennial  Argument  for  Restriction 

139.  Keeping  Trade  at  Home 3^9 

140.  Gold  and  Wealth.     Martin  Luther        .       .       .       .       .  .321 

141.  The  Production  of  Prosperity.    Daniel  Defoe 321 

142.  The  Ten   Commandments  of  National   Commerce.     A   German 
Circular 323 

143.  The  Test  of  Faith.    Roswell  A.  Benedict 323 

144.  The  Seen  and  the  Unseen.     Frederic  Bastiat 324 

C.    The  Case  for  Protection 

145.  America's  Allegiance  to  Protection.    Albert  J.  Leffingwell       .  326 

146.  Protection  and  the  Formation  of  Capital.    Alvin  Johnson       .  328 

147.  The  Economics  of  Protection.    An  editorial 331 

D.    The  Tariff  and  Wages 

148.  High  Wages  an  Obstacle  to  Manufacture.     Daniel  Webster     .       .  334 

149.  Protection  and  High  Wages.     American  Economist    ....  336 

150.  The  Effect  of  Industrial  Changes  on  Wages.    Alvin  Johnson  .  337 

E.    Tariff  Policy  in  Process 

151.  A  Half-Century  of  Tariff  History.     Harrison  S.  Smalley  .               .  338 

152.  Recent  Tariff  History.     An  editorial 342 

153.  What  a  Tariff  Bill  Is  Like.    The  Underwood-Simmons  Act     .       .  344 

154.  The  Tariff  Commission.     Journal  oj  Political  Economy     .        .        .  347 

F.    The  Argument  from  Experience 

155.  Protection  and  Prosperity.     Robert  Ellis  Thompson  349 
256.  Free  Trade  and  Prosperity.    Liberal  Party  Pamphlet        .       .       .35° 


x. 


XX  CONTENTS 

G.    Protection  in  Practice 

PAGE 

157.  A   Hvunble   Request   of    Congress.     Wool  Growers  and   Manu- 
factxirers 351 

158.  A  Recipe  for  Securing  Duties.     S.  N.  D.  North  and  William 
Whitman 352 

159.  The  Tariff  a  Local  Issue.     Congressional  Record         .       .       .       .353 

160.  Tariff  for  Politics  Only.     Peter  Finley  Dunne 354 

161.  Tricks  of  Tariff  Making.    H.  Parker  Willis 357 

162.  The  Impossibility  of  Ascertaining  Costs.     H.  Parker  Willis     .       -.359 

H.    The  Tariff  and  World-Trade 

163.  Recent  Changes  in  the  World's  Trade.     Grosvenor  M.  Jones  .       .  360 

164.  The  Increase  in  Shipping.     Raymond  Garfield  Gettell      .       .       .  364 

165.  New  Policies  in  Foreign  Trade.    William  B.  Colver  ....  366 

166.  Export  Associations.     The  Americas 369 

I,    Trade  and  the  Peace  of  the  World 

167.  Protection  and  National  Defense.    An  editorial         ....  370 

168.  The  Future  of  Trade  and  Peace.    J.  Russel  Smith     ....  372 

169.  The  Cult  of  National  Self-Sufl&ciency.     Edwin  Cannan     .       .       .  374 

Vin.    The  Problem  of  Railway  Regulation 

Introduction 376 

A.    The  Basis  of  the  Problem 

170.  The  Dual  Nature  of  the  Railway  Corporation.    An  editorial  .        .378 

171.  The  Economic  Basis  of  Regulation.    I.  Leo  Sharfman      .  379 

172.  The  Futility  of  Railway  Competition.     Arthur  T.  Hadley       .  384 

B.    Aspects  of  Rate- Making 

173.  Freight  Classification.     William  Z.  Ripley 386 

174.  State  Regulation  and  Inefficient  Service.     C.  O.  Ruggles         .       .  388 

175.  The   Futility  of  Costs  as  a  Basis  for  Rates.     Sydney  Charles 
Williams 389 

176.  Charging  What  the  Traffic  Will  Bear.     W.  M.  Acworth  .       .  392 

177.  The  Rate  Theory  of  the  Interstate  Commerce  Commission.     M.  B. 
Hammond 393 


CONTENTS  XXI 
C.    The  Nature  and  Extent  of  Regulation 

PAGE 

178.  Complaints  against  the  Railroad  System.    The  Cullom  Committee  395 

179.  The    Provisions    of    the    Interstate    Commerce    Act.    Logan  G. 
McPherson 397 

180.  The  Provisions  of  the  Elkins  Act.    Report  of  Interstate  Commerce 
Commission .        -397 

181.  The  Provisions  of  the  Hepburn  Bill.    Logan  G.  McPherson    .       .  398 

182.  The  Mann-Elkins  Act.    Railway  and  Engineering  Review         .       .  400 

183.  The  Adamson  Act.     United  States  Supreme  Court    ....  401 

D.  Valuation  of  the  Railroads 

184.  Necessity  for  Valuation  of  Railway  Property.     Interstate  Com- 
merce Commission 402 

185.  Market  Value  as  a  Basis  for  Rates.    Robert  H.  WTiitten         .       .  404 

186.  Physical  Valuation  as  the  Basis  of  Rates.     Samuel  0.  Dunn    .  405 

187.  The  "Railway  Value"  of  Land.     United  States  Supreme  Court  408 

E.  The  Railroads  in  War  Time 

188.  The  Beginning  of  Federal  Control.     Journal  of  Political  Economy  .  410 

189.  The  Policy  of  the  Railroad  Administration.    William  G.  McAdoo  .  411 

190.  The  Results  of  Federal  Control.    J.  Maurice  Clark  .  .       .412 

191.  The  Outcome  and  the  Future.    T.  W.  Van  Metre             .  415 


F.    The  Crisis  in  Railway  Policy 

192.  Solution  by  Experimentation.    William  G.  McAdoo 

193.  The  Plan  of  the  "Railroads."    Journal  of  Political  Economy 

194.  Socializing  the  Railroads.    John  A.  Fitch    .... 

195.  The  Supply  of  Capital.     Alvin  Johnson        .... 

196.  The  Requisites  of  a  National  Policy.    James  D.  Magee    . 


418 
420 
421 

423 
426 


IX.    The  Problem  of  Capitalistic  Monopoly 

Introduction 429 

A.    Is  Monopoly  Inevitable 

197.  The  Perennial  Problem  of  Monopoly 43 1 

a)  An  Early  Corner  in  Grain.     Genesis  41 :46-49,  53-57;  47 :  i3 :  22  431 

b)  A  Vindication  of  Philosophy.    Aristotle 432 

c)  An  Early  Use  of  Class  Price.    John  Gower 432 

d)  In  the  Merrie  England  of  Queen  Bess.    David  Hume  .       .       .  433 


xxii  CONTENTS 

PAGE 

198.  The  Perennial  Protest  against  Monopoly 434 

a)  A  Proverb  about  Corners.     Proverbs  11:25-26 

b)  The  Ethics  of  Monopoly.     Martin  Luther 

c)  The  Pests  of  Monopoly.     Sir  John  Culpepper 

d)  The  Inexpediency  of  Monopoly.     Adam  Smith 

e)  Monopoly  Indefensible.     National  Democratic  Party 

199.  Monopoly  the  Result  of  Natural  Growth.     George  Gunton 

200.  Monopoly  the  Result  of  Artificial  Conditions.     Woodrow  Wilson 


434 
434 
434 
435 
435 
435 
437 


B.    Conditions  of  Monopolization 


201.  The  Failure  of  Competition.    Henry  W.  Macrosty    .  439 

202.  The  Incentives  to  Monopoly.     Chester  W.  Wright  441 

203.  Large-Scale  Production  and  Monopoly.     Charles  J.  Bullock    .  443 

204.  Monopoly  and  Efl&ciency.     Louis  D.  Brandeis 449 

C.    Types  of  Unfair  Competition 

205.  Competitive  Methods  in  the  Tobacco  Business^     Meyer  Jacobstein  452 

206.  Competitive  Methods  in  the  Cash  Register  Business.  Henry 
Rogers  Seager 454 

207.  The  "Tieing"  Agreement.    W.  H.  S.  Stevens 456 

208.  Monopoly  Control  of  Cost  Goods.     W.  H.  S.  Stevens       .       .       .  458 

D.    The  Regulation  of  Monopoly 

209.  Law  and  the  Forms  of  Combination.     Bruce  Wyman       .        .       .  459 

210.  The  Sherman  Anti-Trust  Act.    United  States  Statutes     .       .       .  462 
2X1.  The  Meaning  of  Restraint  of  Trade.    United  States  Supreme  Court  463 

212.  An  Appraisal  of  the  Sherman  Act.    Allyn  A.  Young                        .  464 

213.  Provisions  of  the  Clayton  Act.     W.  H.  S.  Stevens     ....  468 

214.  The  Trade  Commission  and  Clayton  Acts.     W.  H.  S.  Stevens  469 

E.    The  Future  of  Regulation 

215.  Standardization  and  Combination.     Homer  Hoyt      .  -471 

216.  Results  of  Regulating  Combinations.    E.  Dana  Durand  .  474 

X.    The  Problems  of  Population 

Introduction 480 

A.    The  Question  of  Numbers 

217.  Utopia  and  the  Serpent,     Thomas  Huxley 481 

218.  Appraisals  of  Population.  An  Early  Historian,  An  Early  Poet, 
Aristotle,  Sir  William  Temple,  Sir  Josiah  Child,  Daniel  Defoe, 
Sir  James  Steuart,  Arthur  Young,  Adam  Ferguson,  and  "A  Much- 
Harmed  Native  of  India  .       .               482 


CONTENTS  xxiii 

B.    The  Malthusian  Theory 

PAGE 

219.  The  Theory  of  Population.    Thomas  Robert  Malthus      .  485 

220.  Malthusianism  a  Support  of  Capitalism.    Piercy  Ravenstone         .  488 

221.  Malthus  versus  the  Malthusians.    Leonard  T.  Hobhouse  490 

222.  Population  Pressure  and  War.    Edwin  Als worth  Ross      .  492 

C.    The  CoaoNG  of  the  Immigrant 

223.  The  Immigrant  Invasion.     Frank  Julian  Warne         ....  496 

224.  Immigration  in  a  Single  Year.     F.  A.  Ogg 500 

225.  The  Current  Status  of  Immigration.    National  Industrial  Con- 
ference Board 5°° 

D.    Immigration  and  Industrial  Development 

226.  Our  Industrial  Debt  to  Immigrants.     Peter  Roberts         .       .  502 

227.  The  Manna  of  Cheap  Labor.     Edwin  Als  worth  Ross                .       .  504 

E.    Immigration  and  Labor  Conditions 

228.  The  Elevation  of  the  Native  Laborer.     William  S.  Rossiter     .  505 

229.  The  Industrial  Menace  of  the  Immigrant.     Edward  Alsworth  Ross  507 

230.  Immigration  and  Unionism.    W.  Jett  Lauck 510 

F.    The  Restriction  of  Immigration 

231.  A  Protest  against  Immigration.     United  Garment  Workers  511 

232.  An  Immigration  Program.    The  Immigration  Commission  512 

233.  The  Pro  and  Con  of  the  Literacy  Test 513 

c)  The  Necessity  for  the  Educational  Test.     P.F.Hall   .       .       .513 

h)  Pauperism  and  Illiteracy.     Kate  H.  Claghorn       .  514 

c)  From  the  Men  at  the  Gates.     Louis  S.  Amonson       .        .  515 

d)  Our  Immigration  PoUcy.    Woodrow  Wilson 515 


G.    The  Future  of  the  Immigrant 

234.  The  Immigrant  an  Industrial  Peasant.    H.  G.  Wells 

235.  The  Problem  of  Americanization.     Henry  W.  Famam 

236.  Industry  and  Americanization.    Esther  Everett  Lape 

237.  The  Economics  of  Immigration.    Frank  A.  Fetter     . 

238.  The  Influence  of  the  Immigrant  on  America.    Walter  E.  Weyl 

H.    The  Quality  of  Population 

239.  The  Breeding  of  Men.    Plato 527 

240.  Derby  Day  and  Social  Reform.    Martin  Conway      .       .       .       .528 

241.  Eugenics  and  the  Social  Utopia.     George  P.  Mudge  .       .       .       .529 


516 

S18 
520 
522 
524 


xxiv  CONTENTS 

PAGE 

242  Immigration  and  Eugenics.    Walter  E.  Weyl 530 

243  The  Rationale  of  Eugenics.    James  A.  Field 532 

I.    The  Population  Problem  of  Today 

244.  Population  Pressure  in  Japan.     Walter  E.  Weyl        ....  535 

245.  The  Threat  of  Emigration.     Frances  A.  Kellor 539 

246.  War  and  a  Population  Policy.    James  A.  Field 541 


XI.    The  Problems  of  Economic  Insecurity 

Introduction 545 

A.    Insecurity  under  Modern  Industrialism 

247.  Competition  and  Personal  Insecurity.    Thomas  Kirkup  .       .       .  547 

248.  Machinery  and  the  Demand  for  Labor.    John  A.  Hobson        .       .  549 

249.  Economic  Insecurity  and  Insurance.    William  F.  WUloughby        .  552 

B.    Unemployaient 

250.  Character  and  T5rpes  of  Unemployment.    W.  H.  Beveridge    .       .  554 

251.  An  Ideal  System  of  Labor  Exchanges.    John  B.  Andrews        .       .  556 

252.  United  States  Employment  Service.    Woodrow  Wilson    .       .       .  560 

253.  Cyclical  Distribution  of  Government  Orders.     Sidney  and  Beatrice 
Webb  .       .       .       .  ■ 561 

254.  The  Relief  of  Unemployment.    Mayor's  Committee  in  New  York  563 

C.  Industrial  Accidents 

255.  The  Machine  Process  and  Industrial  Accident.    E.  H.  Downey  566 

256.  Casualties  in  War  and  Industry.     Pennsylvania  Department  of 
Labor 569 

257.  Some  Sample  Accidents.    Pennsylvania  Department  of  Labor      .  570 

258.  Imputation  of  Responsibility  for  Accidents.    A  Railway  Company  572 

259.  Industrial  Accidents  and  the  Theory  of  Negligence.    Lee  K.  Frankel 

and  Miles  M.  Dawson 572 

260.  The  Incidence  of  Work  Accidents.    E.  H.  Downey    ....  575 

261.  The  Necessity  of  Employer's  Liability.    Adna  F.  Weber         .       .  577 

D.  Sickness  and  Health 

262.  The  Nation's  Physical  Fitness.    Provost  Marshal  General      .       .  578 

263.  The  Industrial  Cost  of  Sickness.    Joseph  P.  Chamberlain        .        .  580 

264.  Why  Sickness  Insurance  Should  Be  Compulsory.     I.  M.  Rubinow  581 

265.  The  British  National  Insurance  Bill.     Warren  S.  Thompson  .       .  582 

266.  Health  Insurance  for  the  United  States.    B.  S.  Warren  and  Edgar 
Sydenstricker 584 


CONTENTS  XXV 

E.    The  Standard  of  Living 

PAGE 

267.  The  Nature  of  the  Standard  of  Living.     Frank  Hatch  Streightoff  .     586 

268.  The  War  and  the  Standard  of  Living.    W.  F.  Ogbum      .       .       .588 

F.    The  Minimum  Wage 

269.  The  Promise  of  a  Minimum  Wage.    A.  N,  Holcombe       .       .       .591 

270.  The  Case  for  Wage  Boards.     Constance  Smith 593 

271.  The  Futility  of  the  Minimum  Wage.    J.  Laurence  LaughUn   .       .  596 

272.  A  Minimimi  Wage  for  Immigrants.     Paul  U.  Kellogg       .       .       .  598 

273.  The  Progress  of  the  Minimum  Wage.    American  Labor  Legislation 
Review 600 

274.  Compulsory  Arbitration  in  Theory  and  Practice.    James  Edward 

le  Rossignol  and  William  Downie  Stewart 602 


G.    The  Hazards  of  the  Child 


275.  The  Hazard  of  Birth.     Charles  J.  Hastings         .       .       .       . 

276.  The  Hazard  of  the  War.     S.  Josephine  Baker     .       .       .       . 

277.  The  Hazard  of  the  Coming  of  Industrialism.     Ruth  Mclntire 

278.  The  Hazard  of  Industry.    John  Curtis  Underwood    . 

279.  The  Hazard  of  the  Family  Income.    An  editorial 

280.  The  Hazard  of  the  Coiuts.    United  States  Supreme  Court 


605 
606 
608 
610 
610 
612 


Xn.    The  Problems  of  Unionism  and  the  Wage  Contract 

Introduction 615 

A.    Group  and  Class  Consctousness 

281.  Bourgeoisie  and  Proletariat.    Werner  Sombart 617 

282.  The  Historical  Basis  of  Trade-Unionism.    Sidney  and  Beatrice 
Webb 619 

283.  The  Organization  of  the  Ill-paid  Classes.     Charles  H.  Cooley  620 

284.  Types  of  Unionism.    Robert  F.  Hoxie 622 

285.  The  Extent  of  Trade-Unionism.    Leo  Wohnan 626 

B.    Viewpoints  and  Unionism 

286.  The  Viewpoint  of  the  Trade-Unionist;    Robert  F.  Hoxie         .       .  628 

287.  Articles  of  Faith 632 

c)  An  Economic  Creed.    National  Association  of  Manufacturers  .  632 

b)  A  Political  Creed.    National  Association  of  Manufacturers  633 

c)  An  Industrial  Creed.    John  D.  Rockefeller,  Jr 634 

288.  The  Purposes  of  Trade-Unionism.    John  Mitchell     ....  636 


xxvi  CONTENTS 

C.    The  Theory  of  Unionism 

PAGE 

289.  The  Principle  of  Uniformity.    Robert  F.  Hoxie         ....  638 

290.  Collective  Bargaining  and  the  Trade  Agreement.    John  R.  Com- 
mons      641 

291.  The  Economics  of  the  Closed  Shop.     Frank  P.  Stockton  .       .  644 

292.  The  Ethics  of  the  Closed  Shop.    James  H.  Tufts      ....  648 

D.    The  Weapons  of  Industrial  Conflict 


293.  The  Function  of  the  Strike  in  Collective  Bargaining.    John  Mitchell    650 

294.  The  Utility  of  the  Strike.     Frank  JuUan  Warne         .       .       .       .651 

295.  The  Striker  and  the  Worker.     Solon  Lauer 

296.  Wanted — ^Jobs  Breaking  Strikes.    American  Industries     . 

297.  The  Efl&cacy  of  Secret  Service.     Burns  Detective  Agency 

298.  The  Boycott  of  the  Butterick  Company.    A.  J.  Portenar 

299.  Ostracism  as  an  Industrial  Weapon.     Frank  JuUan  Warne 

300.  The  Scab.    Dyer  D.  Lum 


652 
653 
653 
654 
6S5 
657 


E.    Unionism  in  War  Time 


301.  The  Challenge  to  American  Labor 659 

o)  Great  Britain,    James  H.  Thomas 659 

b)  France.    New  Republic 660 

c)  Italy,    Francesco  Saverio  Nitti 660 

302.  A  Declaration  of  Principles.     American  Alliance  for  Labor  and 
Democracy 660 

303.  A  War-Time  Labor  Policy.    War  Labor  Conference  Board  ,    .       .  663 

F,    Woman's  Invasion 

304.  Replacement  of  Men  by  Women.     New  York  Department  of  Labor  666 

305.  The  Health  of  Women  in  Industry.    Janet  M.  Campbell  .  671 

306.  Will  There  Be  a  Sex  War  in  Industry  ?    Mary  Stocks      .       .       .  673 


G.    Revolutionary    Unionism 


307.  Sabotage ^    . 

c)  A  Definition  of  Sabotage.    Arturo  M.  Giovannitti 

b)  Go  Cannie.    Arturo  M.  Giovannitti        .... 

c)  Put  Salt  in  the  Sugar.     Montpelier  Labor  Exchange 

d)  The  Effectiveness  of  Sabotage.    Arturo  M.  Giovannitti 

e)  The  Universality  of  Sabotage.     Industrial  Worker 

308.  The  Standpoint  of  Syndicalism.    Louis  Levine  .        .       .       . 

309.  Where  Radicalism  Thrives.     Commission  on  Industrial  Relations 


677 
677 
677 
678 
679 
679 
681 
683 


CONTENTS  xxvii 

XTTT.    Problem  of  Control  within  Industry 

PAGE 

Introduction 686 

A.  Unrest 

310.  War  and  National  Unity.     Garton  Foundation 687 

311.  Portrayal  of  Unrest  in  War.    Felix  Frankfurter         .       .       .       .691 

B.  Output 

312.  Selling  Labor  Short.    Walter  Drew 695 

313.  The  Limits  of  Sabotage.    Thorstein  Veblen 697 

314.  The  Increase  in  Production.    Garton  Foundation      ....     700 

C.    Efficiency 

315.  Labor  and  Efficiency.     Frederic  W.  Taylor 705 

316.  The  Nature  of  Scientific  Management.    Maurice  L.  Cooke     .       .  707 

317.  The  Attitude  of  Organized  Labor.     American  Federation  of  Labor  709 

318.  Modem  Industry  and  Craft  Skill.     International  Moulders^  Journal  709 

319.  Scientific  Management  and  Welfare.     Robert  F.  Hoxie    .       .       -711 

320.  Employment  Management.    New  Republic 713 

321.  Industrial  Physiology.    Frederic  S.  Lee 714 

D.    Constitutionalization 

322.  Joint  Standing  Industrial  Councils.     Whitley  Committee        .  716 

323.  The  Organization  of  Works  Committees.     Whitley  Committee  722 

324.  National  Councils  for  Industry.     British  Ministry  of  Labor    .        .723 

325.  A  National  Industrial  Council.    British  National  Industrial  Con- 
ference         727 

E.    Politics 

326.  Instincts  and  Employment.    Irving  Fisher 729 

327.  The  Mid  vale  Plan.     Mid  vale  Steel  Corporation  .       .       .731 

328.  The  Colorado  Plan.     Colorado  Fuel  and  Iron  Company  .       .       .736 

329.  The  Future  of  Industrial  Relations.    Henry  P.  Kendall   .       .       .     739 

F.    Standards 

330.  Standards  for   Children  Entering  Employment.     Conference  on 
ChUd  Welfare 741 

331.  Standards  for  Women  in  Industry.     United  States  Department 

of  Labor 743 

332.  International  Labor  Standards.    International  Labor  Conference  .     746 


xxviii  CONTENTS 

XIV.    Social  Reform  and  Legal  Institutions 

PAGE 

Introduction 751 

A.  The  Legal  System 

333.  The  Economic  Basis  of  Law.    Achille  Loria 753 

334.  Social  Rights  and  the  Legal  System.    Roscoe  Pound        .       .       -754 

335.  Law  and  Social  Statics.    Oliver  W.  Holmes 757 

336.  The  Social  Function  of  Law.    Homer  Hoyt        .       .       .       .       .  758 

B.  Private  Property 

337.  Progress  and  Property.    Paul  Elmer  More 762 

338.  Mine — Property  and  Rights.    David  M.  Parry         ....  764 

339.  My  Apology.    P.  Property 766 

340.  The  Constitutional  Position  of  Property  in  America.    Arthur  T. 
Hadley 769 


C.    Industrial  Liberty 

341.  The  Mediatory  Character  of  Freedom.    Thomas  Hill  Green   . 

342.  Contract  and  Personal  Responsibility.    Arthur  T.  Hadley 

343.  Labor  and  Freedom  of  Contract.     Chicago  Industrial  Exhibit 

344.  Static  Assumptions  of  Contractual  Freedom.     Roscoe  Pound 

345.  Contractual  Rights — ^Legal  and  Real.    Thorstein  Veblen  . 

D.    The  Courts  and  Labor 


775 
777 
779 
780 

783 


346.  Limitation  of  the  Working-Day 784 

o)  The  Supremacy  of  Freedom  of  Contract.    Illinois  Supreme  Court  784 

b)  Maternity  and  State  Regulation.    United  States  Supreme  Court  785 

c)  The  Supremacy  of  the  Police  Power.    United  States  Supreme 
Court 786 

347.  Reciprocal  Natvire  of  Employer's  and  Employee's  Rights.     United 
States  Circuit  Court 787 

348.  Unionism  and  the   Conditions  of  Employment.     United   States 
Supreme  Court 788 

349.  The  Legality  of  Unionizing  a  Shop.    Louis  D.  Brandeis  .       .       .  791 

350.  The  Legal  Issue  in  the  Minimum  Wage.    Thomas  Reed  Powell     .  793 

XV.    Social  Reform  and  Taxation 

Introduction "...  797 

A.    The  Theory  of  Public  Finance 

351.  Expenditures  and  Social  Organization.     Henry  Carter  Adams        .  798 

352.  The  Individualistic  Theory  of  Taxation.    William  Kennedy     .      .  800 


CONTENTS  xxix 


PAGE 


353.  Canons  of  Taxation.    Adam  Smith 802 

354.  The  Burden  of  Taxation.    S,  J.  Chapman 803 

B.    Nature  of  War  Finance 

355.  Conscription  of  Income.    O.  W.  W.  Sprague 804 

356.  Destruction  of  Capitol:    A  Business  View.    National  City  Bank 

of  New  York 805 

357.  The  War  Burden  upon  the  Common  Man.    Herbert  J.  Davenport    Sof 

358.  The  Evils  of  Inflation.    A.  C.  Miller 809 

C.    War  Taxes 

359.  The  Income  Tax.    Edwin  R.  A.  SeUgman 811 

360.  The  Excess-Profits  Tax.    Edwin  R.  A.  Seligman       .       .       .       .815 

361.  A  Tax  on  Luxuries.    United  States  Treasury  Department       .       .     819 

362.  The  New  Revenue  Act.    Thomas  Sewall  Adams       .       .       .       .821 

D.    Tendencies  in  Finance 

363.  Standardizing  Expenditure.    William  Leavitt  Stoddard   .       .       .     823 

364.  Spheres  of  Taxation.    Journal  of  Political  Economy  .       .       .       .825 

365.  Public  Capitalization  of  the  Inheritance  Tax.    Alvin  Johnson        .     827 


XVI.    Comprehensive  Schemes  of  Reform 
Introduction 831 

A.    The  Voice  of  Social  Protest 

366.  Privilege  and  Power 832 

c)  Woe  to  the  Idle  Rich.    Amos 832 

b)  The  Daughters  of  Zion.    Isaiah 832 

c)  Why  the  Lords?    John  BaU 833 

d)  Government  and  Inequality.    Sir  Thomas  More  .       .       .       .833 

e)  The  Possibilities  of  Production.    Richard  Jeffrey         .       .       .834 

f)  The  Beginning  of  It  All.    J.  J.  Rousseau 834 

367.  "Progress  and  Poverty" 834 

a)  In  the  Wake  of  Trade.    Oliver  Goldsmith 834 

b)  When  There  Was  a  Frontier.    J.  B.  McMaster    .       .       .       .835 

c)  Labor  and  Value.    Poorman^s  Guardian 836 

d)  The  Poor  in  Manchester.    Frederick  Engels         ....     836 
- e)  Packingtown  as  a  Residential  Section.    A.  M.  Sunons        .       .     837 

/)  Hallelujah  on  the  Bum.    Songs  of  the  Workers      ....     838 

368.  Expandmg  Wants  and  Social  Unrest.    A  Cape  Cod  Fisherman     .     838 


XXX  CONTENTS 

B.    The  Burden  of  the  War 

PAGE 

369.  Costs  in  Treasure  and  Men.    Fire  Companies  Building  Corporation  839 

370.  The  Economic  Costs.     J.  A.  Hobson 841 

371.  The  Ultimate  Burdens.    An  editorial 844 

C.    State  Socialism 

-  372.  The  Economic  Failure  of  Capitalism.    J.  Ramsay  Macdonald        .  847 

373.  The  Central  Aim  of  Socialism.    Thomas  Kirkup       ....  849 

374.  The  Transition  to  the  Socialist  State.     0.  D.  Skelton       .       .       .  851 

375.  Socialism  and  Inequality.    N.  G.  Pierson 852 

376.  SociaUsm  and  the  Factors  of  Production 855 

D.    Socialist  Arguments  for  the  Masses 

—377.  Capitalism — a.  Vampire  System.    George  E.  Littlefield  .       .  858 

378.  The  CapitaUst's  Ten  Commandments.    W.  Willis  Harris         .       .  859 

379.  A  Confession  of  Faith.    Progressive  Thought 860 

E.    Gild  Socialism 

380.  The  Tendency  in  Workshop  Control.    W.  Gallacher  and  J.  Paton  .  860 

381.  Labor  Policy  after  the  War.    G.  D.  H.  Cole 866 

F.    Some  Reconstruction  Programs 

382.  A  Business  Program.    United  States  Chamber  of  Commerce  .       .  870 

383.  A  Church  Program.    National  Catholic  War  Coimcil       .       .       .  874 

384.  A  Labor  Program.    British  Labor  Party 878 

XVn.   The  Control  of  Industrial  Development 

Introduction 890 

A.    Industry  an  Instrument 

385.  A  Functional  Society.    R.  H.  Tawney 892 

386.  The  Ethics  of  Industry.    James  H.  Tufts 894 

387.  Surplus  Wealth  for  the  Common  Good.    British  Labor  Party        .  897 

B.    Control  by  Magic — ^Panaceas 

388.  Stable  Money  and  the  Future.    George  H.  Shibley  ....  899 

389.  The  Way  Out.    John  Raymond  Cummings 899 

390.  Universal  Federation.    King  C.  Gillette 900 

391.  A  New  Earth.    L.  G.  Chiozza  Money 902 

C.    Control  by  Method 

392.  Control — ^Agitation  vs.  Method.    Wesley  C.  Mitchell       .       .       .  904 

393.  The  Socialization  of  Knowledge.    J.  Maurice  Clark  ....  908 


CONTENTS  XXXI 

D.    Checks  on  Development 

PAGE 

394.  Indiistrial  Freedom  and  Prosperity.    James  J.  Hill    .       .       .       .912 

395.  The  Futility  of  Utopian  Legislation.    Elihu  Root      .       .       .       .915 

396.  The  Price-System  and  Development.    Walton  H.  Hamilton   .       .917 

E.    Control  by  Education 

397.  Education  and  Control.    An  editorial 922 

398.  The  Function  of  Vocational  Training.     Edwin  F.  Gay      .  924 

399.  Education  and  Social  Theory.    A.  Glutton  Brock      ....     927 

400.  A  Primary  Culture  for  Democracy.     Charles  H.  Cooley  .       .  930 

401.  The  Function  of  the  College.    Alexander  Meiklejohn       .       .       -933 

F.    The  Future  of  Industrial  Society 

402.  Progress  and  Discontent.    Thomas  B.  Macaulay  -935 

403.  The  Banquet  of  Life.     WilUam  Graham  Sumner        ....     936 

404.  Wanted:  A  New  Symbolism.    Alvin  Johnson 939 


THE  PROBLEM  OF  CONTROL  IN  INDUSTRIAL 

SOCIETY 

The  perplexing  economic  questions  of  the  day,  as  we  shall  learn,  are  not 
simple  little  affairs  which  can  be  separated  from  the  "prevailing  system"  and 
analyzed  and  "solved"  in  isolation.  They  are  so  closely  related  that  a  change 
in  one  affects  many  others.  They  are  inseparable  parts  of  that  complex  of 
institutions,  traditions,  conventions,  and  activities  to  which  we  attach  the 
name  Modern  Industrialism,  and  they  are  intimately  associated  with  the  multi- 
farious legal,  political,  economic,  ethical,  and  social  aspects  of  this  larger 
system.  It  is,  therefore,  in  view  of  this  larger  whole  that  our  problems  are 
what  they  are. 

There  is  nothing  singular  in  our  possession  of  troublesome  problems. 
They  are  the  common  heritage  of  the  ages.  When  the  universe  was  con- 
trived enough  of  antagonism  was  left  in  it  to  keep  some  problems  constantly 
before  us.  The  sweep  of  change  constantly  adds  new  recruits  to  this  array. 
It  may  be  that  somehow  or  other  problems  get  "solved" ;  it  may  be  that  they 
merely  become  obsolescent  and,  like  old  machinery,  are  "scrapped";  it  may  be 
that  they  are  forced  to  surrender  their  places  to  newcomers ;  or  it  may  be  that 
they  tend  to  lose  their  identity  in  that  of  other  problems.  Perhaps  all  of  these 
things  happen ;  but,  however  that  may  be,  old  problems  tend  to  disappear. 
But,  strangely  or  naturally  enough,  as  you  may  choose  to  view  it,  we  never 
have  an  end  of  problems.  As  old  ones  depart,  new  ones,  without  awaiting 
welcome  come  forward.  Some  of  these  newcomers  are  old  problems  appear- 
ing in  new  forms;  for,  after  all,  there  is  much  that  is  fundamental  in  life  and 
institutions.  The  questions  of  efficiency,  of  poverty,  of  social  classes,  and  of 
work  and  reward  are  as  old  as  society.  But  some  problems  are  new;  and 
even  the  old  ones  are  for  us  quite  distinct  from  their  predecessors — distinct 
in  the  economic  status  of  the  individuals  affected,  distinct  in  the  scheme  of 
values  surrounding  them,  and  distinct  in  the  treatment  for  which  they  call. 

All  of  these  problems,  old  and  new  alike,  are  aspects  of  the  development 
of  society;  they  emerge  or  assume  new  forms  as  the  social  complex  de- 
velops. They  give  evidence  of  a  lack  of  compatibility  somewhere  between 
the  many  and  various  aspects  of  social  life — between  institution  and  institu- 
tion, between  activity  and  custom,  between  practice  and  ideal.  Their  con- 
scious— or  unconscious — solution  is  nothing  else  than  a  restoration  of  har- 
mony between  antagonistic  elements.  Since,  too,  growth  is  not  uniform,  their 
passing  leads  usually  to  the  rise  of  new  problems.  Their  "solution"  has  the 
further  effect  of  contributing  to  the  development  of  society;  the  process  is 
advanced. 

A  word  which  we  are  coming  to  use  repeatedly  in  discussing  these  prob- 
lems is  "control."  Once  upon  a  time  that  word  was  in  good  repute  and  people 
talked  quite  naturally  about  "obligations"  and  what  the  church,  the  state,  or 
another  social  institution  had  a  right  to  impose  upon  the  individual.  Then 
there  came  a  period  when  we  were  quite  conscious  of  our  rights  as  individuals ; 
when  this  word  lost  its  vogue.  Then  it  came  about  that  we  professed  an 
adherence  to  laissez-faire,  the  principle  of  individualism,  a  belief  in  natural 
rights,  or  some  form  of  doctrine  to  the  effect  that  individuals  should  be  free 
and  social  arrangements  should  be  left  alone. 

In  the  latter  half  of  the  nineteenth  century  the  spirit  of  individualism  and 
the  theory  of  laissez-faire  were  dominant.    But  increasingly  we  came  to  the 


2  CURRENT  ECONOMIC  PROBLEMS 

double  realization  that  we  were  not  letting  all  institutions  alone,  but  only  cer- 
tain ones  that  some  of  us  thought  ought  to  be  left  alone  and  that,  if  we  col- 
lectively were  not  controlling  institutions  some  among  us  were.  This,  with 
a  growing,  conception  that  laissez-faire  has  not  imparted  the  most  orderly 
direction  to  social  development,  caused  us  little  by  little  to  bring  back  into  our 
vocabularies  words  like  "direction,"  "authority,"  and  "guidance,"  and  to  bring 
again  a  measure  of  conscious  control  into  the  scheme  of  arrangements  which 
make  up  the  world  in  which  we  live  our  daily  lives.  It  led,  too,  to  the  elab- 
oration of  a  theory  of  the  control  of  economic  life  and  social  development. 
But  this  newer  stage,  like  others  which  have  preceded  it,  has  raised  its 
problems.  What  is  control  ?  What  are  the  agencies  through  which  it  is  exer- 
cised? Why,  after  all,  do  we  need  it?  It  leads,  too,  to  the  most  fundamental 
of  all  economic  problems,  because  it  is  not  an  economic  problem  at  all — of 
what  are  our  ends?  What  are  our  aims?  What  is  the  industrial  system  for, 
any  way?  What  can  we  do  with  it?  And  what  is  it  doing  with  us?  The 
answer  to  this  larger  question  conditions  our  answers  to  smaller  questions 
which  are  more  properly  economic.  We  need  to  recognize  at  the  beginning  of 
our  study  that  the  world  is  not  all  industrial  and  that  all  study  is  not  in  eco- 
nomics. But  these  questions  are  not  enough  for  the  moment.  They  are  with 
us ;  or  rather  we  will  never  get  away  from  them.  But  just  now  we  need  to  get 
on  with  our  study. 


A.     MODERN   INDUSTRIAL  SOCIETY 

1.     The  Essential  Characteristics  of  Modern  Industrialism^ 

An  understanding  of  the  nature  of  modern  industrialism  is  essen- 
tial to  an  intelligent  grasp  of  its  problems  and  a  rational  attempt  at 
their  solution.  Such  an  understanding  comes  most  easily  from  a 
study  of  the  process  by  which  modern  industrial  culture  has  come 
to  be  what  it  is.  Like  all  historical  work  of  value,  such  a  study  must 
have  a  definite  goal  before  it.  It  must  aim  to  reveal  those  institu- 
tions, those  intellectual  and  emotional  forces,  which  have  given  char- 
acter to  the  prevailing  system,  which  are  responsible  for  its  problems 
and  which  condition  their  solution.  For  that  reason  it  is  best  to  begin 
the  historical  account  of  modern  culture  with  a  brief  statement  of  its 
essential  characteristics. 

Modern  industrialism  is  a  peculiar  culture ;  it  is  a  thing  apart. 
Nothing  like  it  has  previously  existed.  The  Chinese  system  of  the 
Far  East,  clinging  tenaciously  to  the  past,  has  developed  a  system 
Vvhich  is  a  sprawling,  conglomerate  fact.  The  nearer  Orient,  India, 
for  instance,  has  repressed  self-assertion,  has  subordinated  the  ma- 
terial side  of  social  life,  and  has  produced,  as  if  from  a  mold,  a  rigidly 
hard  social  system.  Even  the  European  states  of  the  ancient  world 
failed  to  organize  themselves  as  industrial  and  social  wholes.  For 
example,  the  Greeks  showed  nowhere  their  inability  at  organization 
more  clearly  than  in  failing  to  associate  the  individual's  gain  from 
his  labor  with  a  service  to  a  larger  group.     The  unity  achieved  by 

^An  editorial  (1914). 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  3 

Rome  was  a  mechanical,  not  an  organic,  unity.  Both  alike  despised 
manual  labor,  and,  for  that  reason,  failed  to  lay  an  adequate  founda- 
tion for  a  permanent  industrial  system.  How  distinct  is  modern 
industrialism  is  revealed  by  a  brief  citation  of  some  of  its  peculiar 
aspects.  The  list  mentioned  below  is  not  intended  to  be  all  compre- 
hensive and  the  characteristics  mutually  exclusive.  It  is  merely  a 
statement  of  some  of  the  characteristics  of  our  system  which  the 
student  of  current  economic  problems  should  keep  clearly  in  mind. 

First,  America  and  Western  Europe,  Christendom,  in  fact,  con- 
stitutes a  single  industrial  society.  Differences  in  race,  language, 
government,  and  religious  creed  are  almost  negligible  in  comparison 
with  what  the  Western  World  has  in  common.  Even  where  these 
differences  exist,  the  basic  elements  of  these  institutions  are  much 
the  same.  As  ideal  or  actuality  universality  has  long  been  a  char- 
acteristic of  the  system.  The  Roman  Empire  was  universal.  When 
the  earthly  society  disintegrated,  it  remained  in  idea  as  a  universal, 
heavenly  kingdom.  The  Catholic  church,  patterned  after  this  heav- 
enly society,  kept  the  ideal  alive  when  more  substantial  unity  was 
impossible.  Toward  the  realization  of  universality  society  tended  to 
be  organized  in  the  Catholic  church.  At  last,  when  the  spell  of 
Catholicism  was  broken,  political,  social,  and  particularly  industrial 
and  commercial  institutions  had  tied  the  Western  World  together 
into  a  single  industrial  culture. 

Second,  Western  Civilization  is  an  extremely  fluid  culture.  Few 
legal  and  authoritative  restrictions  are  placed  upon  one's  right  to 
choose  his  own  occupation.  There  are  no  hard  and  fast  class  lines. 
In  the  thought  of  the  people  there  are  practically  none.  Freedom 
of  movement  from  place  to  place  is  allowed.  In  all  of  life's  relations 
there  is  such  fluidity  that  the  adaptation  of  population,  natural  re- 
sources, and  acquired  capital  to  each  other  and  to  changed  conditions 
is  not  only  rapid  but  is  constantly  in  process.  Briefly,  Christian  teach- 
ing, the  presence  of  the  opportunities  afforded  by  the  American  con- 
tinent, and  the  industrial  revolution,  have  all  emphasized  this 
characteristic. 

Third,  ours  is  a  humanistic  and  a  material  culture.  A  contempt 
for  human  life  and  the  material  means  to  well-being,  a  denial  "of  the 
world,  the  flesh,  and  the  devil,"  a  desire  to  escape  from  "the  vain 
pomp  and  glory  of  the  world,"  has  never  been  an  essential  part  of 
the  attitude  of  Western  peoples  toward  life.  Even  monasticism 
came  to  be  based  upon  the  theory  that  life  in  this  world  is  worth  while. 
This  institution  became  a  means  through  which  otherworld  obliga- 
tions, placed  upon  man  by  the  peculiar  conditions  accompanying  the 
disintegration  of  Roman  society,  could  be  vicariously  satisfied  by  a 
small  part  of  society,  and  the  greater  part  could  be  released  to  live 


4  CURRENT  ECONOMIC  PROBLEMS 

the  better  life  of  the  world.  Men  who  fervently  sing  "For  such  a 
worm  as  I"  and  "This  world's  wilderness  of  woe,  this  world  is  not 
my  home"  do  not  discover  new  continents,  invent  printing  and  the 
steam  engine,  and  erect  world-wide  industrial  systems.  UnHke 
Greeks  and  Romans  with  us  the  idea  of  the  worthwhileness  of  life 
has  carried  with  it  the  idea  of  the  dignity  of  manual  toil,  which  has 
furnished  an  adequate  foundation  upon  which  to  build  an  industrial 
culture. 

Fourth,  our  culture  is  in  a  very  high  degree  a  pecuniary  culture. 
More  than  by  any  one  thing  our  economic  conduct  is  actuated  by 
the  desire  for  pecuniary  profit.  We  go  into  those  occupations  prom- 
ising the  highest  pecuniary  returns.  Our  capital  breaks  over  national 
barriers  when  the  rate  of  interest  abroad  mounts  higher.  Even  back 
in  the  Middle  Ages,  penance,  a  sacrament  of  the  church,  was  put  on 
a  pecuniary  basis.  Escape  from  the  consequences  of  certain  actions 
was  allowed  to  those  who  had  accumulated  wealth.  Thus  the  accumu- 
lation of  wealth  and  the  stratification  of  society  upon  a  pecuniary 
basis  was  encouraged.  Today  in  the  court,  in  the  church,  in  the 
press,  in  social  circles,  the  man  of  wealth  is  treated  with  greater  con- 
sideration because  of  his  wealth.  The  three  characteristics  mentioned 
above,  fluidity,  humanism,  and  the  dominance  of  the  pecuniary  motive 
have  made  our  culture  a  highly  industrial  culture,  for  it  is  in  industry 
that  these  motives  find  their  fullest  expression. 

Fifth,  our  culture  places  the  value  of  human  actions  and  institu- 
tions in  some  end  or  institution  over  and  beyond  themselves.  The 
justification  of  individual  activity  is  not  to  be  found  in  personal  good. 
The  actions  of  individuals  are  found  worthy  of  praise  only  because 
of  a  larger  and  a  greater  "society,"  toward  which  they  are  as  means 
to  an  end.  Laissez-faire  is  defended  not  as  a  means  to  self-aggrandize- 
ment, but  as  a  theory  of  social  welfare.  "Big  business"  talks  in  terms 
of  "pay  envelopes,"  "full  dinner  pails,"  and  "general  prosperity." 
But  the  end  from  which  the  value  comes  is  even  less  immediate  than 
present  society.  The  justification  of  the  present  is  in  the  future. 
Back  in  the  Middle  Ages  one's  conduct  was  regulated  by  one's  desire 
for  his  "soul's  salvation."  As  men  little  by  little  ceased  to  have  souls,, 
and  "life's  fulness"  came  more  and  more  to  be  recognized  as  life's 
end,  the  emphasis  formerly  attached  to  the  other  world  associated 
itself  with  an  ideal  society  which  was  striving  for  realization  in  the 
church.  Even  today,  obscured  as  it  may  seem,  an  ideal  future  society 
is  the  potent  force  in  evaluating  conduct,  individual  and  social.  How 
potent  is  this  idea  of  the  future  a  few  statements  will  show.  We  use 
"roundabout"  processes  of  production.  In  legislation  we  seek  to  con- 
serve the  interests  of  capital,  future  goods,  rather  than  give  our 
attention  to  conserving  immediate  income.     We  speak  in  terms  of 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  5 

progress  and  evolution.  We  condemn,  as  never  before,  industry  and 
politics  because  of  its  "shortsightedness."  We  give  serious  consid- 
eration to  such  a  radical  program  of  industrial  reform  as  socialism. 
The  value  of  the  present  thing  is  in  large  part  a  value  derived  from 
a  future  ideal.  Thus  a  spirit  of  idealism,  seeing  a  realization  of  its 
purposes  in  a  less  immediate  society,  is  a  very  vital  factor  in  determin- 
ing the  course  of  industrial  development. 

These  several  characteristics,  material  and  emotional  as  all  of 
them  are,  are  vital  because  they  underlie  our  culture,  condition  our 
growth,  and  must  be  clearly^  recognized  in  any  program  of  political, 
social,  and  industrial  reform. 


2.  The  Current  Stage  in  Social  Development- 
It  is  in  the  economic  world  of  here  and  now  that  we  are  interested. 
Amid  its  complex  of  activities,  institutions,  conventions,  ideals,  stand- 
ards, and  modes  of  thought  we  order  our  lives.  Its  multifarious  and 
baffling  problems  are  our  problems — ours  to  "muddle"  or  to  "solve." 
How  we  handle  them  will  determine  quite  largely  what  the  economic 
world  of  tomorrow  is  to  be  like.  For  these  problems  are  aspects  of 
our  industrial  system ;  they  are  incidents  in  the  development  of  our 
economic  society.  They  emerge,  or  assume  new  forms,  as  the  larger 
whole  develops.  With  its  onward  sweep  severally  they  pass  into 
oblivion,  lose  themselves  in  new  problems,  assume  unfamiliar  forms, 
or  otherwise  manage  to  get  "solved."  They  are  not  distinct  things ; 
they  cannot  be  detached  from  the  larger  scheme  of  affairs  to  which 
they  belong.  They  cannot  be  disposed  of  in  isolation,  as  if  the 
universe  were  one  thing  and  each  of  them  another.  They  are 
intimately  associated  with  each  other,  with  the  economic  system  to 
which  they  belong,  and  with  the  larger  world,  which  includes  the 
legal,  political,  ethical,  social,  and  all  other  aspects  of  life,  economic 
and  non-economic.  To  understand  them  aright  we  must  know  some- 
thing of  this  larger  whole  in  its  current  manifestations. 

In  its  rapid  development  our  society  is  approaching  the  end  of 
what,  in  no  invidious  sense,  we  may  call  the  exploitative  period.  Our 
development  in  the  nineteenth  century  was  dominated  by  our  stores 
of  natural  wealth  and  by  the  use  of  an  expanding  and  developing 
machine  technique.  The  century  witnessed  the  conquest  of  a  con- 
tinent, seemingly  possessed  of  never-failing  resources.  The  gifts  of 
forest,  waterfall,  stream,  soil,  and  mine,  by  the  magic  touch  of  mod- 
ern technique,  were  transformed  into  a  golden  stream  of  wealth. 
The  expanding  system  absorbed  larger  and  larger  volumes  of  capital 

2An  editorial  (191S,  1919). 


6  CURRENT  ECONOMIC  PROBLEMS 

and  increment  after  increment  of  alien  labor.    Its  object  and  end  was 
prosperity. 

This  process  of  getting  rich  absorbed  quite  largely  our  attention 
and  our  energy.  Our  thought  was  for  virgin  fields  for  machine 
effort.  Our  impatience  was  at  the  slowness  of  our  very  rapid  indus- 
trial development.  Our  powers  of  control,  so  far  as  they  were  con- 
sciously used,  were  aimed  at  speeding  up.  We  made  no  inquisitive 
search  into  our  legal  arrangements,  our  fundamental  institutions,  or 
our  ethical  standards.  We  did  not  perceive  that  development  in  one 
aspect  of  life  leaves  incompatibilities  that  need  attention.  It  did  not 
readily  occur  to  us  that  improvement  should  occur  elsewhere  than  in 
the  technique  of  production,  the  growth  of  business  organization,  and 
the  expansion  of  the  pecuniary  system.  In  short,  we  neither  tried 
to  discover,  nor  succeeded  in  discovering,  society.  We  had  problems, 
of  course — many  more  than  we  had  need  for.  But  they  were  con- 
cerned with  removing  the  barriers  that  opposed  the  establishment  of  a 
pecuniary  system  on  a  nation-wide  plan. 

This  neglect  of  the  non-industrial  side  of  life  expressed  itself 
most  conspicuously  in  a  formidable  and  overgrown  individualism. 
Since  we  were  growing  wealthy,  all  was  well  We  rarely  thought 
of  attributing  responsibility  for  what  we  did  not  like  to  society,  insti- 
tutions, conditions,  or  environment.  Quite  as  rarely  did  we  attribute 
prosperity  to  the  abundance  of  our  natural  resources.  We  firmly 
believed  that  each  individual  "was  master  of  his  fate" ;  that  "oppor- 
tunity knocks  once  at  every  gate" ;  that  "there  is  plenty  of  room  at 
the  top";  and  that  successful  men  are  "self-made." 

This  habit  of  thought  worked  its  way  into  the  whole  range  of  our 
institutions.  A  fundamental  assumption  of  individualism  was  that 
all  men  were  equal.  A  resulting  principle  of  action  was  that  the 
state  should  give  "equal  rights  to  all,  and  special  privileges  to  none." 
Equality  suggested  the  attainment  of  political  wisdom  by  calculation. 
Accordingly  the  object  of  legislation  was  "the  greatest  good  to  the 
greatest  number."  Since  each  person  possessed  one,  and  only  one, 
vote,  it  was  evident  that  our  government  was  a  democracy.  In  ethics 
our  conduct  was  measured  by  individualistic  standards.  In  education, " 
by  setting  up  the  system  of  free  electives,  we  made  the  individual 
student  the  best  judge  of  the  training  that  was  good  for  him.  In 
economics  our  attention  was  given  very  largely  to  the  market ;  the 
distribution  of  wealth  and  proposals  of  social  reform  were  alike 
treated  as  if  they  were  mere  questions  of  value  theory ;  and  we 
elaborated  and  generally  accepted  the  doctrine  that  one  "gets  what 
he  produces."  Even  our  religious  systems  were  characterized  by  an 
intense  and  dogmatic  individualism. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  7 

It  was,  perhaps,  inevitable  that  we  should  not  escape  looking  at 
things  too  narrowly.  We  manifested  a  contempt  for  philosophy  and 
general  theory.  We  encouraged  specialization,  but  overlooked  the 
broad  and  general  training  which  should  underlie  it.  We  investigated 
particular  subjects  without  knowing  the  general  fields  to  which  they 
belonged.  We  attempted  to  resolve  phenomena  into  general  schemes 
without  understanding  the  laws  which  govern  the  phenomena.  We 
formulated,  analyzed,  and  attempted  to  solve  our  problems  as  if  they 
were  so  many  distinct  entities.  We  saw  the  whole  only  as  an  aggre- 
gation of  parts,  and  society  only  as  a  collection  of  individuals. 

Closely  associated  was  a  notion  of  social  change  in  mechanical 
terms.  When  we  became  impatient  with  this  or  that,  we  demanded 
an  immediate  remedy.  We  turned  to  the  state  as  the  obvious  agent, 
one  which  we  professed  to  distrust,  and  demanded  legislation.  If 
our  attention  was  not  distracted  by  some  new  "abuse,"  we  usually 
turned  out  the  party  in  power  if  immediate  results  were  not  forth- 
coming. Even  our  reformers  usually  gave  us  panaceas  for  all  social 
ills,  or  demanded  a  reconstruction  of  the  whole  scheme  of  life. 

Many  of  our  highest  social  values  are  associated  with  individual- 
ism. Its  note  must  be  retained  to  keep  the  system  from  being  resolved 
into  an  orderly,  mechanical,  prosaic,  and  dull  scheme  of  things.  With- 
out it,  it  is  hard  to  see  how  society  can  most  fully  utilize  its  capacity 
for  development.  In  the  America  of  the  nineteenth  century  it  helped 
to  solve  the  problems  of  a  young  society  as  perhaps  nothing  else 
could  have  done.  The  individual  pluck,  energy,  and  initiative  which 
it  called  forth  were  just  the  qualities  necessary  to  the  gigantic  and 
crude  stage  of  development  through  which  the  country  was  passing. 
It  remains  in  the  present,  however,  in  a  very  dominant  form,  thor- 
oughly ingrained  in  our  institutions  and  in  the  social  philosophy  of 
classes  which  occupy  quite  important  positions  in  society. 

But  for  some  time  \ve  have  been  conscious  that  we  are  approach- 
ing the  end  of  this  exploitative  period.  We  have  by  no  means  reached 
the  end  of  our  resources ;  but  we  have  come  to  see  that  they  are  no 
longer  boundless.  It  is  evident  that  there  is  real  danger  of  wasting 
our  patrimony.  Opportunities  for  sudden  wealth  are  no  longer 
plentiful.  We  have  awakened  to  the  necessity  of  economy,  of  giving 
long  and  careful  thought  to  our  social  arrangements.  We  are  begin- 
ning to  find  out,  too,  that  our  prosperity  has  entailed  its  costs.  We 
gave  conscious  thought  to  securing  a  well-developed  machine-system, 
a  large  population,  and  a  large  measure  of  individual  liberty,  believing 
that  these  would  bless  us  with  wealth.  We  succeeded  in  securing 
these  things.  But  we  neglected  to  take  thought  for  the  cultural 
incidence  of  the  industrial  system.    As  a  result  we  have  acquired  a 


8  CURRENT  ECONOMIC  PROBLEMS 

number  of  things  for  which  we  did  not  ask,  that  may  well  be  con- 
sidered the  costs  of  our  material  progress.  Our  urban  life  has  its 
full  complement  of  slums,  overcrowding,  vice  and  poverty.  There  is 
clearly  evident  a  tendency  toward  a  stratification  of  society  on  a 
pecuniary  basis,  with  a  funded-income  class  at  the  top  and  a  prole- 
tariat of  alien  blood  at  the  bottom.  There  is  growing  a  spirit  of 
protest  based  upon  a  philosophy  quite  foreign  to  that  which  underlies 
our  cherished  institutions.  Our  vast  pecuniary  system  is  making  the 
lot  of  labor,  and  capital,  too,  for  that  matter,  extremely  insecure. 
Moreover,  we  are  beginning  to  see  that  our  prosperity  is  imposing 
its  costs  upon  the  next  generation,  in  conditions  and  institutions  which 
we  did  not  will,  in  problems  which  we  helped  to  raise  but  cannot  solve, 
and  in  depleted  resources  with  which  to  work  out  its  social  salvation. 

As  we  realize  these  things,  there  grows  up  among  us  a  reaction 
against  the  extreme  individualism  of  the  nineteenth  century.  We 
are  imposing  limitations  upon  what  we  conceive  individual  initiative 
and  energy  to  be  capable  of  accomplishing;  we  doubt  if  the  ladder 
which  leads  to  the  top  has  its  full  number  of  rungs ;  all  successful 
men  are  no  longer  "self-made."  We  occasionally  even  make  excuses 
for  the  man  who  fails.  We  have  discovered  "environment,"  and 
speak  quite  frequently  of  "exceptional  opportunities,"  "social  con- 
ditions." and  the  "favor  of  fortune."  We  are  beginning  to  associate 
those  things  which  we  do  not  like  with  an  "overdeveloped  individual- 
ism," and  to  see  "grave  dangers"  in  unrestricted  liberty. 

This  change  is  manifesting  itself  in  a  changed  attitude  toward 
our  institutions.  Quite  frequently  we  use  the  word  "privilege"  in 
connection  with  the  activities  of  government.  Seemingly  forgetful 
of  our  former  boasts,  we  are  today  demanding  reforms  which  will 
make  our  government  "democratic."  We  are  not  distrustful  of  the 
fundamental  soundness  of  our  legal  institutions,  such  as  property, 
contract,  equality  before  the  law,  etc.,  but  we  are  beginning  to  sus- 
pect that  they  bear  too  many  signs  of  having  been  forged  to  meet 
the  needs  of  frontier  and  craft  societies ;  that  they  are  more  con- 
sonant with  the  plow  and  the  spinning-wheel  than  with  the  power- 
loom  and  the  locomotive.  We  are  qualifying  ethical  standards  which 
we  regard  as  valid  with  the  adjective  social.  In  education  the  elective 
system  is  giving  way  to  a  flexible  curriculum  adapted  to  the  newer 
society.  A  spirit  of  group  and  class  welfare  is  expressing  itself  in 
such  voluntary  associations  as  the  trade  and  craft  unions,  and  is 
beginning  to  permeate  legislation.  We  are  beginning  to  trust  the 
state,  and  are  no  longer  affrighted  by  the  cry  of  paternalism.  In 
economics  we  use  the  term  "social  value" ;  we  have  begun  to  insist 
that  economic  theory  is  not  confined  to  value  theory ;  and  we  are 
more  clearly  recognizing  that  distribution  of  wealth  and  projects  of 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  9 

social  reform  are  concerned  with  institutional  arrangements.  Our 
religious  systems  are  more  and  more  emphasizing  the  note  of  "social 
service." 

With  the  reaction  from  individualism  has  come  a  protest  against 
our  habit  of  considering  the  particular  apart  from  the  general.  We 
are  beginning  to  learn  that  things  in  general  matter;  and  that  the 
reality  of  our  problems  lies  in  their  connection  with  social  life  in 
its  varied  and  multifarious  aspects.  We  are  realizing  that  specializa- 
tion, to  be  anything  more  than  clerical,  must  have  a  broad  basis.  We 
are  coming  to  see  that  the  whole  is  something  quite  different  from 
the  sum  of  its  parts;  that  society  is  not  a  mere  aggregation  of  indi- 
viduals. 

Quite  naturally  enough  the  impatience  that  comes  from  the  newer 
view  of  things  has  enough  of  the  older  thought  in  it  to  place  great 
reliance  in  mechanics.  It  wants  results  and  wants  them  now.  In- 
stinctively it  turns  to  the  state  and  demands  legislation.  But,  in  spite 
of  that,  we  are  surely,  if  slowly,  learning  that  there  are  decided 
limitations  upon  what  can  be  accomplished  by  tinkering.  We  know 
that  laws  must  be  passed,  and  that  there  are  many  things  which 
immediately  they  can  be  made  to  do.  But  we  are  beginning  to  under- 
stand that  in  many  cases  they  produce  their  results,  not  from  theit 
direct  enforcement,  but  from  a  series  of  reactions  which  they  star*^, 
and  these  results  can  only  gradually  appear.  We  are  learning,  too, 
that  there  are  other  and  more  delicate  instruments  of  control,  such 
as  the  educational  system,  codes  of  professional  ethics,  occupational 
associations,  and  even  conventions  and  traditions,  that  we  may  use 
in  the  furtherance  of  our  schemes,  and  that  these  delicate  instru- 
ments will  reach  many  things  too  subtle  and  too  minute  to  be  touched 
by  the  bolder  and  cruder  machinery  of  the  state. 

In  view  of  this  it  is  not  surprising  that  we  are  at  last  learning 
that  we  do  not  have  to  be  forever  in  a  hurry.  We  must  pay  for 
what  we  gti.  Perfect  societies  are  not  El  Dorados  or  Klondikes  to 
be  stumbled  upon.  A  Utopia,  even  if  it  can  be  realized,  cannot  be 
juggled  out  of  a  hat  by  a  social  magician.  We  must  through  devel- 
opment gradually  assume  the  social  form  we  desire.  Only  knowledge 
is  obtained ;  wisdom  is  attained.  Even  our  socialists,  who,  only 
yesterday,  were  promising  us  "a  new  heaven  and  a  new  earth,"  have 
learned  that  there  is  a  tomorrow. 

And  withal,  in  our  radicalism,  if  you  choose  to  call  it  such,  we 
are  becoming  more  conservative.  If  we  have  begun  to  ask  imperti- 
nent questions  about  classes,  property,  and  social  arrangements  gen- 
erally, it  is  not  because  we  are  condemning,  but  only  because  we  are 
socially  inquisitive.  We  would  prove  all  things  in  order  that  we  may 
hold  fast  to  that  which  is  good,    Yet  more  ciearly  than  ever  before 


lo  CURRENT  ECONOMIC  PROBLEMS 

we  realize  the  vastness,  complexity,  and  even  the  mysteriousness  of 
our  social  system.  We  know  that  we  understand  how  various  insti- 
tutions and  agents  work  very  imperfectly.  We  know  that  many  that 
seem  to  us  to  be  without  responsibility  are  intimately  associated  with 
some  very  important  functions.  We  are  not  quite  sure  that  we 
could  create  agencies  which  would  perform  the  same  functions  more 
efficiently  or  with  less  cost.  These  things  incline  us  to  caution,  to 
take  easy  steps,  to  examine  results  carefully  before  proceeding,  and 
to  use  very  flexible  programs.  But,  if  our  knowledge  is  small,  and 
if  the  difficulties  are  great,  the  call  is  for  a  greater  determination,  a 
more  farsighted  vision,  a  more  careful,  comprehensive,  and  patient 
study,  and  greater  deliberation  about  ways  and  means. 

In  view  of  this  particular  crisis  in  our  development  we  must 
consider  our  problems.  We  must  recognize  the  part  which  the  older 
society,  the  older  institutional  system,  and  the  older  individualistic 
thought  have  played  and  are  still  playing.  We  must  as  clearly  recog- 
nize the  newer  tendencies,  both  in  the  institutional  system  and  in  the 
newer  attitudes  toward  our  economic  arrangements.  Many  of  these 
problems  we  shall  find  to  be  old.  When  the  universe  was  contrived 
many  antagonisms  were  left.  The  enigmas  of  rich  and  poor,  of  waste 
and  poverty,  of  privilege  and  oppression,  have  been  presented  to  us 
by  the  many  ages  which  they  have  baffled.  As  likely  as  not  we  shall 
leave  them  as  part  of  our  heritage  to  succeeding  generations.  Some 
of  them  appeared  with  the  machine-system,  and  have  become  more 
and  more  conspicuous  as  the  newer  technique  conquered  the  con- 
tinent. Of  these  are  the  problems  connected  with  huge  aggregates 
of  wealth,  such  as  railroads  and  capitalistic  monopolies.  Some  come 
from  incompatibilities  between  advancing  and  stationary  aspects  of 
social  development.  The  legal  problem  involved  in  employer's  lia- 
bility is  typical  of  this  class.  Some  are  manifestations  of  a  later  stage 
of  the  machine  culture.  Of  this  kind  are  the  problems  of  the  rela- 
tionship of  wealth  to  welfare  in  a  society  organized  upon  a  pecuniary 
basis.  Some  have  to  do  with  the  ends  which  industry  should  be  made 
to  serve.  The  problem  of  reorganizing  industry  to  serve  the  needs 
of  war  and  of  converting  it  back  to  the  uses  of  peace  is  a  bundle  of. 
enigmas  of  this  kind.  Of  some  of  these  problems  we  have  long  been 
conscious.  The  events  of  the  decade  before  the  war  brought  others 
before  us.  The  many  problems  raised  by  the  war  and  the  many 
changes  following  in  its  wake  forced  us  to  look  less  superficially  at 
our  industrial  arrangements  and  revealed  many  things  there  which 
we  had  only  remotely  suspected.  Who  knows  but  there  are  many 
others  which  are  with  us,  but  which  we  cannot  see  because  of  intel- 
lectual blindness?  But,  old  or  new,  familiar  or  unfamiliar,  evident  or 
invisible,  all  of  these  problems  are  part  and  parcel  of  modern  indus- 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  li 

trialism.  They  are  all  involved  in  the  gigantic  pecuniary  system 
which  knits  together  our  social  life.  The  oldest  of  them  is  with  us  a 
problem  very  different  in  form  from  its  earlier  prototype  which  con- 
fronted our  ancestors.  They  are  all  aspects  of  the  larger  question, 
Can  our  society  determine  the  direction  of  its  own  development  ? 

To  find  an  answer  to  such  a  question  would  involve  a  quest  into 
all  of  life.  Here  we  must  modestly  limit  ourselves  to  a  general 
survey  of  the  current  aspects  of  modern  industrialism.  Our  pro- 
cedure makes  it  imperative,  first  of  all,  clearly  to  realize  that  our 
system  is  developing  and  that  in  this  development  the  various  aspects 
of  social  life  mutually  influence  each  other.  To  that  end  it  is  well, 
first  of  all,  to  ask  ourselves  whether,  or  in  what  sense,  we  can  control 
the  development  of  industrial  society.  To  be  sure  such  an  inquiry  is 
a  rather  abstract  one  for  the  beginning  of  our  study.  But  it  has  two 
distinct  advantages.  In  the  first  place  it  gives  us  a  large  problem 
which  can  gradually  be  translated  into  more  specific  questions  and 
general  concepts  which  can  little  by  little  be  given  a  content  in  the 
pages  that  follow.  Second,  it  makes  us  conscious  of  the  social  im- 
portance of  our  task  and  prevents  our  losing  sight  of  what  we  are 
about  in  a  study  of  its  details.  After  we  have  considered  the  prob- 
lem of  the  control  of  industrial  society,  by  inquiring  into  the  "forces" 
causing  development,  the  means  of  control  we  possess,  and  the  theory 
of  control  that  we  are  to  make  use  of,  we  shall  turn  to  a  short  his- 
torical account  of  how  industrial  society  came  to  be  what  it  is.  This 
should  serve  the  double  purpose  of  illustrating  the  problem  of  control 
in  a  developing  society  and  of  revealing  something  of  the  nature  of 
the  industrial  society  with  which  we  have  to  deal.  The  emphasis  in 
this  historical  sketch  falls  appropriately  upon  "the  antecedents  of 
modern  industrialism"  and  upon  the  series  of  changes  which  have 
given  society  its  current  structure  and  which  we  call  "the  industrial 
revolution."  The  partial  control  which  we  are  to  exercise  over  de- 
velopment is  to  come  from  our  handling  of  particular  problems. 
Accordingly  we  must  next  consider  a  number  of  somewhat  different 
problems,  always  with  a  clear  idea  of  their  relations  to  each  other 
and  to  the  developing  whole.  The  few  which  will  be  treated  are 
typical  of  the  many  which  confront  us.  These  fall  into  two  some- 
what distinct  groups,  the  first  centering  about  the  problem  of 
the  organization  of  industrial  society,  the  second  concerning  them- 
selves with  human  values  and  the  welfare  of  the  various  groups 
which  make  up  society  as  affected  by  the  structure  of  modern  in- 
dustry. 

The  primary  question  in  the  first  group  is  that  of  the  mechanical 
perfection  with  which  price  organizes  society.  The  problem  is  com- 
plicated by  the  rhythm  of  the  business  cycle.    Associated  with  it  is 


12  CURRENT  ECONOMIC  PROBLEMS 

the  more  difficult  question  of  whether  such  an  organization,  quite 
apart  from  its  mechanical  perfection,  can  be  made  to  serve  the  ends 
we  would  have  it  serve.  This  involves,  among  other  things,  a  con- 
sideration of  the  extent  to  which,  and  the  means  by  which,  it  can  be 
adapted  to  an  end  outside  itself,  as,  for  instance,  effective  service  in 
warfare.  An  aspect  of  this  larger  problem  of  organization  is  the 
question  of  the  extent  to  which  the  economic  entity  should  be  made 
to  correspond  to  the  political  entity ;  this  appears  most  clearly  in  the 
issues  which  center  in  the  tariff.  Internal  problems  of  organization, 
of  tremendous  social  consequence,  particularly  in  the  tendencies  im- 
plicit in  their  gradual  solution,  are  found  in  the  regulation  of  rail- 
roads and  capitaHstic  monopolies. 

Of  the  second  group  of  problems,  perhaps  the  most  compre- 
hensive is  that  of  the  control  of  population,  quantitatively  and  quali- 
tatively, through  immigration  and  through  births.  Its  proper  solution 
should  do  much  to  lessen  the  intensity  of  the  other  social  problems. 
A  second,  somewhat  less  bafffing,  but  still  extremely  difficult,  is  that 
of  eliminating  economic  insecurity  from  the  lot  of  the  wageworker. 
A  third,  perhaps  most  evident  in  the  program  of  trade  unionism,  is 
concerned  with  the  rise  of  group-  and  class-consciousness,  the  spirit 
of  group  solidarity  implicit  in  so  much  of  the  recent  social  legisla- 
tion, and  the  clash  between  the  institutional  systems  of  individualism 
and  of  collectivism.  These  questions,  clearly  explicit  before  the 
war,  have  been  restated  in  such  ways  that  they  cannot  be  escaped. 
The  position  of  the  hand  worker  in  the  industrial  order  and  the 
nature  and  extent  of  the  control  which  shall  be  accorded  the  laborer 
over  industry  and  industrial  processes  are  matters  that  press  for 
intelligent  solution.  A  great  part  of  the  change  which  is  impending 
will  doubtless  be  accomplished  by  the  voluntary  consent  of  the  par- 
ties affected,  or,  at  least,  through  other  agencies  of  control  than  the 
government.  But,  despite  the  fact  that  for  the  moment  the  prestige  of 
the  state  as  an  instrument  of  direction  is  eclipsed,  and  industrial  mat- 
ters can  never  be  adequately  dealt  with  by  a  highly  centralized 
authority,  some  increase  in  state  activity  in  behalf  of  the  individual 
seems  inevitable.  This  makes  imperative  the  problem  of  elaborating 
the  new  fiscal  policy  entered  upon  in  the  last  few  years  whose  object 
has  been  the  finding  of  new  sources  of  revenue.  Finally,  whether 
ominous  or  prophetic,  we  need  to  note  a  rising  spirit  of  protest  which 
demands  a  radical  reconstruction  of  our  whole  scheme  of  social  life 
and  values. 

Such  a  quest  promises  no  guaranteed  solutions  of  perplexing  prob- 
lems. It  will  not  yield  magical  formulas  for  disposing  of  the  enigmas 
which  have  perplexed  the  generations.    It  will  give  no  assurance  that 


PROBLEM  OF  CONTROL  OF  INDUSTRIAL  SOCIETY  13 

succeeding  ages  will  have  no  baffling  and  bewildering  questions  to 
disturb  their  peaceful  repose.  It  will  furnish  no  open  sesame  to  a 
social  Utopia.  On  the  contrary,  quite  likely  it  will  show  that  the 
perfect  society  is  far  in  the  future.  It  may  even  convey  the  dismal 
lesson  that  our  limited  resources  will  ever  prevent  the  emancipation 
of  the  sons  of  Adam  from  bondage  to  social  economy.  But  the  search 
should  yield  some  positive  results.  It  should  put  us  in  position  to 
essay  further  quests  into  particular  aspects  of  our  industrial  system. 
It  should  prevent  our  dissipating  our  energies  in  an  attempt  to  realize 
the  unattainable  by  impossible  methods.  It  should  save  us  from 
thraldom  to  social  and  economic  alchemy.  Even  more  important,  it 
should  show  us  that  our  problems  are  in  process  of  gradual  solution  ; 
that  they  have  long-time  aspects  much  more  important  than  the  im- 
mediate issues  which  we  see ;  and  that  vision,  as  well  as  emotion,  is 
called  for  in  dealing  with  them.  Here  and  there,  too,  we  should  pick 
up  bits  which  together  we  can  weave  into  a  partial  and  tentative 
program.  If  our  quest  makes  this  beginning,  it  will  have  served  its 
purpose. 

B.     THE  NATURE  OF  ECONOMIC  PROBLEMS 
3.     What  an  Economic  Problem  Is  Like^ 

In  this  day  of  rapidly  changing  values,  particularly  in  economic 
life  and  thought,  it  is  difficult  to  determine  what  an  economic  prob- 
lem is,  whence  it  comes,  what  gives  it  currency,  and  whither  it  is 
going.  To  the  end  of  understanding  a  problem  aright,  the  follow- 
ing list  of  general  characteristics  is  given.  Here  they  are  put  down 
in  abstract  terms ;  the  materials  given  in  the  pages  that  follow  should 
enarble  the  reader  to  translate  them  into  the  more  tangible  concepts  in 
which  he  does  his  ordinary  thinking. 

The  title  commits  this  volume  to  the  domain  of  current  economic 
problems ;  but  currency  is  not  a  mere  matter  of  the  transitory  and 
ephemeral  aspects  of  economic  life,  such  as  are  noted  in  the  morn- 
ing paper.  The  most  recent  industrial  merger,  the  latest  bit  of  legir 
lation,  the  court  decision  just  announced  do  not  mark  out  its  province. 
The  economic  questions  currently  discussed  and  subject  to  immediate 
political  action  do  not  fix  its  bounds.  Such  things  as  these,  distinct 
as  they  seem  to  be,  are  mere  passing  phases  of  larger  and  more  com- 
plex problems.  For  their  beginnings  we  must  look  into  the  far-distant 
past ;  their  ends  it  is  not  yet  vouchsafed  to  us  to  see.  They  are  in 
process  of  gradual  solution.  The  issues  which  they  involve  are 
much  more  intricate  and  subtle  and  much  less  comprehensible  thao 

3An  editorial,  1915,  1919. 


14  CURRENT  ECONOMIC  PROBLEMS 

their  immediate  aspects  would  seem  to  indicate.  In  form  and  content 
each  is  closely  identified  with  the  stage  of  industrial  development 
which  we  have  reached.  Each  involves  something  of  almost  every 
phase  of  our  complicated  social  life.  As  separate  problems  they  are 
merely  aspects  of  a  larger  reality.  If,  then,  we  would  understand 
them  aright,  we  must  study  them  in  their  historical  setting  as  inci- 
dents in  the  development  of  society. 

Their  essential  unity  makes  the  word  problems  in  the  title  un- 
fortunate. The  term  seems  to  imply  the  separate  treatment  of  a 
number  of  loosely  connected  questions.  The  editor  disclaims  such 
pretentiousness  in  his  use  of  it.  He  has  no  intention  of  presenting 
an  aggregation  of  summaries  from  many  particular  fields  of  eco- 
nomic knowledge.  He  purports  to  give  no  epitome  of  a  dozen  differ- 
ent volumes  discussing  as  many  different  problems.  In  this  book  he 
can  neither  make  use  of  the  methods,  nor  accomplish  the  results,  of 
advanced  study.  A  proper  understanding  of  each  of  these  problems 
is  contingent  upon  a  mastery  of  the  workings  of  some  very  intricate 
economic  machinery,  a  careful  examination  of  a  large  amount  of 
factual  material,  a  painstaking  analysis  and  interpretation  of  the 
phenomena  of  the  field  of  study,  and  an  elaboration  of  the  con- 
clusions drawn  from  it.  To  attempt  such  a  task  for  each  of  the 
problems  presented  here  in  the  space  available  is  impossible ;  it  would 
result  in  a  mere  formal  presentation  of  half-truths.  The  object  of  this 
volume  is  of  another  kind ;  it  is  introductory.  It  attempts  to  present 
a  general  view  of  the  whole  as  a  necessary  preliminary  to  a  study 
of  particular  problems.  So  far  as  the  latter  are  separately  treated, 
they  are  presented  as  aspects  of  the  larger  whole. 

A  study  of  problems  implies  a  search  for  anszvers.  But,  if  this 
volume  is  to  be  judged  by  its  ability  to  supply  the  earnest  student 
with  the  right  answer  to  each  of  the  questions  it  discusses,  it  must 
indeed  be  found  a  dismal  failure.  The  number  of  problems  with 
which  it  deals  precludes  the  detailed  study  which  should  precede 
the  formation  of  "final"  opinions.  Besides,  it  is  extremely  doubtful 
whether  the  problems  of  industrial  society  can  be  settled  dogmatically. 
As  economists  we  can,  and  should  perhaps,  dogmatize  about  sucH 
principles  as  "the  law  of  diminishing  returns."  But  no  economic 
problem  can  be  resolved  by  the  application  of  a  single  simple  law ; 
it  is  part  of  a  situation  much  too  complex  and  subtle  and  peculiar 
for  that.  Nor  can  it  be  made  to  yield  to  the  magic  that  lies  in  a  sepa- 
ration of  all  proposals  into  the  two  simple  classes  of  the  "good"  and 
the  "bad."  Nor  yet  can  its  solution  emerge  as  the  result  of  a  process 
of  calculating  resulting  utilities  and  disutilities.  Every  proposal  in- 
volves a  distribution  of  costs  and  utilities  between  the  present  and 


PROBLEM  OF  CONTROL  OF  INDUSTRIAL  SOCIETY  15 

the  future,  and  between  different  classes  in  society.  It  has  not  one, 
but  many,  economic  consequences,  good  and  bad.  It  is  sure  to  affect 
in  countless  ways,  for  better  or  for  worse,  the  legal,  political,  ethical, 
religious,  and  social  aspects  of  life.  There  is  no  magical  instrument 
of  measurement  which  can  unlock  such  a  riddle  by  promising  that  a 
certain  definite  surplus  of  good  or  ill  will  follow  the  application  of  a 
given  proposal.  Such  values  are  incommensurable  by  any  known 
instrument  of  calculation. 

Yet,  to  make  judgments  in  the  face  of  these  complex  schemes  of 
incommensurable  values  is  the  essence  of  the  problems  which  we 
are  to  discuss.  If  their  solutions  are  to  be  advanced,  if  industrial 
society  is  to  develop,  such  judgments  must  be  made.  We  cannot 
blink  the  fact  that  every  proposal  advanced  involves  both  the  good 
and  the  bad,  the  desirable  and  the  undesirable.  We  cannot  forget 
that  to  get  some  of  the  good  things  we  want,  we  must  give  up  other 
good  things ;  that  to  escape  some  of  the  costs  we  are  unwilling  to 
incur,  we  must  endure  others.  In  short,  the  "solution"  of  an  eco- 
nomic problem  involves  a  choice  betzveen  conflicting  and  incom- 
mensurable values.  The  decision  which  it  requires  transcends  the 
utmost  that  can  be  pent  up  in  any  strictly  economic  terms ;  it  is 
contingent  upon  nothing  less  than  our  ideal  of  the  socially  desirable. 
But,  if  our  efforts  are  to  be  effective,  we  must  aim  at  the  attainable. 
We  must  take  full  account  of  the  limitations  imposed  upon  the 
"solution"  of  problems  by  contemporary  activities,  prevailing  insti- 
tutions, and  the  attitudes  of  the  various  classes  which  make  up  society. 
In  view  of  the  large  economic  and  intellectual  environment  surround- 
ing them,  economic  problems  are  not  suddenly  to  be  disposed  of ; 
definite  and  final  answers  are  not  to  be  found  for  them.  Rather  they 
are  gradually  to  be  solved ;  they  must  have  everdeveloping  answers. 

Upon  this  theory  of  a  choice  betzveen  conflicting  and  incom- 
mensurable values  the  readings  which  follow  have  been  selected. 
They  come  from  the  most  miscellaneous  sources.  They  represent  all 
the  prominent  attitudes,  from  the  most  conservative  to  the  most 
radical,  which  condition  the  direction  of  our  development.  They  are 
written  by  men  possessed  of  the  widest  variety  of  opinion — economic, 
political,  and  sociological.  They  represent  emotionally  as  well  as 
intellectually  (for  feelings  count  as  strongly  as  logic  in  the  practical 
affairs  of  our  everyday  world)  the  conflicting  views  and  arguments 
which  contemporary  society  is  bringing  to  bear  upon  its  problems. 
They  contain  sound  argument,  good  judgment,  truth.  They  contain, 
too,  much  of  overstatement,  fallacious  reasoning,  and  falsehood. 
But  all  are  important  for,  sound  or  unsound,  true  or  false,  they  are 
active  elements  of  the  problems  we  would  solve.  The  reader  should 
not  too  definitely  attempt  to  separate  them  into  the  "true"  and  the 


1 6  CURRENT  ECONOMIC  PROBLEMS 

"false."  All  thought  is  conditioned  by  its  fundamental  assumptions. 
Matters  of  personality,  of  class,  of  time,  and  of  place  manage  to  make 
their  way  into  all  intellectual  work.  Those  who  regard  themselves 
as  most  immune  are  frequently  most  subject  to  these  disturbing 
influences.  Undoubtedly  fundamental  differences  about  economic 
programs  frequently  grow  out  of  the  possession  or  non-possession 
of  the  "facts."  But  far  oftener  they  are  due  to  conflicting  attitudes 
which  represent  endeavors  to  find  social  good  by  generalizing  indi- 
vidual interests.  Some  such  study  is  necessary  to  a  clear  apprecia- 
tion of  the  many  conflicting  values  involved  in  the  conscious  judg- 
ments upon  which  the  solution  of  our  problems  depend. 

In  quite  another  way,  the  miscellaneous  character  of  these  read- 
ings should  prove  valuable.  They  should  help  the  reader  to  approach 
economic  questions  without  personal  or  class  bias ;  they  should  lead 
him  to  see  that  his  own  opinions,  despite  the  authority  of  their 
source  and  their  venerable  age,  are  not  necessarily  the  expression 
of  economic  verity ;  and  they  should  induce  in  him  some  willingness 
to  hold  in  abeyance  his  judgment  on  economic  questions.  Vital  and 
valid  arguments  in  support  of  a  proposition  in  which  one  thoroughly 
disbelieves  should  do  much  to  prevent  haste  in  the  formation  of  his 
final  judgments.  Even  erroneous  arguments  have  their  pedagogical 
value.  Stimulation  is  by  provocation  as  well  as  by  suggestion ;  and 
It  is  hoped  that  more  than  one  of  the  readings  which  follow  will 
provoke  the  reader  into  a  more  careful  formulation  of  his  opinions 
and  a  clearer  statement  of  his  reasons  for  possessing  them.  Above 
all,  it  is  hoped  that  in  a  constructive  way  they  may  give  the  begin- 
nings of  a  flexible  and  developing  economic  program.  Its  fulness  can, 
and  should,  come  with  tirne,  study,  and  reflection. 

It  cannot  be  denied  that  many  of  the  readings  touch  upon  ques- 
tions which  many  think  cannot  be  discussed  without  "danger  to 
society" ;  and  that  others  present  views  which  "threaten  to  subvert 
our  institutions."  Fortunately  the  disposition  to  exclude  "dangerous 
subjects"  and  "dangerous  views"  from  academic  discussion  is  much 
less  pronounced  than  it  used  to  be.  There  seems  to  the  editor  little 
doubt  that  the  danger  is,  if  not  altogether  absent,  at  least  unduly 
magnified.  To  the  extent  that  it  is  real,  however,  an  injunction 
against  discussion  is  not  the  proper  method  of  minimizing  it.  The 
safe  course  lies  rather  in  getting  students  to  think  clearly  in  terms 
of  economic  situations  and  to  recognize  in  this  thinking  the  many 
fundamental  economic  values  which  usually  fail  of  popular  consid- 
eration. The  erection  of  signs  prohibiting  trespass  is  the  best  method 
of  enticing  college  students  into  forbidden  fields  of  discussion.  Much 
better  is  it  to  invite  to  this  forbidden  territory  under  proper  guid- 
ance.   It  is  hoped  that  the  selections  which  follow  will  reveal  some 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  17 

of  these  values  and  will  do  something  to  induce  intelligent  thought. 

To  the  end  of  showing  the  setting  of  our  current  problems  and 
the  many  conflicting  values  which  they  involve,  the  book  has  been 
made  to  consist  of  a  large  number  of  short  readings  rather  than  a 
small  number  of  long  ones.  Whatever  may  be  the  value  of  the 
latter  type  of  manual  for  advanced  work,  its  usefulness  in  elementary 
instruction  is  largely  its  power  of  compelling  labor.  A  small  number 
of  readings  cannot  at  all  cover  the  field  adequately;  they  cannot 
furnish  a  clear  perspective  of  the  subject  as  a  whole;  they  cannot 
introduce  economic  problems  in  their  larger  setting.  They  contain 
much  extraneous  matter;  they  include  discussions  of  subtle  points 
lost  on  all  except  advanced  students  ;  and  they  are  prone  to  cause  the 
student  to  lose  the  main  issues  in  a  world  of  detail.  They  commit 
the  fundamental  error  of  attempting  to  exhibit  the  particulars  before 
the  student  has  seen  the  whole.  They  make  it  difficult  for  the  average 
student  to  discriminate  between  the  accidental  and  the  essential ;  and 
too  frequently  their  use  leads  to  a  substitution  of  heroic  clerical  work 
for  intellectual  exertion.  In  the  readings  here  presented  an  attempt 
has  been  made  to  eliminate  the  nonessential  and  the  confusing. 

This  induced  simplicity  is  not  intended  to  convey  the  idea  that 
the  problems  involved  are  simple,  and  that  social  economics  is  a 
subject  which  can  easily  be  "mastered."  On  the  contrary,  few  teach- 
ers will  be  tempted  to  charge  this  volume  with  an  elucidation  of  the 
merely  obvious.  On  the  contrary,  the  very  difficulty  of  the  subjects 
treated  makes  it  necessary  that  the  many  and  conflicting  arguments 
be  presented  as  simply  and  definitely  as  possible.  One  of  the  func- 
tions of  the  book  is  to  show  the  difficulty  and  complexity  of  the  prob- 
lems. Perhaps  nothing  is  doing  more  to  complicate  the  solution  of 
our  problems  at  the  present  time  and  to  prevent  the  elaboration  of  a 
definite  program  than  the  belief  of  so  many  people  that  these  same 
problems  are  simple  and  easily  understood,  and  that  "evils"  are  re- 
sponsive to  simple  prescriptions.  To  convey  the  idea  of  simplicity 
and  intelligibility,  when  these  are  not  of  the  subject  discussed,  is  to 
fail  on  the  very  threshold  of  economic  study. 

In  an  introductory  course,  the  primary  desideratum  is  not  the 
acquisition  by  the  student  of  facts  and  formulas,  which  he  can  hand 
back  at  examination,  having  no  further  use  for  them.  It  is  rather 
to  induce  on  his  part  a  developing  appreciation  of  the  situation  as 
a  whole  and  of  the  relation  of  institutions  and  problems  to  each  other 
and  to  it.  It  is  more  desirable  that  he  come  to  understand  the  sub- 
ject than  that  he  amass  formal  knowledge  about  it.  It  is  preferable 
that  he  learn  to  think  intelligently  in  terms  of  a  complex  industrial 
situation  than  that  he  acquire  a  vast  collection  of  "principles"  that 
formally  explain  its  working.    The  readings  are  intended  to  supply 


1 8  CURRENT  ECONOMIC  PROBLEMS 

not  factual  material  upon  which  the  student  can  be  quizzed,  but 
rather  matter  that  will  raise  questions  and  provoke  thought.  They 
are  intended  to  prepare  for  recitation  by  giving  the  instructor  and 
the  students  something  to  discuss  together.  The  function  of  the 
instructor  is  to  direct  and  guide  discussion,  and  to  see  that  the 
thought  of  the  students  is  intelligent  and  intelligible. 

It  is  no  part  of  the  function  of  this  volume,  therefore,  to  lighten 
the  instructor's  labors.  Ease  and  a  shifting  of  responsibility  can 
better  be  found  in  the  formal  lecture  or  in  quizzing  from  a  text.  The 
editor  believes  quite  firmly  that  the  value  of  any  course  in  economics 
is  pretty  much  what  the  instructor  makes  it.  He  is  the  factor  of 
vital  importance.  If  the  course  is  to  be  successful  in  aiding  the 
student  properly  to  begin  the  long-to-be-continued  process  of  getting 
a  fair  conception  of  the  economic  world  and  of  formulating  an  eco- 
nomic program,  it  must  be  the  instructor's  ozun  course.  He  alone 
knows  the  factors  involved  in  his  own  classroom  problem.  He  must 
determine  its  content,  fix  its  arrangement,  and  shape  the  tools  which 
he  uses  to  its  peculiar  need.  Books,  problems,  and  other  pedagogical 
devices  are  at  best  but  instruments.  If  a  book  of  this  kind  has  any 
advantage  over  a  formal  text,  it  is  in  the  freedom  which  it  allows  to 
instructor  and  student,  both  in  making  the  most  of  the  recitation  and 
in  the  ordering  of  the  course.  Wherever  it  is  used,  unity  must  come, 
not  from  the  book  itself,  but  from  the  teacher's  own  plan,  and  from 
his  skillful  use  of  the  complementary  tools  he  employs.  The  function 
of  this  volume  is  to  give  not  leisure,  but  intellectual  liberty. 

C.    THE  NATURE  OF  PROGRESS* 
4.     What  Is  Progress? 

BY  JAMES  BRYCE 

When  we  say  that  man  has  advanced,  or  is  advancing,  of  what 
lines  of  advance  are  we  thinking?  The  lines  of  movement  are  really 
as  numerous  as  are  the  aspects  of  man's  nature  and  the  activities 
which  he  puts  forth.  Taking  his  physical  structure,  is  mankind  on 
the  whole  becoming  stronger,  healthier,  less  injured  by  habits  whicfi 
depress  nervous  and  muscular  forces,  and  are  the  better  stocks  of 
men  increasing  faster  than  the  inferior  stocks?  Considered  as  an 
acquisitive  being,  has  man  more  of  the  things  that  make  for  comfort, 
more  food  and  clothing,  better  dwellings,  more  leisure  ?  Intellectually 
regarded,  has  he  a  higher  intelligence,  more  knowledge  and  opportuni- 
ties for  acquiring  knowledge,  more  creative  capacity,  more  perception 
of  beauty  and  susceptibility  to  aesthetic  pleasures  ?    Considered  in  his 

♦Adapted  from  an  article  in  the  Atlantic  Monthly,  C,  147.    Copyright,  1907. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  19 

social  relations,  has  he  more  personal  freedom,  is  he  less  exposed 
to  political  oppression,  has  he  fuller  security  for  life  and  property, 
are  there  more  or  less  order  and  concord  within  each  community, 
more  or  less  peace  between  nations?  Lastly,  is  man  improving  as  a 
moral  being?  Is  there  more  virtue  in  the  world,  more  sense  of  justice, 
more  sympathy,  more  kindliness,  more  of  a  disposition  to  regard  the 
feelings  and  interests  of  others  and  to  deal  gently  with  the  weak? 
In  each  and  all  of  these  departments  there  may  be  progress,  but  not 
necessarily  the  same  rate  of  progress,  and  we  can  perfectly  well 
imagine  a  progress  in  some  points  only,  accompanied  by  a  stagnation 
or  even  a  decline  in  other  points. 

When  we  talk  of  the  progress  of  the  world,  do  we  mean  an  ad- 
vance in  all  these  respects,  or  only  in  some,  and  if  so  in  which  of 
them?  If  in  all  of  them,  which  are  the  most  typical  and  the  most 
significant?  Suppose  there  has  been  an  advance  in  some,  and  in 
others  stagnation  or  retrogression,  how  shall  we  determine  which 
are  the  most  important,  the  most  fraught  with  promise  or  discourage- 
ment? An  examination  of  the  language  of  popular  writers  indicates 
that  the  current  conception  has  been  seldom  analyzed.  Such  writers 
have  seemed  to  have  assumed  that  an  improvement  in  some  aspects 
of  human  life  means  an  improvement  in  all,  perhaps  an  improvement 
to  something  like  the  same  extent.  Another  question  suggests  itself. 
Is  the  so-called  law  of  progress  a  constant  one?  Suppose  its  action 
in  the  past  to  have  been  proved,  can  we  count  upon  its  continuing 
in  the  future,  or  may  the  causes  to  which  its  action  has  been  due 
some  time  or  other  come  to  an  end?  I  pass  over  other  points  that 
might  be  raised.  It  is  enough  to  have  shown  in  how  vague  a  sense 
the  current  term  has  been  used. 

5.     Evolution  or  Progress?^ 

BY  L.   T.    HOBHOUSE 

I  use  the  term  "evolution"  in  regard  to  human  society,  and  also 
the  term  "progress."  This  should  imply  that  there  is  some  differ- 
ence between  them.  By  evolution  I  mean  any  sort  of  growth ;  by 
social  progress,  the  growth  of  social  life  in  respect  to  those  qualities 
to  which  human  beings  attach  or  can  rationally  attach  value.  Social 
progress,  then,  is  only  one  among  many  possibilities  of  social  evolu- 
tion. At  least  it  is  not  to  be  assumed  that  every  and  any  form  of 
social  evolution  is  also  a  form  or  stage  in  social  progress.  For  ex- 
ample, the  caste  system  is  a  product  of  social  evolution,  and  the  more 
rigid  and  narrow  the  caste,  the  more  complex  the  hierarchy,  the  more 
completely  has  the  caste  system  evolved.     But  most  of  us  would 

^Adapted  from  Social  Evolution  and  Political  Theory,  pp.  7-25.  Copy- 
right by  the  Columbia  University  Press,  191 1. 


20  CURRENT  ECONOMIC  PROBLEMS 

question  very  strongly  whether  it  could  be  considered  in  any  sense 
a  phase  of  social  progress.  So  again  there  is  at  the  present  day  a 
vigorous  evolution  of  cartels,  monopolies,  rings  and  trusts ;  there  is 
an  evolution  of  imperialism,  of  militarism,  of  socialism,  of  a  hundred 
tendencies  as  to  the  good  or  evil  of  which  people  differ. 

The  fact  that  a  thing  is  evolving  is  no  proof  that  it  is  good ;  the 
fact  that  society  has  evolved  is  no  proof  that  it  has  progressed.  The 
point  is  important  because  under  the  influence  of  biological  concep- 
tions the  two  ideas  are  often  confused,  and  the  fact  that  human 
beings  have  lived  under  certain  conditions  is  taken  as  proof  of  the 
value  of  those  conditions,  or  perhaps  as  proving  the  futility  of  ethi- 
cal ideas  which  run  counter  to  evolutionary  processes.  Thus  in  a 
recent  article  I  find  a  contemptuous  reference  to  "the  childlike  desire 
to  make  things  fair,"  which  is  "so  clearly  contrary  to  the  order  of 
the  universe  which  progresses  by  natural  selection."  In  this  brief 
remark  you  will  observe  two  immense  assumptions,  and  one  stark 
contradiction.  The  first  assumption  is  that  the  universe  progresses — 
not  humanity,  observe,  nor  the  mass  of  organic  beings,  nor  even  the 
earth,  but  the  universe.  The  second  is  that  it  progresses  by  natural 
selectfon,  a  hypothesis  which  has  not  yet  adequately  explained  the 
bare  fact  of  the  variation  of  organic  forms  on  the  surface  of  the 
earth.  The  contradictionis  that  progress  is  incompatible  with  fair- 
ness, the  basic  element  in  all  judgments  of  value,  so  that  we  are  called 
upon  to  recognize  as  valuable  that  by  which  our  fundamental  notions 
of  value  are  set  at  naught. 

By  studying  certain  sides  of  organic  process  people  arrive  at  a 
particular  hypothesis  of  the  nature  of  the  process.  They  erect  this 
hypothesis  into  an  universal  and  necessary  law,  and  straightway  call 
upon  everyone  else  to  acknowledge  the  law  and  conform  to  it  in 
action.  They  do  not  see  that  they  have  passed  from  one  sense  of  law 
to  another,  that  they  have  confused  a  generalization  with  a  command, 
and  a  statement  of  facts  with  a  principle  of  action.  They  accord- 
ingly miss  the  starting-point  from  which  a  distinct  conception  of 
progress  and  its  relation  to  human  effort  becomes  possible.  But  for 
any  useful  theory  of  the  bearing  of  evolution  on  social  effort  this  con«- 
ception  is  vital.  We  can  get  no  light  upon  the  subject  unless  we 
begin  with  the  clear  perception  that  the  object  of  social  effort  is  the 
realization  of  ends  to  which  human  beings  can  rationally  attach  value, 
that  is  to  say,  the  realization  of  ethical  ends ;  and  this  being  under- 
stood, we  may  suitably  use  the  term  progress  of  any  steps  leading 
towards  such  realization. 

Our  conclusion  so  far  is  that  the  nature  of  social  progress  cannot 
be  determined  by  barely  examining  the  actual  conditions  of  social 
evolution.     Evolution  and  progress  are  not  the  same  thing.     They 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  21 

may  be  opposed.  They  might  even  be  so  fundamentally  opposed  that 
progress  would  be  impossible. 

Because  of  the  influence  of  biological  notions  on  social  and  eco- 
nomic thought,  one  phase  of  the  Darwinian  theory  must  be  noted. 
The  main  effect  of  his  work  in  the  world  of  science  was  to  generate 
the  conception  of  the  progress  of  organic  forms  by  means  of  a  con- 
tinuous struggle  for  existence  wherein  those  best  fitted  by  natural 
endowment  to  cope  with  the  surroundings  would  tend  to  survive.  In 
our  field,  after  Darwin,  it  began  to  be  held  that  man,  in  spite  of  his 
philosophy,  was  still  an  animal,  still  subject  to  the  same  laws  of 
reproduction  and  variation,  still  modifiable  in  the  same  manner  by 
the  indirect  selections  of  the  individuals  best  fitted  to  their  environ- 
ment. The  biological  social  philosopher  had  not  to  trouble  himself 
about  what  was  best ;  nor,  like  the  social  investigator,  to  remain  in 
doubt  as  to  the  broadest  principles  regulating  the  life  of  society.  On 
both  these  questions  his  doubts  were  already  solved  by  what  he  had 
learned  in  biology  itself.  The  best  was  that  which  survived,  and  the 
persistent  elimination  of  the  unfit  was  the  one  method  generally  neces- 
sary to  secure  the  survival  of  the  best.  Armed  with  this  generaliza- 
tion he  found  himself  able  to  view  the  world  at  large  with  much 
complacency. 

To  him  life  was  constantly  and  necessarily  growing  better.  In 
every  species  the  least  fit  were  always  being  destroyed  and  the  stand- 
ard of  the  survivors  proportionately  raised.  No  doubt  there  remained 
in  every  society  many  features  which  at  first  sight  seemed  objectiona- 
ble. But  here  again  the  evolutionist  was  in  the  happy  position  of 
being  able  to  verify  the  existence  of  a  soul  of  goodness  in  things  evil. 
Was  there  acute  industrial  competition  ?  It  was  the  process  by  which 
the  fittest  came  to  the  top.  Were  the  losers  in  the  struggle  left  to 
welter  in  dire  poverty  ?  They  would  the  sooner  die  out.  Were  hous- 
ing conditions  a  disgrace  to  civilization?  They  were  the  natural 
environment  of  an  unfit  class,  and  the  means  whereby  such  a  class 
prepared  the  way  for  its  own  extinction.  Was  infant  mortality  ex- 
cessive? It  weeded  out  the  sickly  and  the  weaklings.  Was  there 
pestilence  or  famine?  So  many  more  of  the  unfit  would  perish.  Did 
tuberculosis  claim  a  heavy  toll?  The  tubercular  germs  are  great 
selectors  skilled  at  probing  the  weak  spots  of  living  tissue.  Were 
there  wars  and  rumors  of  wars  ?  War  alone  would  give  to  the  con- 
quering race  its  due,  the  inheritance  of  the  earth.  In  a  word  the  only 
blot  that  the  evolutionist  could  see  upon  the  picture  was  the  "maudlin 
sentiment"  which  seeks  to  hold  out  a  hand  to  those  who  are  down. 
The  one  sinner  against  progress  is  the  man  who  tries  to  save  the  lamb 
from  the  wolf.  Could  we  abolish  this  unscientific  individual,  the 
prospects  of  the  world  would  be  unclouded. 


22  •  CURRENT  ECONOMIC  PROBLEMS 

Yet,  before  we  apply  biological  conceptions  to  social  affairs,  we 
generally  suppose  that  the  highest  ethics  is  that  which  expresses  the 
completest  mutual  sympathy  and  the  most  highly  evolved  society  that 
in  which  the  efforts  of  its  members  are  most  completely  coordinated 
to  common  ends;  in  which  discord  is  most  fully  subdued  to  harmony. 
Accordingly  we  are  driven  to  one  of  two  alternatives.  Either  our 
valuations  are  completely  false,  our  notions  of  higher  or  lower  un- 
meaning, or  progress  does  not  depend  upon  the  naked  struggle  for 
existence.  The  biologist  would  cheerfully  accept  the  first  alternative. 
As  we  have  already  seen,  he  is  disposed  to  tell  us  that  we  vainly  seek 
to  distort  truth  by  importing  our  ethical  standards.  He  is  quite  ready 
to  insist  that  we  must  subordinate  our  judgments  of  value  to  the 
survival  test.  We  must  judge  good  that  which  succeeds.  Unfortu- 
nately for  him  at  that  stage  his  whole  theory  becomes  a  barren  tautol- 
ogy. Progress  now  in  his  view  results  from  the  survival  of  the  fittest, 
because  progress  is  the  process  wherein  the  fittest  survive.  Again  it 
is  always  the  fittest  who  survive,  because  the  fact  of  their  survival 
proves  their  fitness. 

6.     The  Criteria  of  Progress" 

BY  JAMES   BRYCE 

In  our  study  of  the  supposed  forward  movement  of  mankind,  let 
us  begin  with  two  comparatively  easy  lines  of  inquiry :  the  physical 
characteristics  of  the  human  species,  and  the  conditions  under  which 
the  specie's  has  to  live ;  and  let  us  see  what  conclusions  can  be  reached 
by  examining  these. 

Additions  to  the  number  of  the  human  race  are  popularly  treated 
as  if  they  were  an  undoubted  benefit.  We  see  every  nation  and  every 
community  regarding  its  own  increase  as  something  to  be  proud  of. 
But  is  the  increase  of  the  race  any  gain  to  the  race?  The  population 
of  Europe  is  three  or  four  times,  and  that  of  North  America  twenty 
times,  as  large  as  it  was  two  centuries  ago.  This  proves  that  there 
is  much  more  food  available  for  the  support  of  life,  much  more  pro- 
duction of  all  sorts  of  commodities,  and  in  particular  an  immense 
increase  in  the  area  of  land  used  for  producing  food,  with  an  improve- 
ment in  the  methods  of  extracting  food  from  the  land.  So  the  growth 
of  a  city  like  Boston  or  Chicago  proves  that  there  has  been  an  immense 
increase  in  industry.  Men  work  harder,  or  at  any  rate  more  efficiently, 
and  have  far  better  appliances  for  production  at  their  command. 

Whether  they  live  happier  lives  is  another  matter.  It  used  to  be 
said  that  he  who  made  two  ears  of  corn  grow  where  only  one  ear 

^Adapted  from  an  article  in  the  Atlantic  Monthly,  C,  147-56.  Copy- 
right, 1907. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  23 

had  grown  before  was  a  benefactor  to  the  race.  Is  that  necessarily 
so?  The  number  of  men  who  can  live  off  the  soil  is  larger,  but  the 
men  need  not  be  better  off.  If  there  is  more  food  there  are  also 
more  mouths.  Their  lives  may  be  just  as  hard,  their  enjoyments 
just  as  limited.  Some  parts  of  the  earth  are  already  too  crowded 
for  comfort.  The  notion  that  population  is  per  se  a  benefit  and  a 
mark  of  progress  seems  to  be  largely  a  survival  from  a  time  when 
each  tribe  or  city  needed  all  the  arms  it  could  maintain,  to  wield 
sword  and  spear  against  its  enemies.  "As  arrows  in  the  hands  of  a 
giant,  even  so  are  young  children,"  says  the  Psalmist ;  and  when  men 
are  needed  to  fight  against  the  Hittites,  this  is  a  natural  reflection. 
It  may  also  be  due  partly  to  an  unthinking  association  between  growti 
and  prosperity. 

Let  us  pass  to  quality.  The  most  remarkable  fact  of  the  last 
few  centuries  has  been  the  relatively  more  rapid  growth  of  those 
whom  we  call  the  more  advanced  races,  Teutonic,  Celtic,  and  Sla- 
vonic. Nineteen  centuries  ago  there  were  probably  less  than  ten 
million  people  belonging  to  these  three  races.  There  are  today  proba- 
bly over  three  hundred  and  fifty  million,  while  the  so-called  back- 
ward races  have  increased  more  slowly  and  are  now  everywhere 
under  the  control  of  the  more  advanced  races.  In  duration  of  life, 
too,  there  is  unquestionably  an  improvement.  Lunacy,  however,  is 
increasing.  This  seems  to  imply  that  there  are  factors  in  modern 
life  which  tend  to  breed  disorders  in  the  brain.  In  this  connection 
a  still  more  serious  question  arises. 

The  law  of  differentiation  and  improvement  by  means  of  natural 
selection  and  the  survival  of  the  fittest  may  reasonably  be  thought 
to  have  done  its  work  during  the  earlier  period  of  the  history  of 
mankind.  The  races  which  have  survived  and  come  to  dominate  the 
earth  have  been  the  stronger  races ;  and,  while  strife  lasted,  there 
has  always  been  a  tendency  for  physical  strength  and  intelligence  to 
go  on  increasing.  The  upper  classes  in  every  community  were  always 
stronger  and  handsomer  than  the  classes  at  the  bottom  of  the  scale. 
The  birth-rate  was  probably  higher  among  the  aristocrats,  and  the 
chance  of  the  survival  of  infants  better.  But  in  modern  society  the 
case  is  quite  otherwise.  The  richer  and  more  educated  classes  marry 
later  and  as  a  rule  have  smaller  families  than  the  poorer  class,  whose 
physique  is  generally  weaker  and  whose  intelligence  is  generally  on 
a  somewhat  lower  level.  The  result  is  that  a  class  in  which  physical 
strength  and  a  cultivated  intelligence  are  hereditary  increases  more 
slowly  than  do  classes  inferior  in  these  qualities.  Fortunately,  the 
lines  of  class  distinction  are  much  less  sharply  drawn  than  they  were 
some  centuries  ago.  The  upper  class  is  always  being  recruited  by  per- 
sons of  energy  and  intellect  from  the  poorer  classes.     Still  we  have 


24  CURRENT  ECONOMIC  PROBLEMS 

here  a  new  cause  which  may  tend  to  depress  the  average  level  of 
human  capacity. 

The  improvement,  so  far  as  attained,  in  the  physical  quality  of 
mankind  is  largely  due  to  such  changes  in  its  environment  as  the 
greater  abundance  of  food  and  clothing,  the  better  conditions  of  hous- 
ing, the  diffusion  of  property  among  all  classes  in  the  community. 
Along  these  lines  the  improvement  has  been  extraordinary.  The 
luxury  of  the  rich,  the  comfort  of  the  middle  class,  the  comparative 
immunity  of  the  poorer  classes  from  famine  and  pestilence,  have 
increased  within  the  last  two  centuries  more  than  they  had  during 
many  preceding  centuries. 

Most  remarkable  of  all  has  been  the  cause  of  these  improvements, 
namely,  the  increase  in  our  knowledge  of  natural  laws  and  the  power 
over  natural  forces  which  has  been  thereby  acquired.  Man  has  now, 
by  comprehending  Nature,  become  her  master.  These  are  the  things 
which  are  commonly  in  our  mind  when  we  talk  of  progress.  It  is  the 
wonderful  gains  made  in  these  things  which  are  visible  and  tangible 
and  which  affect  our  daily  life  at  every  turn  that  have  struck  the 
popular  mind,  and  have  seemed  to  mark,  not  only  a  long  onward  step, 
but  the  certainty  of  further  advance.  Material  progress  has  seemed 
to  sweep  everything  else  along  with  it. 

Whether  this  be  so  is  the  very  question  we  have  to  consider.  Does 
our  increased  knowledge  and  command  of  nature,  do  all  those  bene- 
fits and  comforts  which  that  mastery  has  secured,  so  greatly  facilitate 
intellectual  and  moral  progress  that  we  may  safely  assume  that  there 
will  be  an  increase  in  intelligence,  in  virtue,  and  in  all  that  is  covered 
by  the  word  "happiness"  ?    It  seems  hard  not  to  believe  it. 

Certainly  we  see  under  these  new  conditions  less  anxiety,  less 
occupation  with  the  hard  necessities  of  finding  food  and  clothing. 
Work  itself  is  less  laborious,  because  more  largely  done  by  machinery. 
There  is  more  leisure  that  can  be  used  for  the  acquisition  of  knowl- 
edge and  for  setting  thought  free  to  play  upon  subjects  other  than 
practical.  The  opportunities  for  obtaining  knowledge  have  been 
extended  and  cheapened.  Transportation  has  become  cheap,  easy, 
and  swift,  enriching  and  refreshing  the  mind  by  foreign  traveL 
Works  of  art  are  produced  more  abundantly.  The  mere  increase  of 
population  and  purchasing  power  has  a  favoring  influence  upon  intel- 
lect, because  there  is  more  demand  for  the  products  of  intellect  and 
more  persons  employed  in  their  production.  Thus  it  is  clear  that 
material  progress  provided  at  least  unprecedented  facilities  and 
opportunities  for  intellectual  progress,  and  the  quantity  of  intellectual 
activity  has  enormously  increased. 

Quality,  however,  must  also  be  considered.  Plato  hinted  that  the 
invention  of  writing  had  weakened  the  powers  of  the  human  mind. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  25 

We  may  well  doubt  whether  the  intellectual  excellence  of  the  age 
can  be  measured  by  the  number  of  speeches  or  the  amount  of  printed 
matter  it  produces,  and  whether  the  incessant  reading  of  newspapers 
and  magazines  tends  on  the  whole  to  strengthen  the  habit  of  thinking. 

Material  progress  has  affected  the  forms  which  intellectual  activ- 
ity takes  and  the  lines  of  inquiry  which  it  follows.  But  there  is  no 
evidence  that  it  has  done  more  to  strengthen  than  to  depress  the 
intensity  and  originality  and  creative  energy  of  intellect  itself ;  nor 
have  these  qualities  shown  themselves  more  abundant  as  the  popula- 
tion of  the  earth  has  increased.  As  for  accomplishment  intellectually, 
may  there  not  be  a  limit  to  this  kind  of  advance,  and  may  we  not  be 
approaching  that  limit? 

But,  if  it  has  proved  difficult  to  say  how  far  material  progress 
and  the  diffusion  and  extension  of  knowledge  have  stimulated  and 
are  likely  to  stimulate  intellectual  progress,  still  harder  is  it  to  esti- 
mate their  influence  on  the  standard  of  moral  excellence.  What  is 
moral  progress  ?  The  ancient  philosophers  would  have  described  its 
aim  as  being  harmony  with  nature,  that  is,  with  those  tendencies  in 
man  which  lead  him  to  his  highest  good  by  raising  him  above  sense 
temptations.  Augustine  or  Thomas  Aquinas  would  have  placed  it  in 
conformity  to  God's  will  to  which  all  thoughts  and  passions  should 
be  attuned.  Neither  of  these  ideals  had  any  relation  to  material 
progress,  and  saints  would  probably  have  thought  such  progress  hurt- 
ful rather  than  helpful  to  the  soul. 

To  estimate  the  degree  in  which  some  sins  or  vices  have  declined 
and  others  have  developed,  the  extent  to  which  some  virtues  have 
grown  more  common  and  others  more  rare ;  to  calculate  the  re- 
spective ethical  values  of  the  qualities  in  which  there  has  been  an 
improvement  and  a  decline ;  and  to  strike  a  general  balance  after 
appraising  the  worth  of  all  these  assets — this  is  a  task  on  which  few 
would  care  to  enter.  No  analysis  and  no  synthesis  could  make  much 
of  data  so  uncertain  in  quantity  and  so  disputable  in  quality.  Differ- 
ent virtues  rise  and  fall,  bloom  and  wither,  as  they  inspire  joy  or 
command  admiration. 

It  may,  however,  be  suggested  that  there  is  one  thing  whose  rela- 
tion to  material  progress  must  somehow  be  the  ultimate  test  of  every 
kind  of  advance.  It  is  happiness.  But  what  is  happiness  ?  Is  it  pleas- 
ure? Are  pleasures  to  be  measured  by  a  qualitative  as  well  as  a 
quantitative  analysis?  Shall  we  measure  them  by  the  intensity  by 
which  they  are  felt  or  by  the  fineness  and  elevation  of  the  feeling 
to  which  they  appeal?  Is  the  satisfaction  which  Pericles  felt  in 
watching  the  performance  of  a  drama  of  Sophocles  greater  or  less 
than  the  satisfaction  which  one  of  his  slaves  felt  in  draining  a  jar  of 
wine? 


26  CURRENT  ECONOMIC  PROBLEMS 

The  comparison  of  our  own  age  with  preceding  ages  does  not 
solve  the  problem.  Most  of  us  probably  rejoice  that  we  did  not  live 
in  the  fifth  or  even  the  seventeenth  century.  But  can  we  be  sure 
that  the  individual  man  in  those  centuries  had  a  worse  time  than  the 
average  man  now  has  ?  He  was  in  many  points  less  sensitive  to  suf- 
fering than  we  are,  and  he  may  have  enjoyed  some  things  more 
intensely.  True,  the  fear  of  torment  brooded  like  a  black  cloud  over 
the  minds  of  past  generations.  Yet  we  know  that  many  persons  look 
back  to  the  A^es  of  Faith  as  ages  when  man's  mind  was  far  more 
full  of  peace  and  hope  than  at  present. 

Happiness  is  largely  a  matter  of  temperament,  and  temperament 
largely  depends  upon  physiological  conditions,  and  the  physiological 
conditions  of  life  are  much  affected  by  economic  and  social  condi- 
tions. How  can  we  then  determine  whether  the  excitement  and 
variety  of  modern  life  make  for  happiness? 

We  may  seem  to  be  better  equipped  for  prophecy  than  we  were, 
because  we  have  come  to  know  all  the  surface  of  the  earth,  and  its 
resources,  and  the  races  that  dwell  thereon,  and  their  respective  gifts 
and  capacities.  But  how  these  elements  will  combine  and  work 
together  is  a  problem  apparently  as  inscrutable  as  ever.  The  bark 
that  carries  man  and  his  fortunes  traverses  an  ocean  where  the  winds 
are  variable  and  the  currents  unknown. 

D.     THE  CONTROL  OF  ECONOMIC  ACTIVITY 
7.     The  Agencies  of  Social  ControP 

BY  ELIZABETH    HUGHES 

The  prominence  attached  to  government  interference  with  indus- 
trial enterprise  has  caused  the  other  ways  in  which  society  orders, 
directs,  and  defines  the  efforts  of  individuals  to  be  overlooked.  Social 
control,  it  must  be  remembered,  has  many  channels  through  which  to 
spread  and  need  confine  itself  at  no  time  to  the  single  course  of  overt 
legislation. 

Group  will  operates  most  persistently  and  potently  through  the 
great  unwritten  rules  and  restrictions  imposed  by  custom,  which 
through  their  very  familiarity  often  escape  observation.  A  glance 
at  Eastern,  then  at  Western,  civilization  may  serve  to  show  by  con- 
trast how  far-reaching  and  permeating  is  custom's  influence  upon 
industrial  life.  In  eastern  countries  custom  decrees  that  trades  shall 
be  hereditary ;  that  the  tools  and  methods  used  by  ancestors  shall 
continue  to  be  used  by  present-day  workers ;  and  that  human  labor 
shall  not  be  supplanted  in  any  marked  degree  by  machine  effort,  but 

^1915- 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  27 

only  supplemented  somewhat  by  it.  Western  civilization,  on  the  con- 
trary, adopts  as  its  fetish  the  new  rather  than  the  old,  favors  develop- 
ment rather  than  stagnation — in  a  word,  tends  to  make  change  itself 
customary  and  normal.  In  production  machinery  is  extensively  used, 
and  a  child  may  follow  quite  another  trade  than  his  father's,  or,  if  he 
adopts  his  parent's  calling,  need  not  execute  it  in  precisely  the  same 
manner.  But  though  Western  society  is  not  stereotyped  to  the  degree 
to  which  the  social  groups  of  the  Orient  are,  it  nevertheless  shows 
more  than  traces  of  conservatism.  Mill-owners,  for  example,  through 
custom,  cling  to  child  labor ;  merchants  determine  selling  prices  by 
adding  customary  percentages  of  profit,  differing  greatly  in  different 
trades ;  the  standardization  of  woman's  dress  makes  little  headway 
against  the  custom  of  frequent  and  radical  changes  in  style ;  spring 
millinery  is  marketed  in  January  in  spite  of  untoward  weather  ;  extra 
clerks  are  hired  at  Christmas  to  meet  the  demands  of  those  whom  no 
society  for  the  suppression  of  useless  giving  can  deter  from  eleventh- 
hour  activity  in  buying.  It  is  custom  which  leads  people  to  continue 
patronizing  the  dealer  and  the  brand  of  goods  they  have  formerly 
found  satisfactory — or  unsatisfactory — instead  of  accepting  the  "just- 
as-good"  substitutes.  Without  the  power  of  custom  "good  will" 
could  not  be  capitalized  as  an  asset,  and  trade-marks  would  not  be 
desirable.  Custom,  then,  does  actively  and  potently  aid  in  regulating 
industry. 

The  various  institutions  of  society  epitomize  forms  of  social  con- 
trol. Schools  with  their  industrial  departments  in  a  measure  sup- 
plant the  older  system  of  apprenticeship  and  by  their  vocational 
guidance  bureaus  attempt  to  place  children  in  fitting  occupations. 
The  press,  the  pulpit,  and  the  platform  are  agents  for  the  dissemina- 
tion of  ideas ;  and,  by  the  impression  of  group  ideas  and  standards 
upon  individuals,  foster  the  establishment  of  social  solidarity. 
Through  these  a  society's  codes  of  ethics  find  expression :  exploita- 
tion of  workmen,  for  example,  is  frowned  upon ;  an  opportunity  for 
everyone  is  coming  to  be  regarded  as  a  matter  of  right ;  and  it  is 
insisted  that  competition  shall  be  free  and  not  "cut-throat." 

In  addition  to  the  general  ethical  codes  of  society  are  the  particu- 
lar codes  of  the  different  professions.  For  instance  the  code  of  the 
medical  profession  exercises  a  restraining  and  compelling  influence 
over  many  activities  of  its  members.  It  is  responsible  alike  for  the 
custom  of  non-advertisement  of  medical  services,  a  large  amount  of 
charity  work,  and  a  system  of  class  prices  that  frequently  becomes 
"charging  what  the  traffic  will  bear."  The  medical  man's  code  rules 
out  many  of  the  things  which  law  permits,  and  stands  in  sharp  con- 
trast to  the  principles  of  the  business  man  who  still  holds  to  the 
"eye-for-an-eye"  doctrine  and  looks  upon  shrewdness  and  sagacity 


28  CURRENT  ECONOMIC  PROBLEMS 

as  cardinal  virtues,  honesty  as  a  matter  of  policy,  and  good  will  as 
desirable  private  capital.  He  is,  however,  unlike  the  medical  man, 
constrained  to  charge  rich  and  poor  a  single  price  for  his  wares,  thus 
more  adequately  protecting  "the  consumer's  surplus"  of  the  well-to- 
do  class  than  it  is  protected  from  the  medical  fraternity.  On  the 
contrary  there  is  no  gratuitous  gift  to  the  ne'er-do-well. 

Lawyers,  ministers,  and  teachers— each  in  turn  have  their  codes. 
The  tyranny  of  social  custom  shows  itself  especially  in  the  standard 
of  living  which  each  of  the  professional  classes  is  expected  to  main- 
tain. Salaries  and  fees  must  be  high  enough  in  the  aggregate  to 
make  a  given  standard  attainable  with  circumspect  expenditure. 

A  man  in  choosing  his  profession  adopts  along  with  his  choice 
an  obligation  to  obey  the  ethical  code  society,  and  the  particular  group 
he  has  joined  expects  him  to  follow.  If  medicine,  he  must  live  up 
to  the  ethics  of  the  medical  profession  ;  if  law,  he  must  obey  its  behests 
under  penalty  of  debarment;  if  certain  particular  lines  of  business, 
he  must  rise  or  stoop  to  the  plane  of  competition  maintained  in  these 
lines,  since  nonconformity  automatically  excludes  through  business 
disaster  those  who  do  not  conform. 

He  may  subject  himself  still  further  to  voluntary  compulsion  by 
joining  a  club  or  an  association ;  for  clubs  and  associations,  of  what- 
ever sort  they  be,  have  in  common  the  exercise  of  general  control 
over  members.  The  trade-unionist,  for  example,  may  not  "scab" 
even  if  he  is  unemployed  because  of  a  strike  he  did  not  vote  for ; 
nor  may  he  speed  up  even  though  he  can  easily  increase  his  earnings 
through  piece-work ;  nor  work  overtime  without  extra  pay ;  nor  buy 
anything  without  a  union  label;  nor  print  anything  except  on  a 
union  press.  Just  so  the  employer  who  has  allied  himself  with  an 
employers'  association  must  uphold  in  relation  to  his  laborers  those 
principles  and  stipulations  upon  which  the  association  has  agreed.  He 
must  conduct  his  business  less  in  accord  with  his  individual  will  and 
more  as  the  group  has  deemed  best.  Again  there  is  the  Consumers' 
League,  whose  members  pledge  themselves  to  patronize  only  those 
manufacturers  who  measure  up  to  a  standard  set  by  the  League  and 
attain  thereby  unto  an  honored  place  on  its  white  list  and  win  fhe 
right  to  use  the  Consumers'  label. 

Enough  has  been  said  to  show  that  government  regulation  is  only 
one  form  of  social  control.  In  fact,  it  would  seem  as  if,  in  a  demo- 
cratic society,  legislation  is  only  resorted  to  when  there  is  conflict  in 
control  exterted  by  different  groups  within  society  at  large.  The 
more  satisfactory  the  control  by  the  smaller  group,  the  less  the  eco- 
nomic or  social  oppression  of  one  by  another,  the  less  the  interference 
of  society  at  large  through  law  and  governmental  control. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  29 

8.     The  Family  as  an  Agency  of  ControP 

The  importance  of  social  control  lies  in  its  performance  of  two 
functions.  The  first  is  the  organization  of  industrial  society;  the 
second,  the  direction  of  social  activities  to  ends  that  constitute  prog- 
ress. These  results  require  for  their  accomplishment  the  use  of 
a  variety  of  institutions.  So  prevalent  has  become  the  habit  of  ex- 
pressing this  problem  in  terms  of  the  individual  and  the  state  that 
we  are  prone  to  overlook  the  less  obvious,  but  extremely  important, 
agencies  of  control.  The  influences  of  some  of  these,  both  in  holding 
society  together  and  in  directing  its  development,  are  far  more  ex- 
tensive and  their  sanctions  far  more  compelling  than  even  state 
authority.  In  fact  such  is  their  power  that  one  of  the  principal 
functions  of  the  state  has  come  to  be  forcing  upon  a  small  minority 
modes  of  action  which  have  been  developed  through  other  agencies 
and  which  have  already  come  to  exercise  a  compelling  influence 
over  the  majority.  A  single  example,  that  of  the  family,  will  serve 
to  show  the  nature  and  efficiency  of  these  usually  neglected  agencies. 

The  industrial  system  is  in  general  manned  by  adults ;  so  we  are 
too  prone  to  overlook  the  industrial  importance  of  children.  The 
latter  constitute  an  incipient  industrial  force ;  to  them  the  manage- 
ment and  operation  of  the  industrial  system  will  in  course  of  time  be 
intrusted.  How  this  task  is  performed  depends  to  a  large  extent 
upon  influences  brought  to  bear  upon  them  while  they  are  still 
unincumbered  with  actWe  industrial  duties.  The  system  demands 
personal  efficiency ;  it  must  have  workers  who  are  capable  of  sus- 
tained effort.  This  is  an  acquired  characteristic.  The  savage  does 
not  possess  it ;  improper  home  influences  may  prevent  the  civilized 
child  from  acquiring  it.  Its  acquisition  is  very  closely  associated 
with  habits  of  home  discipline.  The  common  ethical  standards 
to  be  applied  to  business  dealings  are  also  quite  dependent  upon  the 
same  influences.  The  home  develops  individual  norms ;  these  grow 
into  class  and  social  norms,  which  exercise  over  the  individual  vital 
control  of  actions  through  all-compelling  imperatives  and  inhibitions. 

Industrial  efficiency  likewise  depends  upon  the  proper  distribu- 
tion of  workers  among  the  different  occupations.  The  decisions  af- 
fecting this  distribution  are  not  always  made  by  the  heads  of  fami- 
lies, but  all  of  them  are  surrounded  by  many  and  varied  family 
influences.  The  preparation  for  entering  the  chosen  occupations  is 
usually  made  under  the  same  influences.  Since  the  organization  of 
society  as  well  as  its  development  is  contingent  upon  a  proper  distri- 
bution into  occupational  groups,  the  importance  of  this  cannot  very 
well  be  underestimated.  The  freedom  which  an  individual  pos- 
sesses to  choose  and  change  his  own  occupation  usually  does  not 

*An  editorial  (1915). 


30  CURRENT  ECONOMIC  PROBLEMS 

come  to  him  until  a  time  when  an  exercise  of  this  freedom  would  be 
attended  by  losses  too  great  to  permit  it. 

Both  the  immediate  welfare  and  the  progress  of  society  vitally 
depend  upon  the  proportions  between  the  three  factors  of  produc- 
tion— land,  labor,  and  capital.  The  family,  more  than  any  other 
institution,  controls  the  increase  in  the  two  factors  subject  to  in- 
crease, capital  and  labor.  The  origin  of  capital,  as  we  know,  is  in 
savings.  Savings  are  what  is  left  of  the  family  income  when  the 
family  expenses  have  been  met.  Since  the  expenditure  depends  very 
largely  upon  family  habits,  the  dependence  of  capital  upon  this  insti- 
tution is  clearly  seen.  Family  influences,  too,  are  quite  potent  in 
inculcating  habits  of  thrift  or  prodigality,  thus  affecting  capital 
accumulation  in  the  next  generation. 

The  supply  of  labor  is  controlled  through  a  control  of  the  number 
of  people.  A  new  state,  possessed  of  undeveloped  resources,  can 
partially  control  its  numbers,  through  regulation  of  immigration. 
But  such  a  state  has  least  need  for  controlling  its  numbers.  As  the 
country  develops,  as  resources  are  utilized,  and  as  immigration  falls 
off,  a  control  of  numbers  becomes  more  and  more  a  control  of  the 
birth-rate.  No  state  has  thus  far  succeeded  directly  in  controlling 
the  number  of  births.  Even  indirectly  its  influence  has  not  been  very 
potent.  This  matter  has  been  in  the  past,  and  will  be  in  the  future 
very  largely,  left  to  the  family.  Yet  upon  this  question  of  numbers 
rest  very  vital  economic  considerations,  including  the  questions  of 
wages,  standards  of  living,  capacity  for  material  development,  etc. 
In  brief,  the  forces  influencing  the  sizes  of  the  productive  funds 
out  of  which  wealth  is  to  be  increased  are  very  largely  familial. 

It  is  often  said  that  wants  are  the  mainspring  of  economic  activ- 
ity ;  that  it  is  the  possession  of  wants  which  is  responsible  for  our 
industrial  system.  If  this  is  so  we  must  remember  that  the  wants 
which  lead  to  industrial  endeavor,  particularly  to  the  fullest  utiliza- 
tion of  personal  productive  capacities,  are  familial,  rather  than  per- 
sonal, wants.  The  beginning  and  end  of  the  economic  process  lie 
in  the  family.  It  is,  both  directly  and  indirectly,  one  of  the  most 
potent  factors  in  organizing  society  and  in  determining  the  direction 
of  its  development. 

9.     The  State  as  an  Institution  of  ControP 

BY  EDWIN   CANNAN 

The  existence  of  the  state  and  the  order  enforced  by  it  makes  it 
possible  for  property  to  play  a  part  in  organization.     We  might 

^Adapted  from  Wealth;  A  Brief  Explanation  of  the  Causes  of  Economic 
Welfare,  pp.  89-95.    Copyright  by  P.  S.  King  &  Co.,  1914. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY         31 

conceive  a  state  of  things  where  co-operation  carried  on  under  the 
influence  of  property  might  exist  without  any  organized  authority  of 
government.  But  such  a  state  of  things  has  never  been  reahzed,  nor 
is  Hkely  to  be.  So  the  state  has  been  necessary  in  the  past  and  is 
Hkely  to  continue  to  be  so  in  the  immediate  future.  Further,  even 
in  a  society  of  perfectly  just  men  it  would  be  desirable  to  have  some 
common  authority  to  make  changes  when  necessary.  Otherwise 
progress  would  be  exceedingly  slow,  since  it  would  have  to  be  im- 
perceptible. If  fast  enough  to  be  perceptible,  it  would  seem  to  violate 
custom  and  would,  therefore,  be  tabooed,  in  the  absence  of  machinery 
for  discussing  reasons  and  passing  judgment  on  them. 

In  the  eighteenth  century  there  grew  up  a  school  of  thinkers  who 
said  to  the  governments  of  the  time,  "laissez  faire"  or  "let  alone." 
The  more  philosophical  among  them  were  influenced  by  the  cult  of 
nature  prevalent  at  the  time,  thinking  that  certain  institutions  were 
natural  and  therefore  good,  while  others  were  artificial  and  bad. 
They  wanted  the  institutions  which  they  thought  natural  let  alone 
and  the  others  abolished.  The  practical  men  wanted  certain  institu- 
tions abolished  which  they  regarded  as  harmful,  and  did  not  trouble 
themselves  to  think  of  the  others.  The  natural  institutions  of  the 
philosophers  are  now  seen  to  be  nothing  but  slight  modifications  of 
the  institutions  of  their  own  time.  To  the  practical  man,  the  precept 
"laissez  faire"  never  meant  "leave  everything  alone,"  nor  even  "leave 
all  natural  things  alone,"  but  simply,  "leave  alone  certain  things  which 
I  think  ought  to  be  left  alone."  The  practical  men  got  their  way  to 
a  considerable  extent,  and  therefore  it  has  become  the  fashion  to 
speak  of  the  "laissez-faire  period."  But  there  never  was  and  never 
can  be  a  state  which  practices  this  policy.  The  very  establishment  of 
the  state  negatives  a  policy  of  complete  "let  alone." 

In  primitive  times  the  demand  upon  the  authority  which  repre- 
sents the  state  is  constantly  for  the  enforcement  of  "good  old  cus- 
toms." When  the  state  complies,  it  is  not  letting  alone  but  taking 
an  active  part  in  the  enforcement  of  these  customs,  which  might 
otherwise  fall  into  disuse  owing  to  violation  by  interested  parties. 
Moreover,  the  enforcement  of  these  customs,  coupled  with  neglect  to 
enforce  other  customs,  involves  a  discrimination  favorable  to  prog- 
ress. Consequently  there  was  a  large  amount  of  "state  interference" 
even  in  periods  when  the  state  seemed  to  do  nothing  except  to  rein- 
force the  people's  respect  for  custom. 

The  general  enforcement  of  law  and  order  and  the  facilitation  of 
necessary  and  desirable  changes  in  that  law  and  order,  though  per- 
haps the  most  vital,  is  by  no  means  the  only  important  function  of  the 
state  in  economic  organization.  Separate  property  in  land  has  never 
covered  the  face  of  any  considerable  country,    A  network  of  narrow 


32  CURRENT  ECONOMIC  PROBLEMS 

strips  forming  the  means  of  communication  is  always  found  outside 
the  limits  of  private  property.  Without  this  reservation  from  pri- 
vate property  any  considerable  amount  of  communication  would  be 
impossible.  Hence  provision  of  the  means  of  communication  has 
always  been  in  the  hands  of  the  state.  Where  private  parties  build 
railways  they  are  granted  by  the  state  the  right  of  eminent  domain, 
or  the  power  to  buy  the  land  they  need  to  get  the  required  consecu- 
tive strip,  even  if  the  owners  do  not  wish  to  sell.  They  have  to  pay 
only  fair  "compensation." 

In  modern  times  a  number  of  other  things  have  grown  up  which 
resemble  the  means  of  communication  in  being  spread  over  large 
areas  in  thin  lines.  Water,  drainage,  gas  and  electric  lighting,  tele- 
graphic and  telephonic  communications,  require  a  laying  of  a  net- 
work of  wires  all  over  the  face  of  the  world.  It  is  constantly  neces- 
sary to  acquire  private  property  for  a  part  of  this  work.  These 
things  are  very  similar  to  roads,  railways,  and  canals  in  many  of 
their  characteristics,  and  are  therefore  dealt  with  in  much  the  same 
way.  In  helping  to  provide  these  engineering  works  required  for 
the  progress  of  invention  and  the  thicker  population  in  modern  times, 
the  state  may  be  said  to  be  arranging  for  a  necessary  supplement  to 
the  organization  based  on  separate  property. 

Some  kind  of  organization  covering  the  whole  industrial  terri- 
tory and  armed  with  certain  disciplinary  powers  is  obviously  neces- 
sary, and  is  supplied  by  the  state ;  badly  as  it  works  in  its  earlier 
forms,  it  is  never  worse  than  the  chaos  which  preceded  it,  and  as  time 
goes  on  it  is  gradually  improved. 

E.     THE  THEORY  OF  LAISSEZ  FAIRE 
10.     The  Fundamental  Law  of  Nature^** 

BY   WILLIAM    BLACKSTONE 

As,  therefore,  the  Creator  is  a  being,  not  only  of  infinite  power 
and  wisdom,  but  also  of  infinite  goodness,  he  has  been  pleased  so  to 
contrive  the  constitution  and  frame  of  humanity,  that  we  should 
want  no  other  prompter  to  enquire  after  and  pursue  the  rule  of  right, 
but  only  our  self  love,  that  universal  principle  of  action.  For  he  has 
so  intimately  connected,  so  inseparably  interwoven  the  laws  of  ex- 
ternal justice  with  the  happiness  of  each  individual  that  the  latter 
cannot  be  attained  but  by  observing  the  former,  and  if  the  former  be 
punctually  obeyed,  it  cannot  but  induce  the  latter.  In  consequence  of 
which  mutual  connection  of  justice  and  human  felicity,  he  has  not 
perplexed  the  law  of  nature  with  a  multitude  of  abstracted  rules  and 

^^Commentaries  on  the  L^ws  of  England  (1765)  ;  Book  i,  sec.  2. 


PROBLEM  OF  CONTROL  OF  INDUSTRIAL  SOCIETY         ^^ 

precepts,  referring  merely  to  the  fitness  or  unfitness  of  things,  as 
some  have  vainly  surmised,  but  has  graciously  reduced  the  rule  of 
obedience  to  this  one  paternal  precept,  "that  man  should  pursue  his 
own  true  and  substantial  happiness."  This  is  the  foundation  of  what 
we  call  ethics  or  natural  law ;  for  the  several  articles  into  which  it  is 
branched  in  our  system  amount  to  no  more  than  demonstrating  that 
this  or  that  action  tends  to  man's  real  happiness,  and  therefore  very 
justly  concluding  that  the  performance  of  it  is  a  part  of  the  law  of 
nature ;  or,  on  the  other  hand,  that  this  or  that  action  is  destructive 
to  man's  real  happiness,  and  therefore  that  the  law  of  nature  for- 
bids it. 

11.     A  Diatribe  against  Human  Institutions^^ 

BY  J.   J.  ROUSSEAU 

All  things  are  good  as  their  author  made  them,  but  everything 
degenerates  in  the  hands  of  man.  By  man  our  native  soil  is  forced 
to  nourish  plants  brought  from  foreign  regions,  and  one  tree  is  made 
to  bear  the  fruit  of  another.  Man  brings  about  a  general  confusion 
of  elements,  climates,  and  seasons ;  he  mutilates  his  dogs,  his  horses, 
and  his  slaves ;  he  seems  to  delight  only  in  monsters  and  deformity. 
He  is  not  content  with  anything  as  Nature  left  it. 

As  things  now  are,  a  man  left  to  himself  from  his  birth  would, 
in  his  association  with  others,  prove  the  most  preposterous  creature 
possible.  The  prejudices,  authority,  necessity,  example,  and,  in  short, 
the  vicious  social  institutions  in  which  we  find  ourselves  submerged, 
would  stifle  everything  natural  in  him,  and  yet  give  him  nothing  in 
return.  He  would  be  like  a  shrub  which  has  sprung  up  by  accident 
in  the  middle  of  the  highway,  to  perish  by  being  thrust  this  way  and 
that  and  trampled  upon  by  passers-by.  All  our  wisdom  consists  in 
servile  prejudices ;  all  our  customs  are  but  suggestions,  anxiety,  and 
constraint.  Civilized  man  is  born,  lives,  dies  in  a  state  of  slavery. 
At  his  birth  he  is  sewed  in  swaddling  clothes ;  at  his  death  he  is 
nailed  in  a  coffiin ;  as  long  as  he  preserves  the  human  form  he  is  fet- 
tered by  our  institutions. 

12.     A  Plea  Against  Governmental  Restraints'^ 

BY  ADAM  SMITH 

Every  individual  is  continually  exerting  himself  to  find  out  the 
most  advantageous  employment  for  whatever  capital  he  can  com- 
mand.   It  is  his  own  advantage,  indeed,  and  not  that  of  the  society, 

^^Emile  ou  I'education  (1762),  liv.  i. 

i^Adapted  from  An  Inquiry  Into  the  Nature  and  Causes  of  the  Wealth 
of  Nations  {1776),  Book  IV,  chap.  ii. 


34  CURRENT  ECONOMIC  PROBLEMS 

which  he  has  in  view.  But  the  study  of  his  own  advantage,  naturally, 
or  rather  necessarily,  leads  him  to  prefer  that  employment  which  is 
most  advantageous  to  the  society. 

The  produce  of  industry  is  what  it  adds  to  the  subject  or  materials 
upon  which  it  is  employed.  In  proportion  as  the  value  of  this  produce 
is  great  or  small,  so  will  likewise  be  the  profits  of  the  employer.  But 
it  is  only  for  the  sake  of  profit  that  any  man  employs  a  capital  in  the 
support  of  industry;  and  he  will  always,  therefore,  endeavor  to  em- 
ploy it  in  the  support  of  that  industry  of  which  the  produce  is  likely 
to  be  of  the  greatest  value,  or  to  exchange  for  the  greatest  quantity 
either  of  money  or  of  other  goods. 

But  the  annual  revenue  of  every  society  is  always  precisely  equal 
to  the  exchangeable  value  of  the  whole  annual  produce  of  its  industry, 
or,  rather,  is  precisely  the  same  thing  with  that  exchangeable  value. 
As  every  individual,  therefore,  endeavors  as  much  as  he  can  both  to 
employ  his  capital  in  the  support  of  domestic  industry,  and  so  to 
direct  that  industry  that  its  produce  may  be  of  the  greatest  value, 
every  individual  necessarily  labors  to  render  the  annual  revenue  of 
the  society  as  great  as  he  can.  He  generally,  indeed,  neither  intends 
to  promote  the  public  interest,  nor  knows  how  much  he  is  promoting 
it.  By  preferring  the  support  of  domestic  to  that  of  foreign  industry, 
he  intends  only  his  own  security ;  and  by  directing  that  industry  in 
such  a  manner  as  its  produce  may  be  of  the  greatest  value,  he  intends 
only  his  own  gain,  and  he  is  in  this,  as  in  many  other  cases,  led  by  an 
invisible  hand  to  promote  an  end  which  was  no  part  of  his  intention. 
Nor  is  it  always  the  worse  for  the  society  that  it  was  no  part  of  it. 
By  pursuing  his  own  interest  he  frequently  promotes  tTiat  of  the 
society  more  effectually  than  when  he  really  intends  to  promote  it. 
I  have  never  known  much  good  done  by  those  who  affected  to  trade  for 
the  public  good.  It  is  an  affection,  indeed,  not  very  common  among 
merchants,  and  very  few  words  need  be  employed  in  dissuading  them 
from  it. 

What  is  the  species  of  domestic  industry  which  his  capital  can 
employ,  and  of  which  the  produce  is  likely  to  be  of  the  greatest  value, 
every  individual,  it  is  evident,  can,  in  his  local  situation,  judge  much" 
better  than  any  statesman  or  lawgiver  can  do  for  him.  The  states- 
man who  should  attempt  to  direct  private  people  in  what  manner  they 
ought  to  employ  their  capitals  would  not  only  load  himself  with  a 
most  unnecessary  attention,  but  assume  an  authority  which  could 
safely  be  trusted,  Tiot  only  to  no  single  person,  but  to  no  council  or 
senate  whatever,  and  which  would  nowhere  be  so  dangerous  as  in  the 
hands  of  a  man  who  had  folly  and  presumption  enough  to  fancy 
himself  fit  to  exercise  it. 


PROBLEM  OF  CONTROL  OF  INDUSTRIAL  SOCIETY         35 
13.     A  General  Condemnation  of  Governments^ 

BY  WILLIAM   GODWIN 

Society  is  an  ideal  existence  and  not  on  its  own  account  entitled 
to  the  smallest  regard.  The  wealth,  prosperity,  and  glory  of  the 
whole  are  unintelligible  chimeras.  Set  no  value  on  anything,  but 
in  proportion  as  you  are  convinced  of  its  tendency  to  make  individual 
men  happy  and  virtuous.  Benefit,  by  every  practical  mode,  man 
wherever  he  exists  ;  but  be  not  deceived  by  the  specious  idea  of  afford- 
ing services  to  a  body  of  men,  for  which  no  individual  man  is  the 
better.  Individuals  cannot  have  too  frequent  or  unlimited  inter- 
course with  each  other;  but  societies  of  men  have  no  interests  to 
explain  and  adjust,  except  so  far  as  error  and  violence  may  render 
explanation  necessary.  This  consideration  annihilates  at  once  the 
principal  objects  of  that  mysterious  and  crooked  policy  which  has 
hitherto  occupied  the  attention  of  governments. 

Government  can  have  but  two  legitimate  purposes,  the  suppres- 
sion of  mjustice  against  individuals  within  the  community  and  the 
common  defense  against  external  invasion. 

Legislation,-  that  is,  the  authoritative  enunciation  of  abstract  or 
general  propositions,  is  a  function  of  equivocal  nature  and  will  never 
be  exercised  in  a  pure  state  of  society,  or  a  state  approaching  to 
purity,  but  with  great  caution  and  unwillingness.  It  is  the  most  abso- 
lute of  the  functions  of  government,  and  government  is  itself  a 
remedy  that  invariably  brings  its  own  evils  along  with  it.  Legisla- 
tion, as  it  has  been  usually  understood,  is  not  an  affair  of  human 
competence.  Reason  is  the  only  legislator,  and  her  decrees  are  irre- 
vocable and  uniform.  The  functions  of  society  extend,  not  to  the 
making,  but  the  interpreting  of  law;  it  cannot  decree,  it  can  only 
declare  that  which  the  nature  of  things  has  already  decreed  and  the 
propriety  of  which  irresistibly  flows  from  the  circumstances  of  the 
case. 

The  true  reason  why  the  mass  of  mankind  has  so  often  been  made 
the  dupe  of  knaves  has  been  the  mysterious  and  complicated  nature 
of  the  social  system.  Once  annihilate  the  quackery  of  government, 
and  the  most  home-bred  understanding  will  be  prepared  to  scorn  the 
shallow  artifices  of  the  state  juggler  that  would  mislead  him.  With 
what  delight  must  every  well  informed  friend  of  mankind  look  for- 
ward to  the  auspicious  period,  the  dissolution  of  political  govern- 
ment, of  that  brute  engine,  which  has  been  the  only  perennial  cause  of 
the  vices  of  mankind,  and  which  has  mischiefs  of  various  forms  in- 
corporated with  substance,  and  not  otherwise  to  be  removed  than  by 
its  utter  annihilation. 

i^Adapted  from  An  Enquiry  Concerning  Political  Justice  and  Its  Influence 
on  General  Virtue  and  Happiness  (i793),  PP-  SM,  561,  564.  555,  168,  575,  579- 


36  CURRENT  ECONOMIC  PROBLEMS 

14.     The  Identity  of  Individual  and  Social  Good" 

BY  PIERCY  RAVENSTONE 

Nature  has  implanted  in  every  man's  breast  an  instinct  which 
teaches  him  intuitively  to  pursue  his  own  happiness;  and,  by  con- 
necting the  welfare  of  every  part  of  society  with  that  of  the  whole, 
she  has  wisely  ordained  that  he  shall  not  be  able  to  realize  his  own 
wishes  without  contributing  to  the  happiness  of  others. 

Every  man  may  thus  safely  be  intrusted  with  the  care  of  work- 
ing out  his  own  prosperity.  It  is  not  necessary  for  governments,  it 
is  therefore  no  part  of  their  duty  to  teach  to  individuals  what  will 
most  conduce  to  the  success  of  their  pursuits ;  they  are  ill-calculated 
for  such  a  superintendence.  All  care  of  this  sort  is  on  their  part 
wholly  impertinent.  Their  functions  are  of  quite  a  different  nature; 
to  correct  the  vicious  attachment  to  their  own  interests  which  too 
frequently  induces  men  to  seek  their  own  apparent  good  by  the  injury 
of  others,  which  would  disorder  the  whole  scheme  of  society,  to  bring 
about  what  they  mistakenly  consider  their  own  happiness.  To  re- 
strain, not  to  direct,  is  the  true  function  of  the  government;  it  is 
the  only  one  it  is  called  on  to  perform,  it  is  the  only  one  it  can  safely 
execute.  It  never  goes  out  of  its  province  without  doing  mischief. 
The  mischief  is  not  always  apparent,  for  the  constitution  of  the 
patient  is  often  sufificiently  strong  to  resist  the  deleterious  effects  of 
the  quackery.  But  it  is  not  safe  to  try  experimens  which  can  do  no 
good,  merely  because  the  strength  of  the  patient  may  prevent  them 
from  being  injurious. 

The  spirit  of  interference  has  never  manifested  itself  so  strongly 
as  of  late  years.  It  constitutes  the  very  essence  of  modern  political 
economy.  Everything  is  to  be  done  by  the  state ;  nothing  is  to  be 
left  to  the  discretion  of  individuals.  It  is  proposed  to  transfer  men 
into  a  species  of  political  nursery-ground,  where  the  quality  of  plants 
is  to  be  regulated  with  mathematical  exactness,  to  be  fitted  to  the 
capacity  of  the  soil ;  where  every  exurberance  in  their  shoots  is  to  be 
immediately  pruned  away,  and  their  branches  confined  within  the 
bounds  of  the  supporting  espalier. 

15.     A  Protest  against  Useless  Restrictions^"^ 

BY  JEREMY  BENTHAM 

Ashiirst. — The  law  of  this  country  only  lays  such  restraints  on 
the  actions  of  individuals  as  are  necessary  for  the  safety  and  good 
order  of  the  community  at  large. 

i^From  A  Feiv  Doubts  as  to  the  Correctness  of  Some  Opinions  Generally 
Entertained  on  the  Subjects  of  Populatiori  and  Political  Economy  (1821), 
pp.  2-3. 

^^From  Truth  against  Ashurst,  in  Works  of  Jeremy  Bentham  (1823), 
V,  234. 


PROBLEM  OF  CONTROL  OF  INDUSTRIAL  SOCIETY         37 

Truth. — I  sow  corn ;  partridges  eat  it,  and  if  I  attempt  to  defend 
it  against  the  partridges,  I  am  fined  or  sent  to  gaol :  all  this,  for  fear 
a  great  man,  who  is  above  sowing  corn,  should  be  in  want  of  par- 
tridges. 

The  trade  I  was  born  to  is  overstocked ;  hands  are  wanting  in 
another.  If  I  offer  to  work  at  that  other,  I  may  be  sent  to  gaol  for 
it.  Why  ?  Because  I  have  not  been  working  at  it  as  an  apprentice 
for  seven  years.  What's  the  consequence?  That,  as  there  is  no 
work  for  men  in  my  original  trade,  I  must  either  come  upon  the 
parish  or  starve. 

There  is  no  employment  for  me  in  my  own  parish:  there  is 
abundance  in  the  next.  Yet  if  I  offer  to  go  there,  I  am  driven  away. 
Why?  Because  I  might  become  unable  to  work  one  of  these  days, 
and  so  I  must  not  work  while  I  am  able.  I  am  thrown  upon  one  parish 
now,  for  fear  I  should  fall  upon  another,  forty  or  fifty  years  hence. 
At  this  rate  how  is  work  ever  to  be  got  done?  If  a  man  is  not  poor, 
he  won't  work :  and  if  he  is  poor,  the  law  won't  let  him.  How  then 
is  it  that  so  much  is  done  as  is  done?  As  pockets  are  picked — ^by 
stealth,  and  because  the  law  is  so  wicked  that  it  is  only  here  and  there 
that  a  man  can  be  found  wicked  enough  to  think  of  executing  it. 

Pray,  Mr.  Justice,  how  is  the  community  you  speak  of  the  better 
for  any  of  these  restraints?  and  where  is  the  necessity  of  them?  and 
how  is  safety  strengthened  or  good  order  benefited  by  them? 

But  these  are  only  three  out  of  this  thousand. 

16.     Opportunity 

"  BY  JOHN  J.  INGALLS 

Master  of  human  destines  am  I ! 

Fame,  love,  and  fortune  on  my  footsteps  wait ; 

Cities  and  fields  I  walk :   I  penetrate 

Deserts  and  seas  remote,  and  passing  by 

Hovel  and  mart  and  palace,  soon  or  late 

I  knock  unbidden  once  at  every  gate ! 

If  sleeping  wake;  if  feasting  rise  before 

I  turn  away.    It  is  the  hour  of  fate 

And  those  who  follow  me  reach  every  state 

Mortals  desire,  and  conquer  every  foe 

Save  death  ;  but  those  who  doubt  or  hesitate 

Condemned  to  failure,  penury,  and  woe 

Seek  me  in  vain  and  uselessly  implore. 

I  answer  not,  and  I  return  no  more ! 


38  CURRENT  ECONOMIC  PROBLEMS 

F.     THE  INTERPRETATION  OF  LAISSEZ  FAIRE 
17.     The  Philosophy  of  Individualism" 

BY  ALBERT  V.  DICEY 

Individualism  as  regards  legislation  is  popularly  connected  with 
the  name  and  the  principles  of  Bentham.  The  ideas  which  underlie 
the  Benthamite  or  individualistic  scheme  of  reform  may  conveniently 
be  summarized  under  three  leading  principles  and  two  corollaries. 

I.  English  law,  as  it  existed  at  the  end  of  the  eighteenth  cen- 
tury, had  developed  almost  haphazard,  as  the  result  of  customs  or 
modes  of  thought  which  had  prevailed  at  different  periods.  The  laws 
had  for  the  most  part  never  been  enacted.  In  order  to  amend  the 
fabric  of  the  law  we  must,  so  Bentham  insisted,  lay  down  a  plan 
grounded  on  fixed  principles.  Legislation,  in  short,  he  proclaimed, 
is  a  science  based  on  the  characteristics  of  human  nature,  and  the 
art  of  lawmaking,  if  it  is  to  be  successful,  must  be  the  application  of 
legislative  principles. 

II.  The  right  aim  of  legislation  is  the  carrying  out  of  the  prin- 
ciple of  utility,  or,  in  other  words,  the  proper  end  of  every  law  is  the 
promotion  of  the  greatest  happiness  of  the  greatest  number. 

This  principle  is  the  formula  with  which  popular  memory  has 
most  closely  connected  the  name  of  Bentham.  Whatever  objections 
this  principle  may  be  open  to,  one  may  with  confidence  assert  that 
it  is  far  more  applicable  to  law  than  to  morals,  for  at  least  two 
reasons  :  First,  legislation  deals  with  numbers  and  with  whole  classes 
of  men;  morality  deals  with  individuals.  It  is  obviously  easier  to 
determine  what  are  the  things  which  as  a  general  rule  promote  the 
happiness  of  a  large  number  of  persons,  than  to  form  even  a  con- 
jecture as  to  what  may  constitute  the  happiness  of  an  individual. 
Let  it  be  noted  that  the  law  aims  not  at  positive  happiness,  but  only 
at  the  creation  of  conditions  under  which  it  is  likely  that  its  subjects 
will  prosper.  Secondly,  law  is  concerned  primarily  with  external 
actions,  and  is  only  very  indirectly  concerned  with  motives.  Morality, 
on  the  other  hand,  is  primarily  concerned  with  motives  and  feelings. 
But  it  is  far  easier  to  maintain  that  the  principle  of  utility  is  ther 
proper  standard  of  right  action  than  that  it  supplies  the  foundation 
on  which  rests  the  conviction  of  right  or  wrong. 

Ideas  of  happiness,  it  has  been  objected,  vary  in  different  ages, 
countries,  and  among  different  classes ;  a  legislator,  therefore,  gains 
no  real  guidance  from  the  domga  that  laws  should  aim  at  promoting 
the  greatest  happiness  of  the  greatest  number.     To  this  objection 

i^Adapted  from  Lectures  on  the  Relation  between  Law  and  Public  Opinion 
in  England  during  the  Nineteenth  Century,  pp.  125-49.  Copyright  by  Mac- 
millan  &  Co.,  1905. 


PROBLEM  OF  CONTROL  OF  INDUSTRIAL  SOCIETY  39 

there  exists  at  least  two  answers.  The  first  is  that,  even  if  the  varia- 
biHty  of  men's  conceptions  of  happiness  be  admitted,  the  concession 
proves  no  more  than  that  the  application  of  the  principle  of  utility  is 
conditioned  by  the  ideas  of  human  welfare  which  prevail  at  a  given 
time  in  a  given  country.  There  is  no  reason  why  utilitarianism 
should  refuse  to  accept  this  conclusion.  Different  laws  may  promote 
the  happiness  of  different  people.  The  second  reply  is  that,  as  regards 
the  conditions  of  public  prosperity,  the  citizens  of  civilized  states 
have,  in  modern  times,  reached  a  large  amount  of  agreement.  For 
instance,  who  can  seriously  doubt  that  a  plentiful  supply  of  cheap 
food,  efficient  legal  protection  against  violence  and  fraud,  and  the 
freedom  of  all  classes  from  excessive  labor  conduce  to  the  public  wel- 
fare ?  What  man  out  of  Bedlam  ever  dreamed  of  a  country  the  hap- 
pier for  pestilence,  famine,  and  war?  Laws  deal  with  very  ordinary 
matters,  and  deal  with  them  in  a  rough  and  ready  manner.  The  char- 
acter, therefore,  of  a  law,  may  well  be  tested  by  the  rough  criterion 
embodied  in  the  doctrine  of  utility. 

There  still  exists,  however,  an  objection  that  must  be  examined 
with  care.  Bentham  and  his  disciples  have  displayed  a  tendency  to 
underestimate  the  diversity  between  human  beings.  They  have  too 
easily  accepted  the  notion  of  uniformity  in  ideas  of  happiness  in  dif- 
ferent countries  and  different  ages.  This  supposition  has  facilitated 
legislation,  but  it  has  led  to  the  feeling  that  laws  which  in  the  nine- 
teenth century  promoted  the  happiness  of  Englishmen,  must  at  all 
times  promote  the  happiness  of  the  inhabitants  of  all  countries. 

The  foundation  then  of  legislative  utilitarianism  is  the  combina- 
tion of  two  convictions.  The  one  is  the  belief  that  the  end  of  human 
existence  is  the  attainment  of  happiness ;  the  other  is  the  assurance 
that  legislation  is  a  science  and  that  the  aim  of  laws  is  the  promotion 
of  human  happiness. 

III.  Every  person  is  in  the  main  and  as  a  general  rule  the  best 
judge  of  his  own  happiness.  Hence  legislation  should  aim  at  the 
removal  of  all  those  restrictions  on  the  free  action  of  an  individual 
which  are  not  necessary  for  securing  the  like  freedom  on  the  part  of 
his  neighbors. 

This  dogma  of  laissez  faire  is  not  from  a  logical  point  of  view 
an  essential  article  of  the  utilitarian  creed.  A  benevolent  despot 
might  enforce  upon  his  people  laws  which,  though  they  might  diminish 
individual  liberty,  were  likely,  nevertheless,  to  insure  the  well-being 
of  his  people.  Yet  laissez  faire  was  practically  the  most  vital  part 
of  Bentham's  doctrine.  Bentham  perceived  that  under  a  system  of 
ancient  customs  modified  by  haphazard  legislation,  unnumbered  re- 
straints were  placed  on  the  actions  of  individuals,  which  were  in  no 
sense  necessary  for  the  safety  and  good  order  of  the  community  at 


40  CURRENT  ECONOMIC  PROBLEMS 

large,  and  he  inferred  at  once  that  these  restraints  were  evils.  Con- 
sequently we  have  from  him  the  eulogy  of  laissez  faire.  But  with 
him  and  his  disciples  it  was  a  totally  different  thing  from  easy  ac- 
quiescence in  the  existing  conditions  of  life.  It  was  a  war  cry.  It 
sounded  the  attack  upon  every  restriction,  not  justifiable  by  some 
definite  and  assignable  reason  of  utility. 

From  these  three  guiding  principles  of  legislative  utilitarianism — 
the  scientific  character  of  sound  legislation,  the  principle  of  utility, 
faith  in  laissez  faire — English  individualists  have  in  practice  deduced 
the  two  corollaries :  that  the  law  ought  to  extend  to  the  sphere  and 
enforce  the  obligation  of  contracts ;  and  that,  as  regards  the  posses- 
sion of  political  power,  every  man  ought  to  count  for  one  and  no 
man  count  for  more  than  one.  Each  of  these  ideas  has  been  con- 
stantly entertained  by  men  who  have  never  reduced  it  to  a  formula 
or  carried  it  out  to  its  full  logical  result ;  each  of  these  two  ideas  has 
profoundly  influenced  modern  legislation. 

18.     The  Individualistic  Theory  of  Governments^ 

BY  JOHN  STUART  MILL 

We  have  now  reached  the  question  to  what  objects  governmental 
intervention  in  the  affairs  of  society  may  or  should  extend.  The 
supporters  of  interference  have  been  content  with  asserting  a  gen- 
eral right  and  duty  on  the  part  of  government  to  intervene,  where- 
ever  its  intervention  would  be  useful ;  and  when  those  who  have  been 
called  the  laissez-faire  school  have  attempted  any  definite  limitation 
of  the  province  of  government,  they  have  usually  restricted  it  to  the 
protection  of  person  and  property  against  force  and  fraud ;  a  defini- 
tion to  which  neither  they  nor  anyone  else  can  deliberately  adhere, 
since  it  excludes  some  of  the  most  indispensable  and  unanimously 
recognized  of  the  duties  of  government. 

Whatever  theory  we  adopt  respecting  the  foundation  of  the  social 
union,  and  under  whatever  political  institutions  we  live,  there  is  a 
circle  around  every  individual  human  being,  which  no  government, 
be  it  that  of  one,  or  a  few,  or  of  the  many,  ought  to  be  permitted  to" 
overstep :  there  is  a  part  of  the  life  of  every  person  who  has  come  to 
years  of  discretion,  within  which  the  individuality  of  that  person 
ought  to  reign  uncontrolled  either  by  any  other  individual  or  by  the 
public  collectively.  That  there  is,  or  ought  to  be,  some  space  in  human 
existence  thus  entrenched  around,  and  sacred  from  authoritative 
intrusion,  no  one  who  professes  the  smallest  regard  to  human  free- 
dom or  dignity  will  call  in  question. 

i^Adapted  from  Principles  of  Political  Economy  (1848),  Book  V,  chap.  xi. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  41 

Even  in  those  portions  of  conduct  which  do  affect  the  interests  of 
others,  the  onus  of  making  out  a  case  always  lies  on  the  defenders 
of  legal  prohibitions.  It  is  not  a  merely  constructive  or  presumptive 
injury  to  others,  which  will  justify  the  interference  of  law  with  indi- 
vidual freedom.  To  be  prevented  from  doing  what  one  is  inclined  to, 
or  from  acting  according  to  one's  own  judgment  of  what  is  desirable, 
is  not  only  always  irksome,  but  always  tends  to  starve  the  develop- 
ment of  some  portion  of  the  bodily  or  mental  faculties,  either  sensitive 
or  active ;  and  unless  the  conscience  of  the  individual  goes  freely 
with  the  legal  restraint,  it  partakes,  either  in  a  great  or  in  a  small 
degree,  of  the  degradation  of  slavery. 

A  second  general  objection  to  government  agency  is  that  every 
increase  of  the  functions  developing  on  the  government  is  an  increase 
of  its  power,  both  in  the  form  of  authority,  and  still  more,  in  the 
indirect  form  of  influence.  The  public  collectively  is  abundantly 
ready  to  impose,  not  only  its  generally  narrow  views  of  its  interests, 
but  its  abstract  opinions,  and  even  its  tastes,  as  laws  binding  upon 
individuals.  And  the  present  civilization  tends  so  strongly  to  make 
the  power  of  persons  acting  in  masses  the  only  substantial  power  in 
society,  that  there  never  was  more  necessity  for  surrounding  indi- 
vidual independence  of  thought,  speech,  and  conduct,  with  the  most 
powerful  defences.  Hence  it  is  no  less  important  in  a  democratic 
than  in  any  other  government,  that  all  tendency  on  the  part  of  public 
authorities  to  stretch  their  interference  should  be  regarded  with  unre- 
mitting jealousy. 

A  third  general  objection  to  government  agency  rests  on  the  prin- 
ciple of  the  division  of  labor.  Every  additional  function  undertaken 
by  the  government  is  a  fresh  occupation  imposed  upon  a  body  already 
overcharged  with  duties.  A  natural  consequence  is  that  most  things 
are  ill  done;  much  not  done  at  all,  because  the  government  is  not 
able  to  do  it  without  delays  which  are  fatal  to  its  purpose. 

I  have  reserved  for  the  last  place  one  of  the  strongest  of  the 
reasons  against  the  extension  of  government  agency.  Even  if  the 
government  could  comprehend  within  itself,  in  each  department,  all 
the  most  eminent  intellectual  capacity  and  active  talent  of  the  nation, 
it  would  not  be  the  less  desirable  that  the  conduct  of  a  large  portion 
of  the  affairs  of  society  should  be  left  in  the  hands  of  the  persons 
immediately  interested  in  them.  A  people  among  whom  there  is  no 
habit  of  spontaneous  action  for  a  collective  interest  who  look  habit- 
ually to  their  government  to  command  or  prompt  them  in  all  matters 
of  joint  concern  have  their  faculties  only  half  developed;  their  edu- 
cation is  defective  in  one  of  its  most  important  branches.  There  can- 
not be  a  combination  of  circumstances  more  dangerous  to  human 
welfare  than  that  in  which  intelligence  and  talent  are  maintained  at 


42         •  CURRENT  ECONOMIC  PROBLEMS 

a  high  standard  within  a  governing  corporation,  but  starved  and  dis- 
couraged outside  the  pale.  Few  will  dispute  the  more  than  sufficiency 
of  these  reasons,  to  throw,  in  every  instance,  the  burden  of  making 
out  a  strong  case,  not  on  those  who  resist,  but  on  those  who  recom- 
mend government  interference.  Laissez  faire,  in  short,  should  be  the 
general  practice ;  every  departure  from  it,  unless  required  by  some 
great  good,  is  a  certain  evil. 

But  we  must  now  turn  to  the  second  part  of  our  task,  and  direct 
our  attention  to  cases,  in  which  some  of  those  general  objections  are 
altogether  absent,  while  those  which  can  never  be  got  rid  of  entirely 
are  overruled  by  counter-considerations  of  still  greater  importance. 

Can  it  be  affirmed,  for  instance,  that  the  consumer  is  the  most 
competent  judge  of  the  end?  Is  the  buyer  always  qualified  to  judge 
of  the  commodity  ?  The  proposition  can  be  admitted  only  with  numer- 
ous abatements  and  exceptions.  This  is  peculiarly  true  of  those 
things  which  are  chiefly  useful  as  tending  to  raise  the  character  of 
human  beings.  The  uncultivated  cannot  be  competent  judges  of  cul- 
tivation. Those  who  most  need  to  be  made  wiser  and  better  usually 
desire  it  least,  and  if  they  desired  it,  would  be  incapable  of  finding 
the  way  to  it  by  their  own  lights.  In  the  matter  of  education,  the 
intervention  of  government  is  justifiable,  because  the  case  is  not  one 
in  which  the  interest  and  judgment  of  the  consumer  are  a  sufficient 
security  for  the  goodness  of  the  commodity.  Let  us  now  consider 
other  cases,  where,  for  one  reason  or  another,  governmental  inter- 
ference is  necessary.    These  may  be  classed  under  several  heads. 

First,  the  individual  who  is  presumed  to  be  the  best  judge  of  his 
own  interests  may  be  incapable  of  judging  or  acting  for  himself ;  may 
be  a  lunatic,  an  idiot,  an  infant;  or,  though  not  wholly  incapable, 
may  be  of  immature  years  and  judgment.  In  this  case  the  founda- 
tion of  the  laissez-faire  principle  breaks  down  entirely.  The  person 
most  interested  is  not  the  best  judge  of  the  matter,  nor  a  competent 
judge  at  all.  To  take  an  example  from  the  pecuHar  province  of  politi- 
cal economy ;  it  is  right  that  children,  and  young  persons  not  yet  ar- 
rived at  maturity,  should  be  protected,  so  far  as  the  eye  and  hand  of 
the  state  can  reach,  from  being  over-worked.  Freedom  of  contract, 
in  the  case  of  children,  is  but  another  word  for  freedom  of  coercion. 
Education  also  is  not  a  thing  which  parents  or  relatives  should  have 
it  in  their  power  to  withhold. 

But  the  classing  together,  for  this  and  other  purposes,  of  women 
and  children,  appears  to  me  both  indefensible  in  principle  and  mis- 
chievous in  practice.  Children  below  a  certain  age  cannot  judge  or 
act  for  themselves,  but  women  are  as  capable  as  men  of  appreciating 
and  managing  their  own  concerns,  and  the  only  hindrance  to  their 
doing  so  arises  from  the  injustice  of  their  present  social  position.    If 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  43 

women  had  as  absolute  a  control  as  men  have  over  their  own  persons 
and  their  own  patrimony  or  acquisitions,  there  would  be  no  plea  for 
limiting  their  hours  of  laboring  for  themselves,  in  order  that  they 
might  have  time  to  labor  for  the  husband,  in  what  is  called  his  home. 
Women  employed  in  factories  are  the  only  women  in  the  laboring 
rank  of  life  whose  position  is  not  that  of  slaves  and  drudges. 

A  second  exception  is  when  an  individual  attempts  to  decide  irrev- 
ocably now  what  will  be  best  for  his  interest  at  some  future  and 
distant  time.  The  practical  maxim  of  leaving  contracts  free  is  not 
applicable  without  great  limitations  in  case  of  engagements  in  per- 
petuity ;  and  the  law  should  be  extremely  jealous  of  such  engage- 
ments. 

The  third  exception  which  I  shall  notice  has  reference  to  the 
great  class  of  cases  in  which  the  individuals  can  only  manage  the 
concern  by  delegated  agency,  and  in  which  the  so-called  private  man- 
agement is,  in  point  of  fact,  hardly  better  entitled  to  be  called  man- 
agement by  the  persons  interested,  than  administration  by  a  public 
officer.  Whatever,  if  left  to  spontaneous  agency,  can  only  be  done 
by  joint  stock  associations  will  often  be  as  well,  and  sometimes  bet- 
ter done,  as  far  as  the  actual  work  is  concerned  by  the  state.  Gov- 
ernment management  is,  indeed,  proverbially  jobbing,  careless,  and 
ineffective,  but  so  likewise  has  generally  been  joint-stock  manage- 
ment. 

To  a  fourth  cause  of  exception  I  must  request  particular  atten- 
tion, it  being  one  to  which,  as  it  appears  to  me,  the  attention  of 
political  economists  has  not  yet  been  sufficiently  drawn.  There  are 
matters  in  which  the  interference  of  law  is  required,  not  to  overrule 
the  judgment  of  individuals  respecting  their  own  interest,  but  to  give 
effect  to  that  judgment ;  they  being  unable  to  give  effect  to  it  except 
by  concert,  which  concert  again  cannot  be  effectual  unless  it  receives 
validity  and  sanction  from  the  law.  For  illustration  I  may  advert 
to  the  question  of  diminishing  the  hours  of  labor.  Let  us  suppose  that 
a  general  reduction  of  the  hours  of  factory  labor,  say  from  ten  to 
nine,  would  be  for  the  advantage  of  the  work  people ;  that  they  would 
receive  as  high  wages,  or  nearly  as  high,  for  nine  hours'  labor  as  they 
receive  for  ten.  If  this  would  be  the  result,  and  if  the  operatives 
generally  are  convinced  that  it  would,  the  limitation,  some  may  say, 
will  be  adopted  spontaneously.  I  answer  that  it  will  not  be  adopted 
unless  the  body  of  operatives  bind  themselves  to  one  another  to  abide 
by  it.  For  however  beneficial  the  observance  of  the  regulation  might 
be  to  the  class  collectively,  the  immediate  interest  of  every  individual 
would  lie  in  violating  it ;  and  the  more  numerous  those  were  who 
adhered  to  the  rule,  the  more  would  individuals  gain  by  departing 
from  it. 


44  CURRENT  ECONOMIC  PROBLEMS 

Fifthly,  the  argument  against  government  interference  cannot 
apply  to  the  very  large  class  of  cases,  in  which  those  acts  of  indi- 
viduals with  which  the  government  claims  to  interfere,  are  not  done 
by  those  individuals  for  their  own  interest,  but  for  the  interest  of 
other  people.  This  includes,  among  other  things,  the  important  and 
much  agitated  subject  of  public  charity.  Though  individuals  should, 
in  general,  be  left  to  do  for  themselves  whatever  it  can  reasonably  be 
expected  that  they  should  be  capable  of  doing,  yet  when  they  are  at 
any  rate  not  to  be  left  to  themselves,  but  to  be  helped  by  other  people, 
the  question  arises  whether  it  is  better  that  they  should  receive  this 
help  exclusively  from  individuals,  and  therefore  uncertainly  and 
casually,  or  by  systematic  arrangements,  in  which  society  acts  through 
its  organ,  the  state.  Other  cases,  falling  within  the  same  general 
principle,  are  those  in  which  the  acts  done  by  individuals,  though 
intended  solely  for  their  own  benefit,  involve  consequences  extending 
indefinitely  beyond  them,  to  interests  of  the  nation  or  of  posterity, 
for  which  society  in  its  collective  capacity  is  alone  able,  and  alone 
bound,  to  provide. 

The  same  principle  extends  also  to  a  variety  of  cases,  in  which 
important  public  services  are  to  be  performed,  while  yet  there  is  no 
individual  specially  interested  in  performing  them,  nor  would  any 
adequate  remuneration  naturally  or  spontaneously  attend  their  per- 
formance. Take  for  instance  a  voyage  of  geographical  or  scientific 
exploration.  It  may  be  said,  generally,  that  anything  which  it  is 
desirable  should  be  done  for  the  general  interests  of  mankind  or  of 
future  generations,  or  for  the  present  interests  of  those  members 
of  the  community  who  require  external  aid,  but  which  is  not  of  a 
nature  to  remunerate  individuals  or  associations  for  undertaking  it, 
is  in  itself  a  suitable  thing  to  be  undertaken  by  government. 

The  preceding  heads  comprise,  to  the  best  of  my  judgment,  the 
whole  of  the  exceptions  to  the  practical  maxim  that  the  business  of 
society  can  be  best  performed  by  private  and  voluntary  agency.  It 
is,  however,  necessary  to  add  that  the  intervention  of  government 
cannot  always  practically  stop  short  at  the  limit  which  defines  the 
cases  intrinsically  suitable  for  it.  In  the  particular  circumstances  of 
a  given  age  or  nation,  there  is  scarcely  anything,  really  important  to 
the  general  interest,  which  it  may  not  be  desirable,  or  even  necessary, 
that  the  government  should  take  upon  itself.  Even  in  the  best  state 
which  society  has  yet  reached  it  is  lamentable  to  think  how  great  a 
proportion  of  all  the  efforts  and  talents  in  the  world  are  employed  in 
merely  neutralizing  one  another.  It  is  the  proper  end  of  government 
to  reduce  this  wretched  waste  to  the  smallest  possible  amount,  by 
taking  such  measures  as  shall  cause  the  energies  now  spent  by  man- 
kind in  injuring  one  another,  or  in  protecting  themselves  against 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  45 

injury,  to  be  turned  to  the  legitimate  employment  of  the  human  facul- 
ties, that  of  compelling  the  powers  of  nature  to  be  more  and  more 
subservient  to  physical  and  moral  good. 

19.     The  Authoritative  Basis  of  Laissez  Faire" 

There  is  nothing  novel  in  the  assertion  that  deference  to  author- 
ity is  the  most  persistent  and  fundamental  of  the  many  aspects  of 
the  intellectual  attitude,  laissez  faire.  True  it  is  that  the  expression 
carries  the  idea  of  an  industrial  regime  going  its  way,  untrammeled 
by  state  interference.  In  fact  its  most  obvious  meaning  seems  to 
be  a  policy  under  which  the  individual  shall  be  legally  free  to  select 
his  own  occupation,  choose  his  own  business  associates,  employ  an 
industrial  technique  and  organization  which  is  to  his  own  liking,  and 
buy  his  materials  and  labor  and  market  his  wares  on  terms  volun- 
tarily made.  Thus  it  means  freedom  for  the  individual  in  the  im- 
mediate conduct  of  his  business  and  the  sale  of  his  wares. 

But  it  does  not  totally  exclude  authority.  Many  advocates  of 
laissez  faire  see  nothing  amiss  in  governmental  grants  of  public 
lands,  subsidies,  patents,  or  franchises.  Many  would  permit  the  state 
to  levy  customs  duties  intended  to  check  importations,  raise  prices, 
and  increase  the  number  of  those  engaged  in  protected  industries. 
All  would  allow  the  state  to  encourage  commerce  by  improving  trans- 
portation and  credit  facilities.  It  is  perhaps  not  an  overstatement 
to  say  that  the  advocate  of  laissez  faire  regards  as  interference,  not 
all  political  activity  affecting  industry,  but  only  such  as  adversely 
affects  business  interests. 

Instances  such  as  the  above,  however,  are  only  passing  phases  of 
the  situation.  Penetrating  and  conditioning  industrial  activity  at 
every  point  there  is  a  tangled  web  of  legal,  political  and  social  insti- 
tutions. Among  the  legal  institutions  are  the  prohibition  of  physical 
violence  in  industrial  activity,  a  recognition  of  private  property  rights, 
machinery  for  compelling  the  discharge  of  obligations  voluntarily 
assumed,  and  prescribed  forms  for  partnerships  and  corporations. 
Among  the  social  institutions  are  a  system  of  intangible  and  imma- 
terial property  rights,  the  manifestations  of  public  and  class  opinions, 
a  code  of  business  ethics,  and  a  system  of  collective  action  and  the 
recognition  of  collective  authority  in  individual  industrial  establish- 
ments. Upon  these  the  advocate  of  laissez  faire  of  necessity  takes  an 
attitude.  Since  these  institutions  change  slowly  and  are  conceived 
of  as  indispensable,  they  have  generally  been  regarded  by  the  busi- 
ness man  as  a  part  of  the  unchangeable  nature  of  things.    Therefore 

i^An  editorial  (1913). 


46  CURRENT  ECONOMIC  PROBLEMS 

laissez  faire  formally  says  nothing  about  them.  Yet  its  very  silence 
is  the  best  evidence  of  its  unqualified  approval  of  habitual  legal  and 
social  institutions  and  its  demand  that  the  individual  be  hedged  about 
with  conventional  authority. 

Not  only  is  the  province  from  which  authority  is  excluded  a  nar- 
row one,  but  even  in  that  province  laissez  faire  is  conceived  of  as  a 
mere  means  for  securing  some  desirable  social  end.  Neither  theorist 
nor  layman,  in  formulating  his  reasons  for  supporting  this  policy, 
declares  himself  in  favor  of  a  purely  acquisitive  system,  wherein  the 
strong  shall  wax  stronger  at  the  expense  of  the  weak.  By  the  older 
school,  whose  aspirations  for  society  were  democratic,  it  war'argued 
that  the  competitive  struggle,  under  laissez  faire,  resulted  in  the 
greatest  good,  not  only  to  the  highly  successful  few,  but  to  every 
member  of  the  social  community.  By  the  newer  school  the  basis  of 
whose  theories  is  biological,  and  whose  ideal  is  aristocratic,  its  justifi- 
cation is  found  in  the  elimination  of  the  unfit,  the  perpetuation  of  the 
fit,  and  the  tendency  of  society  towards  a  higher  cultural  level.  By 
some  of  the  latter  charity  is  strongly  condemned,  not  because  it  strips 
the  fit  of  some  of  the  earnings  which  the  industrial  struggle  has 
brought  him,  but  because  the  survival  of  dependents  tends  to  lower 
the  prevailing  type  of  civilization.  Into  the  merits  of  these  theories 
this  is  not  the  place  to  go.  Here  it  is  enough  to  note  that  even  its  most 
extreme  advocates  do  not  conceive  of  laissez  faire  as  a  theory  of 
predation,  nor  seek  to  justify  it  by  any  benefit,  however  great,  which 
it  may  confer  on  the  individual.  On  the  contrary,  over  and  above 
him,  a  conscious  social  end  is  set  up,  to  the  realization  of  which  his 
activities  must  tend,  and  in  view  of  which  the  policy  itself  is  to  be 
approved  or  condemned. 


G.     THE  PROTEST  AGAINST  INDIVIDUALISM 
20.     The  Tyranny  of  the  Machine^^ 

BY    JOSEPH    HARDING    UNDERWOOD 

The  modern  "tripods  of  Hephaestus" — the  spinning  jenny,  the 
mule,  the  loom — instead  of  serving  as  allies  to  human  hands,  speed- 
ily became  masters  of  "hands."  The  undemocratic  idea  prevailed — 
laissez  faire,  let  me  do  as  I  please — "me"  being  a  man  with  a  hun- 
dred hands,  which  speedily  became  a  thousand.  The  use  of  men, 
women,  and  children  by  factory-owners  at  the  beginning  of  the  nine- 
teenth century  had  all  the  advantages  and  none  of  the  disadvantages 

i^Adapted  ^rom  The  Distribution  of  Ownership,  pp.  52-53  (1907).  Pub- 
lished by  Colu.nbia  University  Press,  author's  copyright. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  47 

of  slave  ownership.  Starvation  brought  the  wives  and  daughters  of 
the  workmen  to  the  factories  and,  since  only  their  labor  and  not 
their  strength  had  to  be  bought,  there  was  no  waste  in  wearing  them 
out.  Half -naked  women  were  harnessed  to  draw  carts  in  the  mines 
through  passages  two  feet  seven  inches  high ;  children  of  seven 
worked  twelve  to  fourteen  hours  a  day  in  factories.  There  were 
regular  traffickers  in  children  of  paupers.  "In  stench,  in  heated 
rooms,  amidst  the  constant  whirring  of  a  thousand  wheels,  little 
fingers  and  little  feet  were  kept  in  constant  action,  forced  into  un- 
natural activity  by  blows  from  the  heavy  hands  and  feet  of  the  merci- 
less overlooker  and  the  infliction  of  bodily  pain  by  instruments  of 
punishment,  invented  by  the  sharpened  ingenuity  of  insatiable  selfish- 
ness." 20  They  were  fed  the  same  food  that  the  master  gave  his  pigs. 
Irons  were  riveted  to  the  ankles  and  chained  to  the  hips  of  girls  and 
women  to  kep  them  from  running  away.  The  suicides,  the  murdered, 
and  the  tired  were  buried  secretly.  No  such  cruelty  was  ever  wide- 
spread under  slavery.    It  would  not  pay. 

21.     The  Passing  of  the  Frontier 

BY  THOMAS  B.  MACAULAY  ^^ 

Despots  plunder  their  subjects,  though  history  tells  them  that, 
by  prematurely  exacting  the  means  of  profusion,  they  are  in  fact 
devouring  the  seed-corn  from  which  the  future  harvest  is  to  spring. 
Why,  then,  should  we  suppose  that  people  will  be  deterred  from 
procuring  immediate  relief  and  enjoyment  by  the  fear  of  calamities 
that  may  not  be  fully  felt  till  the  times  of  their  grandchildren? 

The  case  of  the  United  States  is  not  in  point.  In  a  country  where 
the  necessities  of  life  are  cheap  and  the  wages  of  labor  high,  where  a 
man  who  has  no  capital  but  his  legs  and  arms  may  expect  to  become 
rich  by  industry  and  frugality,  it  is  not  very  decidedly  even  for  the 
immediate  advantage  of  the  poor  to  plunder  the  rich.  But  in  coun- 
tries where  the  great  majority  live  from  hand  to  mouth,  and  in  which 
vast  masses  of  wealth  have  been  accumulated  by  a  comparatively 
small  number,  the  case  is  widely  different.  The  immediate  want  is  at 
particular  seasons  imperious,  irresistible.  In  our  own  time  it  has 
steeled  men  to  the  fear  of  the  gallows,  and  urged  them  on  to  the  point 
of  the  bayonet.  And,  if  these  men  had  at  their  command  that  gal- 
lows, and  those  bayonets  which  now  scarcely  restrain  them,  what  is  to 
be  expected  ?  The  better  the  government,  the  greater  is  the  inequality 
of  conditions ;   and  the  greater  the  inequality   of  conditions,  the 

20  Gibbins,  Industry  in  England,  p.  389. 

^^Adapted  from  the  essay  on  Mill  on  Government,  1828. 


48  CURRENT  ECONOMIC  PROBLEMS 

stronger  are  the  motives  which  impel  the  populace  to  spoliation.    As 
for  America,  we  appeal  to  the  twentieth  century. 

BY  JAMES  BRYCE" 

America,  in  her  swift,  onward  progress,  sees,  looming  on  the 
horizon,  and  now  no  longer  distant,  a  time  of  mists  and  shadows, 
wherein  dangers  may  be  concealed  whose  form  and  magnitude  she 
can  scarcely  yet  conjecture.  As  she  fills  up  her  western  regions  with 
inhabitants,  she  sees  the  time  approach  when  all  the  best  land  will 
have  been  occupied,  and  when  the  land  under  cultivation  will  have 
been  so  far  exhausted  as  to  yield  scantier  crops  even  to  more  exten- 
sive culture.  Although  transportation  may  also  then  have  become 
cheaper,  the  price  of  food  will  rise ;  farms  will  be  less  easily  obtained 
and  will  need  more  capital  to  work  them  with  profit ;  the  struggle  for 
existence  will  become  more  severe.  And  while  the  outlet  which  the 
West  now  provides  for  the  overflow  of  the  great  cities  will  have 
become  less  available,  the  cities  will  have  become  immensely  more 
populous;  pauperism,  now  confined  to  six  or  seven  of  the  greatest, 
will  be  more  widely  spread ;  wages  will  probably  sink  and  work  will  be 
less  abundant.  In  fact,  the  chronic  evils  and  problems  of  the  old 
societies  and  crowded  countries,  such  as  we  see  them  in  Europe  today, 
will  have  reappeared  on  this  new  soil. 

BY  PETER  FINLEY  DUNNE 

"Opportunity,"  says  Mr.  Dooley,  "knocks  at  iv'ry  man's  dure 
wanst.  On  some  men's  drues  it  hammers  till  it  breaks  down  th'  dure 
an'  then  it  goes  in  an'  wakes  him  up  if  he's  asleep,  an'  afterwards  it 
worrucks  f'r  him  as  a  nightwatchman.  On  some  men's  dures  it 
knocks  an'  runs  away,  an'  on  th'  dures  iv  some  men  it  knocks  an' 
whin  they  come  out  it  hits  thim  over  th'  head  with  an  axe.  But  iv'ry 
wan  has  an  opporchunity." 

22.    The  Nev7  Issues  ^a 

BY  WILLIAM  GARROTT  BROWN 

The  twentieth  century  is  upon  us.  Americans  are  beginning  to 
find  themselves  confronted  with  the  questions  which  have  already 
long  beset  older  and  more  crowded  countries.    We  can  hardly  doubt 

22Adapted  from  The  American  Commonwealth  (ist  ed. ;  1888),  III,  662. 

23Adapted  from  The  New  Politics  and  Other  Papers,  pp.  6-28.  Copyright 
by  Eugene  L.  Brown.    Published  by  Houghton,  Mifflin  &  Co.,  1914. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  49 

that  certain  new  public  issues  which  within  the  last  two  or  three  years 
have  come  very  swiftly  to  the  front  have  come  to  stay.  We  are  not 
yet  an  old  society,  or  a  crowded  country.  But — the  frontier  is  gone. 
We  are  in  the  situation  of  a  man  who,  though  still  very  young,  has 
nevertheless  reached  maturity  and  come  into  full  possession  of  his 
estate ;  of  an  estate  vast,  but  yet  of  a  vastness  no  longer  incalculable, 
no  longer  uncalculated,  and  which  is  also  appreciably  impaired  by  the 
waste  and  extravagance  of  his  youth. 

We  face,  therefore,  the  responsibility  of  maturity,  of  a  more  care- 
ful development  and  husbandry  of  our  great  demesne.  The  time  of 
boundless  anticipation  is  past.  W^e  have  instead  a  sure  sense  of 
strength,  but  with  it  comes  also  at  last  the  sense  that  even  our 
strength,  and  our  capacity  for  growth,  have  their  limits.  There  is 
as  yet  no  real  pinch,  no  severe  pressure  or  congestion ;  far  from  it. 
But  the  certainty  that  these  things  are  in  the  future  is  at  last  borne 
in  upon  us  by  facts  and  warnings.  That  is  enough  to  change  our 
mood.  We  are  taking  up,  and  ought  to  be  taking  up,  certain  of  the 
problems  of  "old  societies  and  crowded  countries,"  and  the  coming 
of  these  new  problems  has  somewhat  changed  the  aspect  of  certain 
others  which,  even  with  us,  are  old. 

The  new  issues  all  have  this  much  in  common :  They  are  all  at 
bottom  economic,  and  economic  in  a  very  strict  derivative  sense  of 
the  word — all  questions  of  national  housekeeping,  of  the  safeguard- 
ing, the  development,  and  the  distribution  of  our  immense  national 
inheritance.  The  rapid  and  revolutionary  development  of  transporta- 
tion has  transformed  bewilderingly  the  entire  field  with  which  eco- 
nomic legislation  must  deal.  It  is  not  merely  that  we  are  approach- 
ing the  problems  of  older  societies.  These  problems  have  taken  on 
for  us  new  aspects,  aspects  hardly  known  elsewhere,  and  a  truly 
American  vastness  of  range.  We  can  and  should  profit  by  a  close 
study  of  European  experience.  But  the  guidance  we  can  get  from 
older  countries,  however  valuable,  is  limited.  There  are  things  which 
we  must  work  out  for  ourselves  ;  for  the  new  industry  is  much  farther 
advanced  with  us,  and  much  more  firmly  established,  than  with  the 
older  peoples. 

The  particular  new  issue  on  which  we  can  get  the  most  guidance 
from  Europe,  and  which  is  therefore  the  simplest  of  all,  is  that  of 
conservation.  To  call  that  issue  a  question  would  be  a  misnomer. 
The  only  question  should  be  of  ways  and  means,  and  concerning  these 
it  will  be  some  time  before  we  exhaust  the  enlightenment  to  be  got 
from  European  experience.  In  the  matter  of  the  national  conserva- 
tion of  the  use  of  water  power,  we  have  in  the  example  of  Switzer- 
land an  admirable  object-lesson. 


50  CURRENT  ECONOMIC  PROBLEMS 

Comerning  this  there  is  hardly  a  question;  but  there  is  an  issue; 
there  is  a  conflict,  a  struggle;  and  the  violence  and  magpitude  and 
difficulty  of  it  are  greater  than  anywhere  else  in  the  world.  That  is 
so  because  nowhere  else  are  private  interests  so  well  organized  or  so 
powerful,  and  nowhere  else  have  they  such  opportunities  to  acquire 
control  of  the  various  means  of  wealth.  There  is  thus  an  issue  be- 
tween the  permanent  public  weal  and  the  selfishness  of  individuals 
and  groups.  For  there  has  come  about  a  massing  of  great  and  little 
accumulations,  and  an  organization  of  capital  and  industry  under  a 
few  heads ;  so  that  the  struggle  is  on  behalf  of  the  people  against 
the  combinations.  To  take  an  instance,  the  lumber  kings  were  not 
slow  to  see  how  rapidly  the  country  was  being  deforested.  They 
looked  ahead  and  bought  timber  lands  everywhere.  And  it  can  hardly 
be  questioned  that,  law  and  usage  remaining  what  they  are,  the  same 
forces  which  have  made  for  monopoly  and  against  competition  in 
other  things  will  monopolize  the  country's  water  power  as  well. 

The  swift  and  universal  rise  in  prices  should  serve  to  awaken  us 
to  the  actual  state  of  industry  and  exchange  among  us.  Our  awaken- 
ing to  the  necessity  of  economy  is  still  but  a  part  of  the  greater 
awakening  to  the  true  extent  of  the  changes  which  have  come  about 
in  our  industrial  life.  The  field  is  so  vast  that  only  a  superficial  glance 
at  the  main  features  of  the  new  order  is  here  possible. 

The  most  striking  and  important  fact — a  fact  which  is  in  a  way 
inclusive  of  the  whole  matter — is  this:  Competition,  as  we  have 
known  it  in  the  past,  the  kind  of  competition  on  whose  existence  and 
continuance  our  law  and  usage  concerning  industry  and  property  are 
largely  based,  is  breaking  down.  Take  any  one  of  the  dozens  of 
articles  in  general  consumption,  and  thorough  investigation  will  very 
likely  disclose  that  real  and  vital  competition  no  longer  prevails  in  its 
production  or  distribution.  A  combination  of  manufacturers  makes 
it,  a  combination  of  common  carriers  fixes  the  charges  of  transporting 
it  to  market,  and  the  original  combination  names  the  terms  upon 
which  the  retail  dealers  may  handle  it.  If  investigations  in  prices  go 
far  enough  I  am  sure  they  will  also  disclose  such  combinations  in  the 
smaller  communities  as  well.  The  dependence  of  the  ordinary  shop- 
keepers on  the  trusts  for  supplies  is  so  widespread  that  the  old  law 
of  competition  has  been  in  large  measure  nullified.  The  consumers, 
in  fact,  seem  to  be  the  only  industrial  group  which  has  so  far  failed 
to  combine.  It  is  impossible  not  to  feel  that  the  tendency  is  so  uni- 
versal as  to  mean  unmistakably  a  new  industrial  order. 

What  does  this  change  mean  for  the  individual  as  a  part  and 
member,  an  industrial  unit,  of  the  new  order?  Clearly,  it  means, 
and  it  must  continue  to  mean  until  the  system  is  somewhat  modified 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  51 

in  his  interests,  less  independence,  a  narrower  range  of  opportunity. 
There  is  no  reason  to  beheve  that  it  means  on  the  whole  less  comfort 
or  a  lowered  standard  of  living.  The  contrary  is  more  probably  true. 
Neither  does  the  change  mean  that  the  man  of  ability  and  ambition 
cannot  rise.  He  can.  A  policy  of  promotions  for  merit  is  plainly  to 
the  interest  of  every  great  business.  That  great  combinations  have 
adopted  that  policy  is  the  principal  reason  why  they  are  so  well  served. 
But  these  things  do  not  rid  us  of  the  fact  that  the  coming  of  the  new 
order  has  meant  a  loss  of  independence,  of  industrial  freedom  to  the 
great  mass  of  individuals.  Their  chance  to  rise  is  but  one  way — ^by 
obedience  to  the  laws  of  the  system  to  which  they  belong ;  and  in  the 
making  of  these  laws  they  have  no  voice.  There  is  real  independence 
only  at  the  top ;  and  to  reach  the  top  is  beyond  the  hopes  of  all  but 
a  very  few.    Clearly  the  new  system  is  less  democratic  than  the  old. 

But  to  get  a  fuller  conception  of  the  change,  we  must  go  to  the 
source  of  initiative  and  control  in  business,  to  the  men  who  direct 
the  capital  of  the  country.  For  the  principle  of  combination  has 
made  it  possible  for  a  few  great  capitalists  to  get  control  of  the 
accumulated  savings  of  hundreds  of  thousands  of  people  of  small 
means.  A  single  great  banking  concern  is  charged  with  the  direction 
of  some  six  billion  dollars  variously  invested,  in  manufacturing,  in 
banking,  in  transportation,  in  mines,  in  many  other  ways.  Such 
power  could  go  far  to  corrupt  the  press.  Less  power  has  already 
corrupted  legislatures  ;  has  suborned  executives  ;  has  reached  even  the 
courts. 

Here  is  but  the  merest  glance  at  the  new  conditions.  But  it  may, 
I  think,  be  sufficient  to  enable  us  to  formulate  the  new  issues.  We 
are  confronted  with  adapting  the  democratic  principle  to  conditions 
that  did  not  exist  when  American  democracy  arose :  that  is  to  say,  to 
a  field  no  longer  unlimited,  to  opportunities  no  longer  boundless,  and 
to  an  industrial  order  in  which  competition  is  no  longer  the  controlling 
principle,  an  industrial  order,  which  is,  therefore,  no  longer  demo- 
cratic, but  increasingly  oligarchical.  To  save  itself  poHtcally,  democ- 
racy must  therefore  extend  itself  into  this  field.  Plainly,  therefore, 
laissez  faire  can  no  longer  be  its  watchword.  That  was  the  watch- 
word of  the  regime  of  competition.  Democracy's  task  is  twofold. 
It  must  secure  for  the  people  some  kind  of  effective,  ultimate  control 
over  the  natural  sources  of  all  wealth ;  and  it  must  also  secure,  in  an 
industrial  system,  no  longer  controlled  by  competition,  protection  and 
opportunity  for  the  individual. 

The  ancient  warfare  of  democracy  and  privilege  must  be  begun 
all  over  again,  and  with  new  tactics,  new  strategy.  In  the  presence 
of  the  new  issues  many  of  the  old  issues  will  be  altered.    The  old 


52  CURRENT  ECONOMIC  PROBLEMS 

struggle  over  the  tariff  will  be  less  a  matter  of  sectional  issues,  less 
a  matter  of  contrary  economic  theories,  and  more  a  phase  of  the 
great  struggle  between  democracy  and  privilege.  The  old  constitu- 
tional questions,  thought  forever  settled,  will  reappear  in  new  forms. 
The  rights  and  powers  of  both  the  states  and  the  nation  must  be 
scrutinized  afresh.  Before  the  end  we  may  have  to  go  still  farther 
back  and  find  for  the  common  law  itself,  if  not  new  principles,  at 
any  rate,  new  formulas.  For  I  doubt  if  we  shall  end  before  we  have 
revised  many  of  what  we  thought  our  fundamental  conceptions  of 
property  and  of  human  rights. 

H.  THE  REAPPEARANCE  OF  THE  PROBLEM 
OF  CONTROL 

23.     The  Individualistic  Basis  of  Social  Control-* 

BY  THOMAS   HILL  GREEN 

Freedom  is  valuable  only  as  a  means  to  an  end.  That  end  is  the 
liberation  of  the  powers  of  all  men  equally  for  contributions  to  a 
common  good.  No  one  has  a  right  to  do  what  he  will  with  his  own 
in  such  a  way  as  to  contravene  that  end.  It  is  only  through  the  guar- 
anty society  gives  him  that  he  has  property  at  all.  This  guaranty  is 
founded  on  a  sense  of  common  interests.  Everyone  has  an  interest 
in  securing  to  everyone  else  the  free  use  and  enjoyment  and  disposal 
of  his  possession,  because  such  freedom  contributes  to  that  equal 
development  of  the  faculties  of  all  which  is  the  highest  good  for  all. 
This  is  the  true  and  only  justification  of  the  rights  of  property.  Prop- 
erty being  only  justifiable  as  a  means  to  the  free  exercise  of  the  social 
capabilities  of  all,  there  can  be  no  true  right  of  property  of  a  kind 
which  debars  one  class  of  men  from  such  free  exercise  altogether. 
We  condemn  slavery  no  less  when  it  rises  out  of  voluntary  agree- 
ment on  the  part  of  the  enslaved  person.  A  contract  by  which  any- 
one agreed  for  a  certain  consideration  to  become  the  slave  of  another 
person  we  would  reckon  a  void  contract.  Here,  then,  is  a  limitation 
upon  freedom  of  contract  that  we  all  recognize  as  rightful.  No  con- 
tract is  valid  in  which  human  persons  are  dealt  with  as  commodities, 
because  such  contracts  of  necessity  defeat  the  end  for  which  alone 
society  enforces  contracts  at  all. 

Are  there  no  other  contracts  which,  less  obviously  perhaps,  but 
really,  are  open  to  the  same  objection?    Let  us  consider  contracts 

2*Adapted  from  the  "Lecture  on  Liberal  Lesrislation  and  Freedom  of 
Contract."  ll^orks.  IIL  372-86.  Edited  by  R.  L.  Nettleship,  1880.  Published 
by  Longmans,  Green  &  Co. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  53 

affecting  labor.  Labor,  the  economist  tells  us,  is  a  commodity  ex- 
changeable like  other  commodities.  This  is  in  a  certain  sense  true, 
but  it  is  a  commodity  which  attaches  in  a  peculiat  manner  to  the 
person  of  man.  Hence  restrictions  may  need  to  be  placed  on  its  sale 
which  would  be  unnecessary  in  other  cases,  to  prevent  it  from  being 
sold  under  conditions  which  make  it  impossible  for  the  person  selling 
it  ever  to  become  a  free  contributer  to  social  good  in  any  form.  This 
is  most  plainly  the  case  where  a  man  bargains  to  work  under  condi- 
tions fatal  to  health.  Every  injury  to  the  health  of  the  individual  is, 
so  far  as  it  goes,  a  public  injury.  It  is  an  impediment  to  the  general 
freedom ;  so  much  deduction  from  our  power,  as  members  of  society, 
to  make  the  best  of  ourselves.  Society,  therefore,  is  plainly  in  its 
right  when  it  limits  freedom  of  contract  for  the  sale  of  labor,  so  far 
as  is  done  by  laws  for  the  sanitation  of  factories  and  mines. 

It  is  equally  within  its  right  in  prohibiting  the  labor  of  women 
and  young  persons  beyond  certain  hours.  If  they  work  beyond  these 
hours,  the  result  is  demonstrably  physical  deterioration,  which  carries 
with  it  a  lowering  of  the  moral  forces  of  society.  For  the  sake  of  the 
general  freedom  of  its  members  to  make  the  best  of  themselves,  which 
it  is  the  object  of  civil  society  to  secure,  a  prohibition  should  be  put 
on  all  such  contracts  of  service  as  in  a  general  way  yield  such  a  result. 
The  purchase  and  hire  of  unwholesome  dwellings  are  properly  for- 
bidden on  the  same  principle. 

Its  application  to  compulsory  education  may  not  be  quite  so 
obvious,  but  it  will  appear  on  a  little  reflection.  Without  a  command 
of  certain  elementary  arts  and  knowledge,  the  individual  in  modern 
society  is  as  effectually  crippled  as  by  the  loss  of  a  limb  or  a  broken 
constitution.  With  a  view  to  securing  freedom  among  its  members 
it  is  certainly  within  the  province  of  the  state  to  prevent  children 
from  growing  up  in  that  kind  of  ignorance  which  practically  ex- 
cludes them  from  a  free  career  in  life. 

Just  as  labor,  though  an  exchangeable  commodity,  differs  from 
all  other  commodities,  land,  too,  has  its  characteristics,  which  distin- 
guish it  from  ordinary  commodities.  It  is  from  the  land  that  the 
raw  material  of  all  wealth  is  obtained.  It  is  only  upon  the  land  that 
we  can  live ;  only  across  the  land  that  we  can  move  from  place  to 
place.  The  state,  therefore,  in  the  interest  of  that  public  freedom 
which  it  is  its  business  to  maintain,  cannot  allow  the  individual  to 
deal  as  he  likes  with  his  land  to  the  same  extent  to  which  it  allows 
him  to  deal  with  other  commodities.  It  is  an  established  principle 
that  the  sale  of  land  should  be  enforced  by  law  when  public  con- 
venience requires  it.  The  landowner  of  course  gets  the  full  value 
of  the  land  which  he  is  compelled  to  sell,  but  of  no  other  ordinary 


54  CURRENT  ECONOMIC  PROBLEMS 

commodity  is  the  sale  thus  enforced.  This  illustrates  the  peculiar 
necessity  in  the  public  interest  of  putting  some  restrictions  on  a  man's 
liberty  of  doing  what  he  will  with  his  own.  The  question  is  whether, 
in  the  same  interest,  further  restraint  does  not  need  to  be  imposed  on 
the  liberty  of  the  landowner.  Should  not  the  state  for  public  pur- 
poses prevent  the  land  from  being  tied  up  in  a  manner  which  pre- 
vents its  natural  distribution  and  keeps  it  in  the  hands  of  those  who 
cannot  make  the  most  of  it?  It  is  so  settled  that  at  present  all  the 
land  necessarily  goes  to  the  owner's  eldest  son.  The  evil  effects  of 
this  system  are  twofold.  It  almost  entirely  prevents  the  sale  of  agri- 
cultural land  in  small  quantities,  and  thus  hinders  that  mainstay  of 
social  order,  a  class  of  small  proprietors  tilling  their  own  land.  It 
also  keeps  large  quantities  of  land  in  the  hands  of  men  who  are  too 
much  burdened  by  debts  to  improve  it.  The  landlord  in  such  cases 
has  not  the  money  to  improve,  the  tenant  has  not  the  security  which 
would  justify  him  in  improving.  On  the  simple  and  recognized  prin- 
ciple that  no  man's  land  is  his  own  for  purposes  incompatible  with  the 
public  convenience,  we  ask  that  legal  sanction  should  be  withheld 
from  settlements  which  interfere  with  the  distribution  and  improve- 
ment of  land. 

To  uphold  the  sanctity  of  contracts  is  doubtless  a  prime  business 
of  government,  but  it  is  no  less  its  business  to  provide  against  con- 
tracts being  made,  which,  from  the  helplessness  of  one  of  the  parties 
to  them,  instead  of  being  a  security  for  freedom,  becomes  an  instru- 
ment of  disguised  oppression.  Men  are  not  at  liberty  to  buy  and  sell 
when  they  will,  where  they  will,  and  as  they  will.  There  is  no  right 
to  freedom  in  the  sale  or  purchase  of  a  particular  commodity,  if  the 
general  result  of  allowing  such  freedom  is  to  detract  from  freedom 
in  the  higher  sense,  from  the  general  power  of  men  to  make  the  best 
of  themselves.  The  danger  of  legislation,  either  in  the  interests  of  a 
particular  class  or  for  the  promotion  of  particular  religious  opinions, 
we  may  fairly  assume  to  be  over.  The  popular  jealousy  of  law  is  out 
of  date. 

24.     Laissez  Faire  in  Practice^^ 

BY   L.   T.   HOBHOUSE 

In  the  main,  the  teaching  of  the  school  tended  to  a  restricted  view 
of  the  function  of  government.  Government  had  to  maintain  order, 
to  restrain  men  from  violence  and  fraud,  to  hold  them  secure  in  per- 
son and  property  against  foreign  and  domestic  enemies,  that  they 

^^Adapted  from  Liberalism,  pp.  81-101.  Copyright  by  Henry  Holt  &  Co., 
1911. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  55 

might  rely  upon  reaping  where  they  had  sown,  and  might  enjoy  the 
fruits  of  their  industry. 

The  factory  system  early  brought  matters  to  a  head  at  one  point 
by  the  systematic  employment  of  women  and  young  children  under 
conditions  which  outraged  the  public  conscience  when  they  became 
known.  In  the  case  of  children  it  was  admitted  that  the  principle 
of  free  contract  could  not  apply.  It  felt  the  child  to  be  exploited  by 
the  employer  in  his  own  interest.  But  this  principle  admitted  of  great 
extension.  If  the  child  was  helpless,  was  the  grown-up  person,  man 
or  woman,  in  a  much  better  position  ?  Here  was  the  owner  of  a  mill 
employing  five  hundred  hands.  Here  was  an  operative  possessed  of 
no  alternative  means  of  subsistence  seeking  employment.  Suppose 
them  to  bargain  as  to  terms.  If  the  bargain  failed  the  employer  lost 
one  man.  At  worst  he  might  have  a  little  difficulty  for  a  day  or  two 
in  working  a  single  machine.  During  the  same  days  the  operative 
might  have  nothing  to  eat,  and  might  see  his  children  going  hungry. 
Where  was  the  effective  liberty  in  such  an  arrangement?  In  the 
matter  of  contract  true  freedom  postulates  substantial  equality  be- 
tween the  parties.  In  proportion  as  one  party  is  in  a  position  of 
advantage  he  is  able  to  dictate  the  terms.  In  proportion  as  the  other 
party  is  in  a  weak  position,  he  must  accept  unfavorable  terms.  Hence 
the  truth  of  Walker's  dictum  that  economic  injuries  tend  to  perpetuate 
themselves.  For  purposes  of  legislation  the  state  began  with  the 
child,  where  the  case  was  overwhelming.  It  went  on  to  include  the 
young  person  and  the  woman.  It  drew  the  line  at  the  adult  male,  and 
it  is  only  within  our  own  time  that  legislation  has  avowedly  under- 
taken the  task  of  controlling  the  conditions  of  industry.  To  this  it 
has  been  driven  by  the  manifest  teachings  of  experience  that  liberty 
without  equality  is  a  name  of  noble  sound  and  squalid  result. 

In  place  of  the  system  of  unfettered  agreement  contemplated 
the  industrial  system  which  has  actually  grown  up  and  is  in  process  of 
further  development  rests  on  conditions  prescribed  by  the  state.  The 
law  provides  for  the  safety  of  the  worker  and  sanitary  conditions  of 
employment.  It  prescribes  the  length  of  the  working  day  for  women 
and  children.  In  the  future  it  will  probably  deal  freely  with  the  hours 
for  men.  It  makes  employers  liable  for  injuries  suffered  by  oper- 
atives.   Within  these  limits  it  allows  freedom  of  contract. 

The  theory  of  laissez  faire  assumed  that  the  state  would  hold  the 
ring.  It  would  suppress  force  and  fraud,  keep  property  safe,  and 
aid  men  in  enforcing  contracts.  In  these  conditions  men  should  be 
absolutely  free  to  compete  with  each  other,  so  that  their  best  energies 
should  be  called  forth.    But  why,  on  these  conditions,  just  these,  and 


56  CURRENT  ECONOMIC  PROBLEMS 

no  others?  Why  should  the  state  insure  protection  of  person  and 
property  ?  The  time  was  when  the  strong  man  armed  kept  his  goods, 
and  incidentally  his  neighbor's  goods  too,  if  he  could  get  hold  of  them. 
Why  should  the  state  intervene  to  do  for  a  man  that  which  his 
^ancestors  did  for  themselves?  Why  should  a  man  who  has  been 
soundly  beaten  in  physical  fight  go  to  a  public  authority  for  redress  ? 
How  much  more  manly  to  fight  his  own  battle.  Was  it  not  a  kind  of 
pauperization  to  make  men  secure  in  person  and  property,  through  no 
efforts  of  their  own,  by  the  agency  of  a  state  machinery  operating 
over  their  heads  ?  Would  not  a  really  consistent  individualism  abolish 
this  machinery?  "But,"  the  advocate  of  laissez  faire  may  reply,  "the 
use  of  force  is  criminal,  and  the  state  must  suppress  crime."  So  men 
held  in  the  nineteenth  century.  But  there  was  an  earlier  time  when 
they  did  not  take  this  view,  but  left  it  to  individuals  and  their  kinsfolk 
to  revenge  their  own  injuries.  Was  not  this  a  time  of  more  unre- 
strained individual  liberty.  On  what  principle  then  is  the  line  drawn, 
so  as  to  specify  certain  injuries  which  the  state  may  prohibit  and  to 
mark  off  others  which  it  must  leave  untouched? 

Individualism  as  ordinarily  understood  not  only  takes  the  police- 
man and  the  law  court  for  granted.  It  also  takes  the  rights  of  prop- 
erty for  granted.  But  what  is  meant  by  the  rights  of  property  ?  In 
ordinary  use  the  phrase  means  just  that  system  to  which  long  usage 
has  accustomed  us.  This  is  a  system  by  which  a  man  is  free  to  acquire 
by  any  method  of  production  or  exchange,  within  the  limits  of  the 
law,  whatever  he  can  of  land,  consumable  goods,  or  capital ;  to  dis- 
pose of  it  at  his  own  will  and  pleasure  for  his  own  purposes,  to 
destroy  it  if  he  likes,  to  give  it  away  or  sell  it  as  it  suits  him,  and  at 
death  to  bequeath  it  to  whomsoever  he  will.  The  state  can  take  a 
part  of  a  man's  property  by  taxation.  But  in  all  taxation  the  state  is 
taking  something  from  a  man  which  is  "his,"  and  in  so  doing  is  justi- 
fied only  by  necessity.  In  many  ways,  in  the  face  of  actual  conditions, 
the  individualist  has  been  driven  to  a  change  in  property  rights  in 
the  direction  of  greater  social  control.  The  school  of  Henry  George, 
individualists  though  they  be,  would  purge  the  social  system  of  the 
private  ownership  of  land.  This  alone,  say  they,  will  insure  genuine 
freedom  to  all  individuals. 

Thus  individualism,  when  it  grapples  with  the  facts,  is  driven  no 
small  distance  toward  state  regulation.  Once  again  we  have  found 
that  to  maintain  individual  freedom  and  equality  we  have  to  extend 
the  sphere  of  social  control.  We  cannot  assume  any  of  the  rights 
of  property  as  axiomatic.  We  must  look  at  their  actual  workings  and 
consider  how  they  affect  the  life  of  society. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  57 

25.     Liberty  and  Interference^^ 

BY  W.  JETHRO  BROWN 

Broadly  speaking,  as  society  grows  larger,  as  the  economic 
structure  becomes  more  complex,  and  as  the  possibilities  of  collective 
human  action  increase,  the  more  elaborate  must  be  the  system  of 
legal  regulation  if  the  liberty  of  the  individual  is  not  to  be  endangered. 
If  it  were  true  that  the  liberty  of  each  individual  was  in  inverse  pro- 
portion to  the  amount  of  state  regulation,  the  savage  would  be  freer 
than  the  modern  citizen.  Further,  the  question  whether  any  par- 
ticular law  involving  a  restriction  upon  the  individual's  desire  to  do 
as  he  likes  is  in  derogation  of  his  liberty  cannot  be  answered  merely 
by  reference  to  the  fact  that  a  restriction  is  involved.  It  is  only 
through  the  existence  of  such  restriction  that  he  has  any  liberty  at 
all  beyond  "the  desolate  freedom  of  the  wild  ass." 

To  determine  w^hether  a  law  of  the  state  is  really  in  derogation  of 
liberty  we  must  consider  the  law  in  its  relation  to  the  social  and  in- 
dustrial conditions  of  the  times.  At  one  stage  in  English  history  the 
liberty  of  the  subject  came  to  be  specially  associated  with  the  idea 
of  protection  from  baronial  tyranny.  In  the  seventeenth,  eighteenth, 
and  nineteenth  centuries  it  came  to  be  associated  with  the  idea  of 
protection  from  the  government.  In  the  later  nineteenth  century  the 
achievements  of  industrial  progress  gave  a  new  direction  to  the  de- 
mand for  freedom.  When  the  fear  of  governmental  autocracy  was 
succeeded  by  the  fear  of  an  economic  plutocracy,  men  once  again 
invoked  the  state  to  action.  The  way  was  thus  prepared  for  a  com- 
pleter theory  of  liberty.  The  negative  aspect  of  liberty  as  immunity 
from  governmental  interference  has  its  roots  in  the  positive  element 
of  governmental  regulation.  That  thinkers  of  our  own  day,  who 
w^ould  be  the  first  to  admit  that  the  regulation  of  the  feudal  lord  by 
government  was  a  phase  of  liberty,  should  maintain  that  the  regula- 
tion of  the  modern  capitalist  by  government  implies  a  necessary  de- 
parture from  liberty,  must  surely  be  regarded  as  a  curious  example 
of  the  limitations  of  the  human  intellect. 

The  relation  of  state  regulation  to  liberty  may  be  illustrated  by  four 
propositions.  In  the  first  place  such  regulation  may  impose  restric- 
tions upon  each  citizen  in  the  interests  of  the  liberty  of  all  citizens. 
The  criminal  code  is  an  illustration.  Men  are  not  less  free  but  more 
free  because  murder  and  robbery  are  prohibited.  What  they  lose 
of  the  power  of  self-determination  in  one  way  is  more  than  made  up 
by  increased  power  of  self-determination  in  other  w^ays.  Many  laws 
for  the  promotion  of  public  health  rest  upon  the  same  grounds.    The 

^''Adapted  from  The  Underlying  Principles  of  Modern  Legislation,  pp. 
55-61.     Copyright  by  John  Murray,  1914. 


58  CURRENT  ECONOMIC  PROBLEMS 

purveyor  of  microbes  may  be  more  hostile  to  freedom  than  the 
burglar. 

In  the  second  place,  state  regulation  may  impose  restrictions  upon 
the  actions  of  the  few  in  order  to  promote  the  liberty  of  the  many. 
Grant  Allen  has  told  a  story  of  some  Martian  citizens  who  had  in- 
augurated a  Liberty  and  Property  Defense  League.  A  delegate  from 
London,  invited  for  the  purpose  of  assisting  their  deliberations,  was 
amazed  to  find  that  the  liberty  which  the  Martian  society  sought  to 
defend  was  the  liberty  of  every  member  of  the  red-haired  caste  to 
consume  in  each  year  a  dozen  of  the  black-haired  majority.  What  the 
opponents  of  factory  legislation  called  liberty  was  the  privilege  of 
the  manufacturer  to  exploit  his  work  people.  Today  it  is  no  longer 
necessary  to  argue  that  the  factory  legislation  increased  the  freedom 
of  the  community.  In  improving  the  conditions  of  labor  it  improved 
the  health  of  the  worker ;  in  controlling  the  employment  of  children 
it  helped  to  protect  the  youth  of  the  nation ;  in  controlling  the  em- 
ployment of  women  it  tended  to  safeguard  the  home ;  in  restricting 
the  hours  of  labor  it  provided  new  opportunities  for  culture,  recrea- 
tion, or  indulgence.  In  a  word,  restraints  were  imposed  upon  the 
manufacturer  as  a  means  to  the  promotion  of  conditions  essential  to 
the  free-development  of  the  working  population. 

In  the  third  place  state  regulation  may  impose  restrictions  on  the 
many  in  the  interests  of  the  liberty  of  the  few.  Some  writers  go  so 
far  as  to  declare  that  the  recognition  of  the  claims  of  minorities  is 
the  true  test  of  liberty.  We  can  admit,  without  assenting  to  this 
view,  that  laws  protecting  unpopular  sects,  or  controlling  the  action 
of  subordinate  social  groups  in  such  a  way  as  to  protect  the  minority 
from  the  majority,  ought  not  to  be  regarded  as  necessarily  hostile 
to  liberty. 

Finally,  the  liberty  of  the  individual  may  be  promoted  by  restric- 
tions that  the  state  imposes  upon  him  in  his  own  interests.  In  a 
humble  sphere  the  municipal  legislation  of  our  time  affords  familiar 
examples.  A  by-law  prescribes  a  penalty  for  boarding  a  train  which 
is  already  full.  A  would-be  passenger,  compelled  to  wait  in  the  rain 
until  the  next  car  passes,  may  be  tempted  to  complain  that  his  liberty 
is  thereby  infringed.  If,  however,  he  will  employ  the  interval  in 
profitable  reflection  he  may  learn  to  take  a  saner  view.  The  by-law 
insures  that  he  shall  be  free  from  being  sat  upon  in  the  next  car. 
More  important  still  it  serves  to  protect  him  from  being  exploited  in 
the  interests  of  a  tramway  company  that  would  like  to  run  one  car 
where  it  ought  to  run  two.  We  have  all  heard  of  the  suburban  strap- 
hangers of  New  York ;  and  we  do  not  envy  their  freedom  to  pass  a  not 
inconsiderable  portion  of  their  lives  in  clinging  to  a  strap. 


PROBLEM  OF  CONTROL  IN  INDUSTRIAL  SOCIETY  59 

A  less  controversial  illustration  may  be  found  in  the  control  of 
the  unemployable.  While  it  may  be  pleasant  to  live  in  idleness,  I 
incline  to  the  opinion  that  the  stern  discipline  of  the  "work-shy," 
though  it  may  restrict  his  power  to  do  as  he  likes,  is  calculated  to 
make  a  freer  man  of  him.  In  these  and  a  multitude  of  like  cases, 
we  can  see  exemplified  the  truth  of  the  paradox  that  men  may  be 
forced  to  be  free. 

A  rejection  of  the  legislative  policy  of  Laissez  faire  is  not  incon- 
sistent with  an  ideal  of  liberty,  but  should  rather  be  considered  as  a 
transition  to  a  more  adequate  understanding  both  of  the  nature  of 
liberty  and  of  the  means  of  its  realization.  I  shall  now  indicate 
briefly  the  more  important  differences  involved  in  this  transition. 

1.  The  conflict  of  law  and  liberty  is  seen  to  be  accidental,  not 
essential.  It  may  arise  where  the  machinery  of  government  has  been 
captured  by  a  class,  or  when  social  and  economic  conditions  have  out- 
grown the  traditional  system  of  state  regulation.  In  either  case  liberty 
presents  a  positive  as  well  as  a  negative  aspect,  although  the  negative 
aspect  may  at  first  be  more  apparent.  If  old  laws  have  to  be  re- 
pealed, new  laws  have  also  to  be  enacted.  Hence,  in  a  truly  progres- 
sive society,  law  and  liberty  grow  together. 

2.  Liberty  is  catholic.  It  seeks  freedom,  not  for  some  men  only, 
but  for  all  men.  The  supreme  achievement  of  our  time  is  to  be 
found  in  the  emphasis  now  laid  upon  the  freedom  that  is  another's, 
as  distinct  from  the  freedom  that  is  one's  own.  While  laissez  faire 
proclaimed  an  era  of  freedom  for  all  men,  it  failed  to  recognize  that 
such  freedom  was  impossible  under  economic  conditions  that  made 
for  the  perpetuation  of  a  proletariat.  In  the  later  ideal  the  state  is 
charged  with  the  sacred  responsibility  of  insuring  conditions  that 
will  enable  every  citizen  to  prove  his  manhood. 

3.  The  liberty  that  the  legislation  of  our  day  seeks  to  promote 
is  less  the  power  to  do  as  one  likes  than  the  power  to  do  as  one  ought. 
This  does  not  mean  that  the  state  is  justified  in  prohibiting  all  con- 
duct that  is  morally  wrong — a  view  which  is  sometimes  urged.  But 
it  does  involve  a  wide  departure  from  laissez  faire.  It  agrees  with 
laissez  faire  in  defining  freedom  in  terms  of  self-realization ;  but  it 
implies  a  distinctive  view  of  the  nature  of  the  self  to  be  realized. 
Aristotle  said,  "The  state  was  formed  that  might  might  live;  but 
exists  that  they  may  live  nobly." 


II 

THE    ANTECEDENTS    OF    MODERN    INDUS- 
TRIALISM 

If  we  are  properly  to  understand  current  economic  problems  to  the  end 
of  formulating  a  program  for  dealing  with  them,  we  must  first  get  some 
impression  of  the  present  "system"  from  which  they  spring  and  of  which 
they  are  aspects.  The  "system"  is  so  much  a  part  of  our  very  lives  and 
activities  that  we  find  it  hard  to  think  of  it  as  "a"  system,  and  are  prone  to 
view  it  as  a  part  of  the  immutable  universe  itself.  When  active  intellectual 
effort  does  point  it  out  as  only  one  of  many  systems,  we  often  fail  to  see 
that  it  is  in  process  of  constant  change.  Clearly  to  understand — rather  than  to 
know — that  it  is  only  one  among  many  possible  systems  and  to  see  that  it  is 
persistently  changing,  even  as  we  view  it,  let  us  try  to  catch  a  glimpse  of  it  in 
process  of  development.  In  such  a  task  we  need  neither  general  statements 
of  the  nature  of  its  growth  nor  an  intensive  study  of  the  "facts."  Our  con'-ern 
is  not  with  the  past,  but  with  the  present;  our  interest  is  not  in  "events,"  but 
in  the  process.  We  want  to  see  a  system  very  unlike  ours  slowly  giving  way 
to  the  one  with  which  we  are  familiar. 

To  that  end  as  we  read  the  selections  below  let  us  keep  in  mind  the 
peculiar  characteristics  of  the  social  "order"  with  which  we  are  familiar. 
Among  these  its  unity  and  the  interdependence  of  its  aspects  are  paramount. 
For  example,  the  influence  of  the  ideals  of  the  mediaeval  church  upon  indus- 
trial development  suggests  many  phases  of  this  interdependence.  The  selec- 
tions given  below  on  manorial  and  gild  economy  furnish  material  for  a  com- 
parison of  the  spirit,  values,  activities,  and  institutions  of  our  present  system 
with  others  quite  unlike  it.  Additional  material  for  the  same  purpose  is 
available  in  the  selections  devoted  to  mediaeval  commercial  development,  pol- 
icy, and  theory.  The  readings  also  show  that  there  is  much  in  common 
between  the  social  and  industrial  life  of  mediaevalism  and  the  nineteenth 
century.  The  theory  of  the  stewardship  of  wealth  is  to  be  found  in  modern 
sociology  as  well  as  in  mediaeval  theology ;  Italy  in  the  fourteenth  century 
faced  many  urban  problems  which  are  quite  modern ;  the  mediaeval  artisan 
was  familiar  with  the  art  of  "soldiering" ;  few  moderns  could  teach  many  new 
tricks  of  trade  to  the  mediaeval  craftsman;  and  there  is  more  than  a  sugges- 
tion of  a  modern  bill  of  rights  in  the  eighteenth  century  document. 

Quite  as  important  is  the  evidence  furnished  by  these  readings  of  a  move- 
ment toward  the  "modern"  system.  The  very  ideals  of  an  unworldly  church 
were  leading  toward  a  material  and  humanistic  culture ;  priestly  inhibition 
of  usury,  reinforced  by  superstitious  stories  of  the  torment  in  store  for  the 
money-lender,  were  increasingly  impotent  to  remove  the  lure  of  jingling  guineas 
promised  by  commercial  ventures;  the  manor,  a  miniature  world  in  itself, 
was  losing  its  identity,  and  the  gild  was  breaking  down  in  the  face  of  a 
wider  and  wider  organization  of  industry;  the  commercial  note  of  pecuniary 
profit  was  becoming  more  and  more  dominant ;  and  the  larger  society  was 
substituting  the  magic  of  price  for  personal  relation  as  the  means  of  organiza- 
tion. Developing  society,  at  first  unlike  ours,  was  coming  nearer  and  nearer 
to  the  system  we  know.  Only  the  single  movement  of  the  industrial  revolu- 
tion was  necessary  to  make  it  assume  the  form  with  which  we  are  so  familiar. 

60 


ANTECEDENTS  OF  INDUSTRIALISM  6i 

A.     PRE-INDUSTRIAL  ECONOMY 
26.     The  Manor,  a  Self-sufficient  Economy^ 

BY  WILLIAM  J.  ASHLEY 

Till  nearly  the  end  of  the  fourteenth  century  England  was  a 
purely  agricultural  country.  Such  manufactures  as  it  possessed  were 
entirely  for  consumption  within  the  land;  and  for  goods  of  finer 
qualities  it  was  dependent  upon  importation  from  abroad. 

In  the  eleventh  century,  and  long  afterward,  the  whole  country, 
outside  the  larger  towns,  was  divided  into  manors,  in  each  of  which 
one  person,  called  the  lord,  possessed  certain  important  and  valuable 
rights  over  all  the  other  inhabitants.  Let  us  picture  to  ourselves  an 
eleventh-century  manor  in  middle  or  southern  England.  There  was 
a  village  street,  and  along  each  side  of  it  the  houses  of  the  cultivators 
of  the  soil,  with  little  yards  around  them :  as  yet  there  were  no  scat- 
tered farmhouses,  such  as  were  to  appear  later.  Stretching  away 
from  the  village  was  the  arable  land,  divided  usually  into  three  great 
fields  sown,  one  with  wheat,  one  with  oats  or  beans,  while  one  was  left 
fallow.  The  fields  were  subdivided  into  "furlongs";  and  each  fur- 
long into  acre  or  half-acre  strips,  separated,  not  by  hedges,  but  by 
"balks"  or  unploughed  turf ;  and  these  strips  were  distributed  among 
the  cultivators  in  such  a  way  that  each  man's  holding  was  made  up  of 
strips  scattered  up  and  down  the  three  fields,  and  no  man  held  two 
adjoining  pieces.  Each  holder  was  obliged  to  cultivate  his  strips  in 
accordance  with  the  rotation  of  crops  observed  by  his  neighbors. 
There  were  also  meadows,  inclosed  for  hay  harvest,  and  divided  into 
portions  by  lot,  or  rotation,  or  custom,  and  after  harvest  thrown 
open  again  for  the  cattle  to  pasture  upon.  In  most  cases  there  was 
also  some  permanent  pasture  or  wood,  into  which  the  cattle  were 
turned,  either  "without  stint,"  or  in  numbers  proportioned  to  the 
extent  of  each  man's  holding. 

The  land  was  regarded  as  the  property,  not  of  the  cultivators, 
but  of  a  lord.  It  was  divided  into  that  part  cultivated  for  the  imme- 
diate benefit  of  the  lord,  the  demesne  or  inland,  and  that  held  of  him 
by  tenants,  the  land  in  villenage,  the  latter  being  usually  about  two- 
thirds  of  the  whole.  The  demesne  consisted  partly  of  separate  closes, 
partly  of  acres  scattered  among  those  of  the  tenants  in  the  common 
fields.  Of  the  land  held  in  villenage,  the  greater  part  was  held  in 
whole  or  half  virgates.  The  virgate  was  a  holding  made  up  of  scat- 
tered acre  or  half-acre  strips  in  the  three  fields,  with  proportionate 
rights  to  meadow  and  pasture ;  and  its  extent,  varying  from  sixteen 
to  forty-eight  acres,  was  usually  thirty  acres.    The  holders  of  such 

^Adapted  from  An  Introduction  to  English  Economic  History  and  Theory 
(1894),  I,  5-49.    Published  by  Longmans,  Green  &  Co. 


62  CURRENT  ECONOMIC  PROBLEMS 

virgates  formed  an  estate  socially  equal  among  themselves,  and  all 
of  them  were  under  the  same  obligations  of  service  to  the  lord. 

The  principal  services  which  the  lord  exacted  of  the  villein  were, 
first,  a  man's  labor  for  two  or  three  days  a  week  throughout  the  year, 
known  as  week  work,  or  daily  works,  and  second,  additional  labor 
for  a  few  days  at  spring  and  autumn  ploughing  and  at  harvest.  On 
such  occasions  the  lord  demanded  the  labor  of  the  whole  family,  with 
the  exception  of  the  housewife.  Besides  these,  there  were  usually 
small  quarterly  payments  to  be  made  in  money,  and  miscellaneous 
dues  in  kind,  so  many  hens  and  eggs,  and  so  many  bushels  of  oats  at 
different  seasons  ;  as  well  as  miscellaneous  services,  of  which  the  most 
important  is  carting.  During  the  boon  days  it  was  usual  for  the 
lord  to  feed  the  laborers. 

The  fundamental  characteristic  of  the  manorial  group,  regarded 
from  the  economic  point  of  view,  was  its  self-sufficiency,  its  social 
independence.  The  same  families  tilled  the  village  fields  from  father 
to  son.  Each  manor  had  its  own  law  courts  for  the  maintenance  of 
order.  Then  as  now,  every  village  had  its  own  church ;  with  this 
advantage  or  disadvantage,  that  the  priest  did  not  belong  to  a  differ- 
ent social  class  from  his  parishioners.  The  village  included  men  who 
carried  on  all  the  occupations  and  crafts  necessary  for  everyday  life. 
There  was  always  a  water  or  windmill  which  the  tenants  were  bound 
to  use,  paying  dues  which  formed  a  considerable  part  of  the  lord's 
income.  Many  villages  had  their  own  blacksmith  and  carpenter, 
probably  holding  land  on  condition  of  repairing  the  ploughs  of  the 
demesne  and  the  villagers. 

Thus  the  inhabitants  of  an  average  English  village  went  on,  year 
in,  year  out,  with  the  same  customary  methods  of  cultivation,  living 
on  what  they  produced,  and  scarcely  coming  in  contact  with  the  out- 
side world.  The  very  existence  of  towns,  indeed,  implied  that  the 
purely  agricultural  districts  produced  more  than  was  required  for 
their  own  consumption  ;  and  corn  and  cattle  were  regularly  sent,  even 
to  distant  markets.  But  the  other  dealings  of  the  villages  with  the 
outside  world  were  few.  First,  there  was  the  purchase  of  salt,  an 
absolute  necessity  in  the  mediaeval  world,  where  people  lived  on 
salted  meat  for  five  months  in  the  year.  Second,  iron  was  continually 
needed  for  the  ploughs  and  other  farm  implements.  Third,  when  a 
fresh  disease,  the  scab,  appeared  among  the  sheep,  tar  became  of 
great  importance  as  a  remedy.  Perhaps  the  only  other  recurring 
need,  which  the  village  could  not  itself  supply,  was  that  of  millstones. 

Such  were  the  chief  characteristics  of  the  manorial  group  as  a 
whole  self-sufficiency  and  corporate  unity.  Let  us  look  at  the  position 
of  the  individual  members  in  the  group.  Some  had  risen  to  the  posi- 
tion of  free  tenants,  but  the  great  majority  had  continued  to  hold  by 


ANTECEDENTS  OF  INDUSTRIALISM  63 

servile  tenure.  Of  the  position  of  this  great  majority  the  charac- 
teristic was  permanence,  with  its  disadvantages  and  also  with  its 
advantages. 

It  is  instructive  to  compare  the  village  as  we  have  seen  it  with 
the  village  of  today.  In  one  respect  there  might  seem  to  be  a  close 
resemblance.  Then,  as  usually  now,  the  village  was  made  up  of  one 
street,  with  a  row  of  houses  on  either  side.  But  the  inhabitants  of 
the  village  street  now  are  the  laborers  and  artisans  with  one  or  more 
small  shopkeepers.  The  farmers  live  in  separate  homesteads  among 
the  fields  they  rent,  and  not  in  the  village  street.  Then  all  the  culti- 
vators of  the  soil  lived  side  by  side.  Second,  notice  the  difference  as 
to  the  agricultural  operations  themselves.  Now  each  farmer  follows 
his  own  judgment  in  what  he  does.  But  the  peasant-farmer  of  the 
period  we  have  been  considering  was  bound  to  take  his  share  in  a 
common  system  of  cultivation,  in  which  the  time  at  which  everything 
should  be  done  and  the  way  in  which  everything  should  be  done  was 
regulated  by  custom.  A  further  difiference  is  seen  in  the  relations  of 
lord  and  tenant  as  to  the  cultivation.  Nowadays  either  the  landlord 
does  not  himself  farm  any  land  in  the  parish,  or  his  management 
of  it  is  independent  of  the  cultivation  of  any  other  land  by  tenants. 
But  then  almost  all  the  labor  on  the  demesne  was  furnished  by  the 
villein  tenants,  who  contributed  ploughs,  oxen,  and  men.  Compare 
finally  the  classes  in  the  manor,  with  those  in  the  village  today.  In  a 
modern  parish  there  will  usually  be  a  squjre,  some  three  or  four 
farmers,  and  beneath  them  a  comparatively  large  number  of  agri- 
cultural laborers.  But  in  the  mediaeval  manor,  much  the  greater 
part  of  the  land  was  cultivated  by  small  holders.  Between  the  lord 
of  the  manor  and  the  villein  tenants  there  was,  indeed,  a  great  gulf 
fixed.  But  there  was  nothing  like  the  social  separation  of  classes  of 
actual  cultivators  that  exists  today. 

It  may  be  well  to  note  the  nonexistence  in  the  village  group  of 
certain  elements  which  modern  abstract  economics  is  apt  to  take 
for  granted.  Individual  liberty,  in  the  sense  in  which  we  understand 
it,  did  not  exist ;  consequently  there  could  be  no  complete  competition. 
The  payments  made  by  the  villeins  were  not  rents  in  the  abstract 
economist's  sense:  for  the  economist  assumes  competition.  The 
chief  thought  of  lord  and  tenant  was,  not  what  the  tenant  could  pos- 
sibly afiford,  but  what  was  customary.  Finally,  there  was  as  yet  no 
capital  in  the  modern  sense.  Of  course  there  was  capital  in  the  sense 
in  which  the  word  is  defined  by  economists,  "wealth  appropriated  to 
reproductive  employment,"  for  the  villeins  had  ploughs,  harrows, 
oxen,  horses.  But  this  is  one  of  the  most  unreal  of  economic  defi- 
nitions. As  has  been  well  said,  by  capital  we  mean  more  than  this ; 
we  mean  a  store  of  wealth  that  can  be  directed  into  new  and  more 


64  CURRENT  ECONOMIC  PROBLEMS 

profitable  channels  as  occasion  arises.    In  that  sense  the  villeins  cer- 
tainly had  no  capital. 

27.     Wage  Work  and  the  Handicraft  System^ 

BY  CARL  BUCHER 

When  the  land  owned  by  a  family  becomes  divided  up  and  no 
longer  suffices  for  its  maintenance,  a  part  of  the  rural  population 
begins  to  produce  for  the  market.  At  first  the  necessary  raw  material 
is  gained  from  their  own  land  or  drawn  from  the  communal  forests ; 
later  on,  if  need  be,  it  also  is  purchased.  All  sorts  of  allied  produc- 
tions are  added ;  and  thus  there  develops  an  endlessly  varied  system 
of  peasant  industry  on  a  small  scale. 

But  the  evolution  may  take  another  course,  and  an  independent 
professional  class  of  industrial  laborers  arises  and  with  them  the 
industrial  system  of  wagework.  Whereas  all  industrial  skill  has 
hitherto  been  exercised  in  close  association  with  property  in  land  and 
tillage,  the  adept  house-laborer  now  frees  himself  from  this  associa- 
tion, and  upon  his  technical  skill  founds  for  himself  an  existence 
that  gradually  becomes  independent  of  property  in  land.  But  he  has 
only  his  simple  tools  for  work ;  he  has  no  business  capital.  He  there- 
fore always  exercises  his  skill  upon  raw  material  furnished  him  by 
the  producer  of  the  raw  material,  who  is  at  the  same  time  the  con- 
sumer of  the  finished  product. 

Here  two  distinct  forms  of  this  relationship  are  possible.  In  one 
case  the  wageworker  is  taken  temporarily  into  the  house,  receives  his 
board  and,  if  he  does  not  belong  to  the  place,  his  lodging  as  well, 
together  with  his  daily  wage ;  and  leaves  when  the  needs  of  his  cus- 
tomer are  satisfied.  We  may  designate  this  whole  industrial  phase  as 
that  of  itinerancy,  and  the  laborer  carrying  on  work  in  this  manner 
as  an  itinerant.  The  dressmakers  and  seamstresses  whom  our  women 
are  accustomed  to  take  into  their  houses  may  serve  as  an  illustration. 
On  the  other  hand  the  wageworker  may  have  his  own  place  of  busi- 
ness, and  the  raw  material  be  given  out  to  him.  For  working  it  up  he 
receives  a  piecework  wage.  In  the  country  the  miller  and  the  baker 
working  for  a  wage  are  examples.  We  will  designate  this  form  of 
work  home  work.  It  is  met  with  chiefly  in  industries  that  demand 
permanent  means  of  production,  difficult  to  transport.  Both  forms 
of  work  are  still  very  common  in  all  parts  of  the  world.  The  system 
can  be  traced  in  Babylonian  temple  records ;  it  can  be  followed  in 
literature  from  Homer  down  through  ancient  and  mediaeval  times 
to  the  present  day.  These  two  forms  of  wagework  have  different 
origins.     Itinerant  labor  is  based  upon  the  exclusive  possession  of 

^Adapted  from  Industrial  Evolution,  pp.  162-72.  Translated  from  the  third 
German  edition  by  S.  Morley  Wickett.    Copyright  by  Henry  Holt  &  Co.,  1900. 


ANTECEDENTS  OF  INDUSTRIALISM  65 

aptitude  for  a  special  kind  of  work,  home  work  upon  the  exclusive 
posession  of  fixed  means  of  production.  Upon  this  basis  there  arise 
all  sorts  of  mixed  forms  between  home  work  and  wagework.  The 
itinerant  laborer  is  at  first  an  experienced  neighbor  whose  advice  is 
sought  in  carrying  out  an  important  piece  of  work,  the  actual  work, 
however,  still  being  performed  by  members  of  the  household.  Even 
later  it  is  the  practice  for  the  members  of  the  customer's  family  to 
give  the  necessary  assistance  to  the  craftsman.  In  the  case  of  home 
work  the  latter  tradesman  is  at  first  merely  the  owner  of  the  busi- 
ness plant  and  technical  director  of  the  production,  the  customer 
doing  the  actual  work.  This  frequently  remains  true  in  the  country 
today  with  oil-presses,  flax-mills,  and  cider-mills. 

From  the  economic  point  of  view  the  essential  feature  of  the 
wagework  system  is  that  there  is  no  business  capital.  Neither  the 
raw  material  nor  the  finished  industrial  product  is  for  its  producer 
ever  a  means  of  profit.  The  character  and  extent  of  the  production 
are  still  determined  in  every  case  by  the  owner  of  the  soil,  who  pro- 
duces the  raw  material ;  he  also  superintends  the  whole  process  of 
production.  From  the  sowing  of  the  seed  until  the  moment  the  bread 
is  consumed  the  product  has  never  been  capital,  but  always  a  mere 
article  lor  use  in  course  of  preparation.  No  earnings  of  manage- 
ment and  interest  charges  or  middleman's  profits  attach  to  the  finished 
product,  but  only  wages  for  work  done. 

Under  certain  social  conditions  this  is  a  thoroughly  economic 
method  of  production.  It  secures  the  excellence  of  the  product  and 
the  complete  adjustment  of  supply  to  demand.  But  it  forces  the  con- 
sumer to  run  the  risk  attaching  to  industrial  production,  as  only  those 
needs  that  can  be  foreseen  can  find  suitable  and  prompt  satisfaction, 
while  a  sudden  need  must  always  remain  unsatisfied.  The  system 
has  also  many  disadvantages  for  the  wageworker.  Among  these 
are  the  inconveniences  and  loss  of  time  suffered  in  his  itinerancy 
from  place  to  place ;  also  the  irregularity  of  employment,  which  leads, 
now  to  the  overwork,  now  to  the  complete  idleness,  of  the  workman. 

In  the  Middle  Ages  wagework  greatly  facilitated  the  emancipa- 
tion of  the  artisan  from  serfdom  and  feudal  obligations,  as  it  required 
practically  no  capital  to  start  an  independent  business.  It  is  a  mistake 
still  common  to  look  upon  the  class  of  gild  handicraftsmen  as  a 
class  of  small  capitalists.  It  was  in  essence  rather  an  industrial 
laboring  class,  distinguished  from  the  laborers  of  today  by  the  fact 
that  each  worked  not  for  a  single  employer  but  for  a  large  number 
of  consumers.  The  supplying  of  the  material  by  the  customer  is 
common  to  almost  all  mediaeval  handcrafts ;  in  many  instances,  in- 
deed, it  continued  for  centuries,  even  after  the  customer  had  ceased 


66  CURRENT  ECONOMIC  PROBLEMS 

to  produce  the  raw  material  himself  and  must  buy  it.  The  furnish- 
ing of  the  raw  material  by  the  master  is  a  practice  that  takes  slow 
root ;  at  first  it  holds  only  for  the  poorer  customers ;  but  later  for  the 
wealthy  as  well.  Thus  arises  handicraft ;  but  alongside  it  wagework 
maintains  itself  for  a  long  time. 

All  the  important  characteristics  of  handicraft  may  be  summed 
up  in  the  single  expression  custom  production.  It  is  the  method  of 
sale  that  distinguishes  this  industrial  system  from  all  later  ones.  The 
handicraftsman  always  works  for  the  consumer  of  his  product, 
whether  it  be  that  the  latter  by  placing  separate  orders  affords  the 
occasion  for  the  work,  or  the  two  meet  at  the  weekly  or  yearly  mar- 
ket. As  a  rule  the  region  of  sale  is  local.  The  customer  buys  at 
first  hand,  the  handicraftsman  sells  to  the  actual  consumer.  This 
assures  a  proper  adjustment  of  supply  and  demand  and  introduces 
an  ethical  feature  into  the  whole  relationship ;  the  producer  in  the 
presence  of  the  consumer  feels  responsibility  for  his  work. 

With  the  rise  of  handicraft  a  wide  cleft  appears  in  the  process 
of  production.  Hitherto  the  owner  of  the  land  has  conducted  the 
whole  process ;  now  there  are  two  classes  of  economic  activity,  each 
of  which  embraces  only  a  part  of  the  process  of  production,  one  pro- 
ducing the  raw  material,  the  other  the  manufactured  article.  Handi- 
craft endeavored  to  bring  it  about  that  an  article  should  pass  through 
all  its  stages  of  production  in  the  same  workshop.  In  this  way  needed 
capital  is  diminished  and  frequent  additions  to  price  avoided. 

The  direct  relationship  of  the  handicraftsman  and  the  consumer 
of  his  products  made  it  necessary  that  the  business  remain  small. 
Whenever  any  one  line  of  handicraft  threatens  to  become  too  large, 
new  handicrafts  split  ofif  from  it  and  appropriate  part  of  the  sphere 
of  production.  This  is  the  mediaeval  division  of  labor,  which  con- 
tinually creates  new  and  independent  trades. 

Handicraft  is  a  phenomenon  peculiar  to  the  town.  Peoples  which, 
(ike  the  Russians,  have  developed  no  real  town  life,  know  likewise 
lo  national  handicraft.  This  also  explains  why,  with  the  formation 
of  large  centralized  states  and  unified  commercial  territories,  handi- 
craft was  doomed  to  decline. 

28.     Ordinances  of  the  Gild  Merchant  of  Southampton^ 

1.  In  the  first  place,  there  shall  be  elected  from  the  Gild  Mer- 
chant, and  established,  an  alderman,  a  steward,  a  chaplain,  four 
skevins,  and  an  usher.    And  it  is  to  be  known  that  whosoever  shall 

^Adapted  from  University  of  Pennsylvania,  Translations  and  Reprints 
from  the  Original  Sources  of  European  History,  Vol.  II,  No.  i,  "English 
Towns  and  Gilds"  (about  1300),  pp.  12-17. 


ANTECEDENTS  OF  INDUSTRIALISM  67 

be  alderman  shall  receive  from  each  one  entering  into  the  Gild  four- 
pence  ;  the  steward,  twopence  ;  the  chaplain,  twopence  ;  and  the  usher, 
one  penny.  And  the  Gild  shall  meet  twice  a  year :  that  is  to  say,  on 
the  Sunday  next  after  St.  John  the  Baptist's  day,  and  on  the  Sunday 
next  after  St.  Mary's  day. 

2.  And  when  the  Gild  shall  be  sitting  no  one  of  the  Gild  is  to 
bring  in  any  stranger,  except  when  required  by  the  alderman  or 
steward. 

3.  And  when  the  Gild  shall  sit,  the  alderman  is  to  have,  each 
night,  so  long  as  the  Gild  sits,  two  gallons  of  wine  and  two  candles, 
and  the  steward  the  same ;  and  the  four  skevins  and  the  chaplain, 
each  of  them  one  gallon  of  wine  and  one  candle,  and  the  usher  one 
gallon  of  wine. 

4.  And  when  the  Gild  shall  sit,  the  lepers  of  La  Madeleine  shall 
have  of  the  alms  of  the  Gild,  two  sesters  of  ale,  and  the  sick  of  God's 
House  and  of  St.  Julian  shall  have  two  sesters  of  ale.  And  the 
Friar's  Minors  shall  have  two  sesters  of  ale  and  one  sester  of  wine. 
And  four  sesters  of  ale  shall  be  given  to  the  poor  wherever  the  Gild 
shall  meet. 

5.  And  when  the  Gild  is  sitting,  no  one  who  is  of  the  Gild  shall 
go  outside  of  the  town  for  any  business,  without  the  permission  of 
the  steward.  And  if  any  one  does  so,  let  him  be  fined  two  shillings, 
and  pay  them. 

6.  And  when  the  Gild  sits,  and  any  gildsman  is  outside  of  the 
city  so  that  he  does  not  know  when  it  will  happen,  he  shall  have  a 
gallon  of  wine,  if  his  servants  come  to  get  it. 

9.  And  when  a  gildsman  dies,  his  eldest  son  or  his  next  heir  shall 
have  the  seat  of  his  father,  or  of  his  uncle,  if  his  father  was  not  a 
gildsman,  and  of  no  other  one ;  and  he  shall  give  nothing  for  his  seat. 
No  husband  can  have  a  seat  in  the  Gild  by  right  of  his  wife,  nor 
demand  a  seat  by  right  of  his  wife's  ancestors. 

10.  And  no  one  has  the  right  or  power  to  sell  or  give  his  seat  in 
the  Gild  to  any  man. 

19.  And  no  one  in  the  city  of  Southampton  shall  buy  anything 
to  sell  again  in  the  same  city,  unless  he  is  of  the  Gild  Merchant  or 
of  the  franchise.  And  if  anyone  shall  do  so  and  is  convicted  of  it, 
all  which  he  has  so  bought  shall  be  forfeited  to  the  king. 

20.  And  no  one  shall  buy  honey,  fat,  salt  herrings,  or  any  kind 
of  oil,  or  millstones,  or  fresh  hides,  or  any  kind  of  fresh  skins,  unless 
he  is  a  gildsman ;  nor  keep  a  tavern  for  wine,  nor  sell  cloth  at  retail, 
except  in  market  or  fair  days ;  nor  keep  grain  in  his  granary  beyond 
five  quarters,  to  sell  at  retail,  if  he  is  not  a  gildsman;  and  whoever 
shall  do  this  and  be  convicted  shall  forfeit  all  to  the  king. 


68  CURRENT  ECONOMIC  PROBLEMS 

21.  No  one  of  the  Gild  ought  to  be  partner  or  joint  dealer  in 
any  of  the  kinds  of  merchandise  before  mentioned  with  anyone  who 
is  not  of  the  Gild,  by  any  manner  of  coverture,  or  art,  or  contrivance, 
or  collusion,  or  in  any  other  manner. 

23.  And  no  private  man  nor  stranger  shall  bargain  for  or  buy 
any  kind  of  merchandise  coming  into  the  city  before  a  burgess  of 
the  Gild  Merchant,  so  long  as  the  gildsman  is  present  and  wishes  to 
bargain  for  and  buy  this  merchandise. 

24.  And  anyone  who  is  of  the  Gild  Merchant  shall  share  in  all 
merchandise  which  another  gildsman  shall  buy  or  any  other  person, 
whoever  he  is,  if  he  comes  and  demands  part  and  is  there  where  the 
merchandise  is  bought,  and  also  if  he  gives  satisfaction  to  the  seller 
and  gives  security  for  his  part. 

63.  No  one  shall  go  out  to  meet  a  ship  bringing  wine  or  other 
merchandise  coming  to  the  town,  in  order  to  buy  anything,  before 
the  ship  be  arrived  and  come  to  anchor  for  unloading;  and  if  any 
one  does  so  and  is  convicted,  the  merchandise  which  he  shall  have 
bought  shall  be  forfeited  to  the  king. 

29.     Ordinances  of  the  White  Tawyers* 

In  honor  of  God,  of  Our  Lady,  and  of  All  Saints,  and  for  the 
nurture  of  tranquillity  and  peace  among  the  good  folks  the  Megu- 
cers,  called  white-tawyers,  the  folks  of  the  same  trade  have,  by  assent 
of  Richard  Lacer,  Mayor,  and  of  the  Aldermen,  ordained  the  points 
under-written. 

In  the  first  place,  they  have  ordained  that  they  will  find  a  wax 
candle,  to  burn  before  Our  Lady  in  the  Church  of  Allhallows,  near 
London  wall. 

And  if  any  one  of  the  said  trade  shall  depart  this  life,  and  have 
not  wherewithal  to  be  buried,  he  shall  be  buried  at  the  expense  of 
their  common  box.  And  when  any  one  of  the  said  trade  shall  die, 
all  those  of  the  said  trade  shall  go  to  the  vigil,  and  make  offering 
on  the  morrow. 

Also,  that  no  one  of  the  said  trade  shall  induce  the  servant  of 
another  to  work  with  him  in  the  said  trade,  until  he  has  made  a  proper 
fine  with  his  first  master,  at  the  discretion  of  the  said  overseers,  or  of 
four  reputable  men  of  the  said  trade.  And  if  any  one  shall  do  to 
the  contrary  thereof,  or  receive  the  serving  workman  of  another  to 
work  with  him  during  his  term,  without  leave  of  the  trade,  he  is  to 
incur  the  said  penalty.  Also,  that  no  one  shall  take  for  working  in 
the  said  trade  more  than  they  were  wont  heretofore. 

^Adapted  from  University  of  Pennsylvania,  ibid,  (fourteenth  century), 
pp.  23-25.  t 


ANTECEDENTS  OF  INDUSTRIALISM  69 

30.     Preamble  to  the  Ordinances  of  the  Gild  of  the  Tailors, 

Exeter^ 

To  the  worship  of  God  and  of  our  Lady  Saint  Mary,  and  of  St. 
John  the  Baptist,  and  of  all  Saints :  These  be  the  Ordinances  made 
and  established  of  the  fraternity  of  craft  of  tailors,  of  the  city  of 
Exeter,  by  assent  and  consent  of  the  fraternity  of  the  craft  aforesaid 
gathered  there  together,  for  evermore  to  endure. 

31.     Household  Industry  in  America" 

BY   ROLLO    MILTON   TRYON 

The  manual  training,  domestic  science,  and  household  arts  courses 
in  our  current  educational  programs  are  attempting  to  do  what  was 
done  in  the  eighteenth  and  part  of  the  nineteenth  century  in  the 
homes.  The  social  pressure  that  operated  in  placing  these  subjects 
in  the  schools  during  the  last  quarter  of  the  nineteenth  century  was 
largely  an  expression  of  the  feeling  that  much  valuable  training  had 
been  lost  through  the  decay  of  the  household  system  of  manufactur- 
ing— a  system  that  taught  the  girl,  by  the  time  she  was  twenty,  to  spin, 
weave,  sew,  embroider,  knit,  darn,  crochet,  patch,  do  laundry  work 
well,  prepare  wholesome  meals,  make  butter,  cheese,  and  candles,  and 
perform  other  duties  connected  with  good  housekeeping;  a  system 
that  taught  the  boy  to  employ  the  spare  moments  of  his  farm  life  in 
the  manufacture  from  wood  of  such  farm  implements  as  plows,  har- 
rows, sleds,  wagons,  carts,  shovels,  flails,  swingling  knives,  handles 
for  spades,  axes,  hoes,  and  pitchforks,  as  well  as  various  aids  to 
domestic  comfort,  such  as  brooms,  baskets,  wooden  bowls  and  bread 
troughs,  butter  paddles,  cheese  hoops,  and  other  kitchen  and  table 
utensils ;  and,  finally,  a  system  that  engendered  such  virtues  as  cheer- 
fulness, happiness,  frugality,  independence,  diligence,  perseverance, 
skill,  and  self-reliance. 

In  commenting,  in  i848,  on  the  domestic  habits  of  New  England 
women,  an  elderly  lady  of  Montpelier,  Vermont,  said  that  she  was 
firmly  convinced  that  among  the  changes  and  revolutions  in  domestic 
habits  and  customs  in  modern  times,  so  far  as  the  welfare  of  her  own 
sex  was  concerned,  the  change  most  to  be  regretted  was  the  one  that 
led  to  the  disuse  of  the  old-fashioned  family  spinning-wheel.  It  was 
her  opinion  that  the  movement  necessary  in  drawing  out  and  running 

^Adapted  from  University  of  Pennsylvania,  ibid.  (1466),  p.  26. 

*  The  passages  below  are  all  taken  from  Household  Manufacture  in  the 
United  States,  pp.  8,  9,  202-3,  188-89,  224.  Copyright  by  the  University  of 
Chicago  (1917). 


70  CURRENT  ECONOMIC  PROBLEMS 

up  the  thread  which  required  a  constant  march  backward  and  for- 
ward, while  the  arms  were  alternatively  lifted  in  the  operation,  and 
also  that  of  turning,  brought  all  the  muscles  into  play,  and  made  just 
the  exercise  necessary  for  the  development  of  the  human  system. 

The  following  articles  of  apparel  are  typical  ones  from  a  large 
number  mentioned  and  described  as  homespun  in  advertisements  of 
fugitive  slaves  and  servants  in  New  Jersey  from  1707  to  1776: 

Homespun  olive-colored  coat,  homespun  white  shirt,  brown- 
colored  homespun  drugget  coat,  homespun  coarse  shirt,  homespun 
striped  breeches,  brown  or  black  homespun  jacket,  homespun  coat 
lined  with  blue,  homespun  coat  of  black  and  white  worsted  and  wool, 
homespun  gray  coat  lined  with  orange  stuff,  dark-colored  homespun 
coat  and  jacket,  homespun  gray  stockings,  suit  of  dark-gray  home- 
spun cloth,  suit  of  light-gray  homespun  drugget  cloth,  new  homespun 
blue-striped  trousers,  dark-brown  homespun  kersey  coat,  homespun 
worsted  knit  stockings,  gray  woolen  homespun  coat,  cinnamon  home- 
spun kersey  coat  lined  with  broad  striped  homespun,  brown  home- 
spun jacket,  olive-colored  homespun  breeches  and  jacket,  brown 
homespun  breeches,  homespun  gown  of  green  woolen  yarn,  dark- 
colored  homespun  broadcloth  jacket,  short  homespun  gown  and 
petticoat  with  red,  blue,  green,  and  black  stripes,  homespun  black 
jacket,  white  homespun  jacket,  homespun  striped  woolen  jacket, 
homespun  coat  of  woolen  and  cotton  lined,  moss-colored  homespun 
coat  Hned  with  brown  homespun,  homespun  blue  and  white  striped 
linen  jacket  and  breeches,  blue-gray  homespun  drugget  coat,  striped 
homespun  waistcoat  and  breeches. 

The  following  list  of  articles  comprises  the  domestic  staples  which 
the  Moravian  Brethren  proposed  to  contribute  to  a  store  which  they 
opened  in  1753  for  the  benefit  of  the  "family": 

Apron  skins,  powder  horns,  glue,  shoes,  slippers,  shoe  lasts, 
wooden  and  horn  heel  pieces,  saddle  trees,  saddles,  horse  collars, 
bridles,  halters,  saddlebags,  girths,  pocketbooks,  martingales,  straps, 
stockings,  caps,  gloves,  socks,  hats,  felt  caps  and  felt  slippers,  spin- 
ning-wheels, reels,  boxes,  guns,  tea  caddies,  writing  desks,  deer  and 
calf  skins  dressed  for  breeches,  buckwheat  groats,  oat  groats,  malt, 
millet,  dried  peaches,  dried  apples,  dried  cherries,  rusks,  gingerbread, 
iron  bands  for  chests,  nails,  plows,  axes,  hatchets,  grubbing  hose, 
corn  hoes,  grindstones,  whetstones,  punk,  flint  and  steel,  pipestems, 
pipe  heads,  shirt  studs,  pewter  plates,  tea  pots,  lanterns,  tallow  can- 
dles, soap,  starch,  hair  powder,  sealing  wax,  wafers,  tobacco  boxes, 
buttons,  buckles,  spoons,  bowls,  shovels,  brooms,  baskets,  wheat  flour, 


ANTECEDENTS  OF  INDUSTRIALISM  71 

butter,  cheese,  handkerchiefs,  neckcloths,  garters,  knee  straps,  linen, 
white,  blue  and  checked  woolens,  currant  wine,  beer,  whiskey,  tar, 
potash,  turpentine,  pitch,  lampblack,  sulphur  matches,  vinegar,  flax- 
seed, linseed  oil,  rape  seed  and  oil,  nut  oil,  oil  of  sassafras,  ammonia, 
rasped  deer's  horn,  bush  tea,  medicine  chests,  brushes,  shovels  and 
tongs,  chafing  dishes,  combs,  currycombs,  glove  leather,  leather 
breeches,  ropes,  blank  books,  soft  soap,  rakes,  knives,  drawing- 
knives,  guitars,  violins,  tobacco  and  tobacco  pouches,  snuflf,  oil  of 
turpentine,  hemp,  flax,  buckets,  milk  pails,  tubs,  pottery,  cotton  yarn, 
cord,  hatchets,  oven  forks,  linen  nets,  augers,  hammers,  pinchers, 
candlesticks,  tinware,  chisels,  mill  saws,  homespun,  boots,  chips, 
harness,  wheelbarrows,  wagons,  coffeepots,  chains,  canoes,  boards, 
bricks,  roofing  tiles,  lime,  preserves  and  pickles,  quills  and  slate 
pencils/ 

For  bedsteads  an  oak  tree  that  would  split  well  was  selected,  cut 
down,  and  a  log  about  eight  feet  long  taken  from  the  butt  and  split 
into  such  pieces  as  could  be  readily  shaped  into  posts  and  rails. 
Another  log  not  so  long  was  split  into  such  pieces  as,  with  a  slight 
dressing,  made  slats.  Holes  were  bored  with  a  tolerably  long  auger  in 
suitable  places  in  the  posts  for  inserting  the  rails  ;  two  rails  were  used 
for  each  side  and  about  three  for  each  end,  the  rails  answering  for 
head  and  foot  boards.  Like  auger  holes  were  made  in  the  lower  side 
rails  at  suitable  points  for  inserting  the  slats.  When  properly  pre- 
pared the  bedstead  was  put  together  by  pressing  the  rails  and  slats 
in  the  holes  prepared  for  each,  thus  making  a  rough  but  strong  high- 
post  bedstead,  the  posts  at  the  top  being  tightly  held  together  by  rods 
prepared  for  the  purpose  upon  which  curtains  were  to  be  hung. 
Thus  was  created  a  bedstead.* 

B.     PRE-INDUSTRIAL  COMMERCE 
32.     A  Definition  of  Commerce^ 

BY  J.  DORSE Y  FORREST 

Attempts  to  study  the  development  of  commerce  have  usually 
been  unsatisfactory  because  they  have  failed  to  distinguish  between 
real  commercial  activity  and  the  mere  external  mechanism  of  ships 
and  roads  and  travelers.  The  real  history  of  commerce  which  will 
some  time  be  written  will  give  some  account  of  the  production  which 

^Reichel   (editor),  Memorials  of  the  Moravian  Church,  I,  234  f.,  note. 

^Duncan,  Old  Settlers'  Papers,  p.  398. 

^'.Adapted  from  The  Developvxent  of  Western  Civilization,  p.  194.  Copy- 
right by  the  University  of  Chicago,  1906. 


72  CURRENT  ECONOMIC  PROBLEMS 

has  fed  commerce,  as  well  as  a  description  of  the  routes,  and  of 
some  actual  exchanges  which  indicate  that  commerce  had  actually 
been  going  on.  Such  phenomena  of  the  mechanism  of  trade  are 
worthy  of  note,  but  only  as  guiding  the  student  to  a  deeper  study 
of  the  dynamical  phenomena  of  which  these  are  but  surface  indica- 
tions. Real  commerce  represents  a  differentiation  of  function  by 
which  the  diverse  parts  of  society  come  into  complex  and  organic 
relation  with  one  another. 

33.     The  Attitude  of  the  Mediaeval  Church  toward  Commerce" 

BY  WILLIAM   J.   ASHLEY 

The  teaching  of  the  gospel  as  to  worldly  goods  had  been  un- 
mistakable. It  had  repeatedly  warned  men  against  the  pursuit  of 
wealth,  which  would  alienate  them  from  the  service  of  God  and 
choke  the  good  seed.  It  had  in  one  striking  instance  associated 
spiritual  perfection  with  the  selling  of  all  that  a  man  had  that  he 
might  give  it  to  the  poor.  It  had  declared  the  poor  and  hungry 
blessed,  and  had  prophesied  woes  to  the  rich.  Instead  of  anxious 
thought  for  the  food  and  raiment  of  the  morrow,  it  had  taught  trust 
in  God;  instead  of  selfish  appropriation  of  whatever  a  man  could 
obtain,  a  charity  which  gave  freely  to  all  who  asked.  And  in  the 
members  of  the  earliest  Christian  church  it  presented  an  example 
of  men  who  gave  up  their  individual  possessions,  and  had  all  things 
in  common. 

We  cannot  wonder  that,  with  such  lessons  before  them,  a  salu- 
tary reaction  from  the  self-seeking  of  the  pagan  world  should  have 
led  the  early  Christian  Fathers  totally  to  condemn  the  pursuit  of 
gain.  It  took  them  further — to  the  denial  to  the  individual  of  the 
right  to  do  what  he  liked  with  his  own,  even  to  enjoy  in  luxury  the 
wealth  he  possessed.  "What  injustice  is  there  in  my  diligently 
preserving  my  own,  so  long  as  I  do  not  invade  the  property  of  an- 
other?" "Shameless  saying!"  says  S.  Ambrose.  "My  own,  sayest 
thou  ?  what  is  it  ?  from  what  secret  places  hast  thou  brought  it  into 
this  world?  When  thou  enterest  into  the  light,  when  thou  camest 
from  thy  mother's  womb,  what  wealth  didst  tliou  bring  with  thee? 
That  which  is  taken  by  thee,  beyond  what  would  suffice  to  thee,  is 
taken  by  violence.  Is  it  that  God  is  unjust,  in  not  distributing  to 
us  the  means  of  life  equally,  so  that  thou  shouldst  have  abundance 
while  others  are  in  want?  It  is  the  bread  of  the  hungry  thou  keep- 
est,  it  is  the  clothing  of  the  naked  thou  lockest  up ;  the  money  thou 
buriest  is  the  redemption  of  the  wretched."  To  seek  to  enrich  one's 
self  was  not,  simply,  to  incur  spiritual  risk  to  one's  own  soul ;  it  was 

i^Adapted  from  An  Introduction  to  English  Economic  History  and  Theory 
(1894),  I,  126-32.     Copyright  by  Longmans,  Green  &  Co. 


ANTECEDENTS  OF  INDUSTRIALISM  73 

in  itself  unjust,  since  it  aimed  at  appropriating  an  unfair  share  of 
what  God  had  intended  for  the  common  use  of  men.  If  a  man  pos- 
sessed more  than  he  needed,  he  was  bound  to  give  his  superfluity  to 
the  poor ;  for  by  natural  law  he  had  no  personal  right  to  it ;  he  was 
only  a  steward  of  God. 

If,  however,  to  seek  to  enrich  one's  self  was  sinful,  was  trade 
itself  justifiable?  This  was  a  question  which  troubled  many  con- 
sciences during  the  Middle  Ages.  On  the  one  hand  the  benefits 
which  trade  conferred  on  society  could  not  be  altogether  overlooked, 
nor  the  fact  that  with  many  traders  the  object  was  only  to  obtain 
what  sufficed  for  their  own  maintenance.  On  the  other  hand  they 
saw  that  trade  was  usually  carried  on  by  men  who  had  enough  al- 
ready, and  whose  chief  object  was  their  own  gain  :  "If  covetousness 
is  removed,"  urges  Tertullian,  "there  is  no  reason  for  gain,  and,  if 
there  is  no  reason  for  gain,  there  is  no  need  of  trade."  Moreover, 
as  the  trader  did  not  seem  himself  to  add  to  the  value  of  his  wares, 
if  he  gained  more  for  them  than  he  had  paid,  his  gain,  said  S. 
Jerome,  must  be  another's  loss ;  and  in  any  case,  trade  was  danger- 
ous to  the  soul,  since  it  was  scarcely  possible  for  a  merchant  not 
sometimes  to  act  deceitfully.  To  all  these  reasons  was  added  yet 
another.  The  thought  of  the  supreme  importance  of  saving  the  in- 
dividual soul,  and  of  communion  with  God,  drove  thousands  into 
the  hermit  life  of  the  wilderness,  or  into  monasteries ;  and  it  led 
even  such  a  man  as  Augustine  to  say  that  "business"  was  in  itself 
an  evil,  for  "it  turns  from  seeking  true  rest,  which  is  God." 

In  the  eleventh  century  began  a  great  moving  of  the  stagnant 
waters.  The  growth  of  towns,  the  formation  of  merchant  bodies, 
the  establishment  of  markets — even  if  they  did  no  more  than  fur- 
nish the  peasant  and  the  lord  of  the  manor  with  a  market  for  their 
surplus  produce — brought  men  face  to  face  with  one  another  as 
buyer  and  seller  in  a  way  they  had  not  been  before.  Hence  economic 
questions,  especially  such  as  concerned  the  relations  of  seller  and 
buyer,  of  creditor  and  debtor,  became  of  the  first  importance.  To 
deal  with  these  new  questions  a  new  jurisprudence  presented  itself, 
— the  jurisprudence  based  on  the  revived  study  of  Roman  law.  The 
Roman  law,  in  the  finished  form  in  which  the  codification  of  Jus- 
tinian presented  it^  rested  on  a  theory  of  absolute  individual  prop- 
erty which  was  entirely  alien  to  the  usages  of  early  Teutonic  peo- 
ples, among  whom  community  of  ownership,  or  at  any  rate  com- 
munity in  use,  was  still  a  prevalent  custom ;  and  it  recognized  an 
unlimited  freedom  of  contract,  which  may  have  been  suitable  to  the 
active  commerce  of  the  Mediterranean,  but  was  sure  to  be  the  in- 
strument of  injustice  when  appealed  to  in  the  midst  of  more  primi- 
tive social  conditions. 


74  CURRENT  ECONOMIC  PROBLEMS 

With  these  new  dangers  before  them,  churchmen  began  once 
more  to  turn  their  attention  to  economic  matters,  and  to  meet  what 
they  regarded  as  the  evil  tendencies  of  the  Roman  law,  "The  prin- 
ciple of  the  world,"  by  a  fresh  application  of  Christian  principles. 
On  two  doctrines  especially  did  they  insist — that  wares  should  be 
sold  at  a  just  price,  and  that  the  taking  of  interest  was  sinful.  They 
enforced  them  from  the  pulpit,  in  the  confessional,  in  the  ecclesias- 
tical courts ;  and  by  the  time  that  the  period  begins  of  legislative 
activity  on  the  part  of  the  secular  power,  these  two  rules  had  been 
so  impressed  on  the  consciences  of  men  that  Parliament,  municipality, 
and  gild  endeavored  of  their  own  motion  to  secure  obedience  to 
them. 

34.     The  Contribution  of  the  Church  to  Commerce^^ 

BY  J.   DORSEY  FORREST 

A  necessary  prerequisite  of  commercial  development  was  the 
establishment  of  an  efficient  agricultural  system.  In  perfecting  the 
agricultural  organization  the  ecclesiastical  domains  served  as  models 
to  the  smaller  lay  proprietors.  The  monasteries  depended  more  on 
rational  organization  than  on  personal  power  and  kept  alive  the 
more  efficient  methods  employed  by  the  Romans  in  earlier  days. 
The  monasteries  usually  established  themselves  on  waste  lands,  for 
the  prime  object  of  the  monks  was  retirement.  After  the  invasions 
they  had  no  difficulty  in  finding  waste  lands  even  in  regions  which 
had  been  most  highly  cultivated.  Great  saints  could  live  holy  lives 
as  hermits ;  but  when  masses  of  men  were  gathered  together,  it 
became  necessary  for  the  leaders  to  lay  down  rules  for  practical 
activity.  The  poverty  from  which  many  of  the  monks  came,  the 
reverence  of  the  church  for  the  Son  of  the  Carpenter,  and  the  ne- 
cessity of  labor  for  a  means  of  subsistence,  all  combined  to  give 
manual  labor  a  high  moral  value  in  the  monasteries.  Accordingly 
monastic  rules  enjoined  the  duty  of  manual  labor  as  a  moral  disci- 
pline. 

A  second  prerequisite  of  commerce  was  the  division  of  labor  and 
the  development  of  the  crafts.  In  time  neighboring  lords  would 
give  vast  domains,  with  their  villeins,  to  the  monasteries  in  return 
for  prayers.  As  the  monasteries  thus  grew  wealthy,  a  revolution 
came  in  the  management  of  their  internal  affairs.  All  had  to  find 
a  way  to  divide  labor  and  to  make  some  members  of  the  community 
mere  laborers.  In  feudal  times  this  division  was  well  advanced. 
For  centuries  the  monks  had  kept  alive  many  crafts,  and  the  causes 
just  referred  to  advanced  these  both  in  number  and  in  technique. 

'^Adapted  from  The  Development  of  Western  Civilization,  pp.  176-7Q, 
190-94.     Copyright  by  the  University  of  Chicago,  igo6. 


ANTECEDENTS  OF  INDUSTRIALISM  75 

In  spite  of  the  disorder  which  had  troubled  Europe  from  the 
time  of  the  first  invasion,  there  was  never  a  time  when  commercial 
intercourse  was  entirely  wanting.  During  the  period  of  most  com- 
plete disorganization  the  Jews  carried  on  a  casual  trade  in  oriental 
luxuries  and  handled  about  all  the  money  that  circulated.  United 
by  faith  and  common  traditions,  in  constant  touch  with  coreligion- 
ists in  other  countries,  they  formed  an  organic  body  in  the  midst 
of  universal  dissolution.  The  very  action  of  the  church  upon  the 
lay  society  contributed  to  their  prosperity.  The  canons  of  the 
councils  in  denying  to  Christians  the  right  to  exact  usury  assured 
to  the  Jews  a  monopoly  of  the  money  business.  Through  their  inti- 
mate relations  with  the  Mohammedans,  they  were  able  to  communi- 
cate with  the  East  at  a  time  when  no  Christian  could  sail  upon  the 
Mediterranean.  The  church  condoned  their  offenses  against  Chris- 
tian morality  because  their  services  as  money-lenders  and  dealers  in 
valuables  were  indispensable.  They  were  found  also  dispersed 
throughout  the  country,  and  on  the  domains  plied  their  trade  as 
pawnbrokers  among  the  villages  and  brokers  for  the  lords.  Though 
the  business  of  the  Jews  had  some  importance  as  a  stimulus  to 
greater  demands  for  luxuries,  it  can  hardly  be  considered  a  part  of 
the  commerce  of  Europe.  Such  commodities  as  spices,  perfumes, 
silks,  tapestries,  precious  stones,  and  jewelry  were  of  little  import- 
ance in  the  social  development  of  Europe. 

Preparation  for  the  revival  of  commerce  was  made  by  the 
Church.  The  importance  of  magic  made  it  desirable  to  transport 
sacred  relics  from  place  to  place ;  and  the  need  of  pictorial  services 
required  the  transportation  of  church  furnishings  from  Byzantium 
and  Italy  to  the  less  advanced  communities.  For  the  manufacture 
of  glass  and  the  erection  of  the  earlier  buildings  artisans  themselves 
had  to  be  imported  from  the  East  and  the  South.  There  was  also 
a  constant  intercommunication  in  certain  sections  through  pilgrim- 
ages to  noted  shrines.  When  special  festivals  were  held  at  these 
shrines,  large  numbers  of  pilgrims  would  be  present  at  the  same 
time.  The  provisioning  of  such  a  company  would  occasion  consid- 
erable trade,  and  peddlars  and  traders  would  naturally  join  the 
pilgrims.  Sometimes  the  monks  were  themselves  traders.  Some- 
times men  would  bring  their  simple  manufactures  from  domains 
in  the  neighborhood.  In  some  instances  the  important  fairs  sprang 
up  at  these  favorite  shrines.  But,  aside  from  trade,  the  pilgrimages 
themselves  kept  up  communication  between  different  points.  Again 
the  superstitious  awe  in  which  the  church  was  held  made  it  possi- 
ble for  priests  and  monks  and  messengers  and  pilgrims  to  travel 
from  place  to  place  as  neither  merchants  nor  soldiers  could  do.  Thus 
the  commerce  of  the  church  and  the  travel  inspired  by  the  church 


76  CURRENT  ECONOMIC  PROBLEMS 

served  to  keep  open  routes  which  were  closed  to  ordinary  travelers, 
and  to  bring  remote  regions  into  communication  with  each  other. 

The  episcopal  cities  were  also  centers  of  incipient  commercial 
transactions.  Since  the  bishop  did  not  move  from  one  domain  to 
another  to  consume  the  products  of  each  in  turn,  as  the  lay  nobles 
did,  the  products  of  surrounding  manors  had  to  be  transported  to 
the  residence  of  the  bishop.  Thus  there  was  maintained  a  kind  of 
industrial  concentration  that  might  form  the  basis  for  new  city  life. 
In  these  various  ways  the  churches  and  monasteries  contributed 
largely  to  the  commercial  development.  But  they  simply  prepared 
society  for  a  revival  of  commercial  activity  by  keeping  up  com- 
munication and  furnishing  inns  for  travelers. 

35.     Italian  Commerce  in  the  Fourteenth  Century^^ 

BY  THOMAS  B.  MACAULAY 

Liberty,  partially  indeed  and  transciently,  revisited  Italy ;  and  with 
liberty  came  commerce  and  empire,  science  and  taste,  all  the  com- 
forts and  all  the  ornaments  of  life.  The  Crusades,  from  which  the 
inhabitants  of  other  countries  gained  nothing  but  relics  and  wounds, 
brought  to  the  rising  commonwealths  of  the  Adriatic  and  Tyrrhene 
seas  a  large  increase  of  wealth,  dominion,  and  knowledge.  The 
moral  and  geographical  position  of  these  commonwealths  enabled 
them  to  profit  alike  by  the  barbarism  of  the  West  and  the  civiliza- 
tion of  the  East.  Italian  ships  covered  every  sea.  Italian  factories 
rose  on  every  shore.  The  tables  of  Italian  moneychangers  were 
set  in  every  city.  Manufactures  flourished.  Banks  were  established. 
The  operations  of  the  commercial  machine  were  facilitated  by  many 
useful  and  beautiful  inventions.  We  doubt  whether  any  country 
of  Europe,  our  own  excepted,  has  at  the  present  time  reached  so 
high  a  point  of  wealth  and  civilization  as  some  parts  of  Italy  had 
attained  four  hundred  years  ago.  Historians  rarely  descend  to  those 
details  from  which  alone  the  real  state  of  a  community  can  be  col- 
lected. Hence  posterity  is  too  often  deceived  by  the  vague  hyper- 
boles of  poets  and  rhetoricians,  who  mistake  the  splendor  of  a 
court  for  the  happiness  of  a  people.  Fortunately  John  Villani  has 
given  an  ample  and  precise  account  of  the  state  of  Florence  in 
the  early  part  of  the  fourteenth  century.  The  revenue  of  the  Re- 
public amounted  to  three  hundred  thousand  florins ;  a  sum  which, 
allowing  for  the  depreciation  of  the  precious  metals,  was  at  least 
equivalent  to  six  hundred  thousand  pounds  sterling;  a  larger  sum 
than  England  and  Ireland,  two  centuries  ago,  yielded  annually  to 
Elizabeth.    The  manufacture  of  wool  alone  employed  two  hundred 

*2Adapted  from  the  essay  on  Machiavelli  (1827). 


ANTECEDENTS  OF  INDUSTRIALISM  'j'j 

factories  and  thirty  thousand  workmen.  The  cloth  annually  pro- 
duced sold,  at  an  average,  for  twelve  hundred  thousand  florins ;  a 
sum  fully  equal  in  exchangeable  value  to  two  millions  and  a  half 
of  our  money.  Four  hundred  thousand  florins  were  annually  coined. 
Eighty  banks  conducted  the  commercial  operations,  not  of  Florence 
only  but  of  all  Europe.  The  transactions  of  these  establishments 
were  sometimes  of  a  magnitude  which  may  surprise  even  the  con- 
temporaries of  the  Barings  and  the  Rothchilds.  Two  houses  ad- 
vanced to  Edward  the  Third  of  England  upward  of  three  hundred 
thousand  marks,  at  a  time  when  the  mark  contained  more  silver  than 
fifty  shillings  of  the  present  day,  and  when  the  value  of  silver  was 
more  than  quadruple  of  what  it  now  is.  The  city  and  its  environs 
contained  a  hundred  and  seventy  thousand  inhabitants, 

C.     PRE-INDUSTRIAL  POLICY 
36.     Property  and  Service  on  the  Manor'^ 

Let  us  institute  a  brief  comparison  between  the  modern  industrial 
system  and  a  simple  agricultural  system,  such  as  existed  in  Europe 
in  the  Middle  Ages  and  still  survives  in  many  respects  in  those  lands 
from  which  the  greater  part  of  our  industrial  labor  comes.  Such  a 
comparison  will  serve  the  double  purpose  of  showing  the  dependence 
of  the  problem  upon  our  peculiar  organization  of  industry  and  of 
revealing  the  difficulties  of  adjustment  to  a  new  situation  by  a  laborer 
fresh  from  such  a  simple  industrial  environment. 

In  such  an  agricultural  system  the  position  of  the  laborer  was 
and  was  not  of  his  own  making.  It  was  not  in  the  sense  that  he  was 
born  into  a  social  class,  a  family,  and  a  fixed  industrial  position.  It 
was  in  the  sense  that  his  living  was  pretty  much  what  he  through  his 
own  efforts  made  it.  By  birth  it  became  his  privilege  and  obligation 
to  cultivate  a  certain  plot  of  ground,  to  gather  his  harvest  of  grain, 
to  pay  a  fixed  rent  in  kind  to  his  "lord,"  and  to  keep  the  balance 
for  himself.  This  opportunity  he  could  not  surrender;  from  it  he 
could  not  be  dispossessed.  It  was  for  others  to  dream  of  fame,  of 
knew  little  change.  For  him  no  complicated  nexus  of  a  price  scheme 
fortune,  of  position,  of  prestige ;  he  was  established  in  a  world  that 
stood  between  his  efforts  and  his  reward.  The  price  at  which  he 
sold  his  services  and  the  prices  at  which  he  purchased  goods  did  not 
have  to  be  considered.  For  him  the  sun  and  the  rain,  rather  than 
market  conditions,  his  strength  and  intelligent  application,  rather  than 
his  bargaining  ability,  determined  the  measure  of  his  material  wel- 
fare.   In  a  very  real  sense  he  received  all  that  he  produced  above  the 

i^An  editorial,  1916. 


78  CURRENT  ECONOMIC  PROBLEMS 

fixed  rental.  Quite  appropriately  he  greeted  his  neighbor  in  the 
morning  with  a  remark  about  the  all-important  subject  of  the  weather. 
His  modern  descendant  to  be  equally  appropriate  should  make  market 
quotations  the  basis  of  his  morning's  greetings. 

Economic  insecurity,  in  the  modern  sense  of  the  term,  did  not 
attach  to  the  laborer's  position.  His  personal  relations  with  his 
"lord,"  his  contact  with  his  "job"  rested  upon  conventions  that  seem 
quite  "queer"  to  us.  For  when  we  call  the  "lord"  a  "property  owner" 
we  mean  something  quite  different  from  the  current  meaning  of  the 
term.  He  was  an  owner  in  the  sense  that  the  title  was  vested  in  him, 
that  he  had  general  supervision  of  the  land,  and  that  he  received  a 
"rent."  But  he  possessed  only  some  of  the  "equities"  which  make 
up  the  extremely  complex  institution  of  "property  ownership."  He 
could  not  employ  whom  he  pleased  to  work  on  his  land ;  he  could  not 
dictate  to  the  laborers  the  technique  which  they  should  employ ;  he 
could  not  raise  rents  ;  and  he  could  not  dispossess  those  who  cultivated 
his  land.  Clearly  some  of  the  equities  of  ownership  belonged  to  the 
laborer.  In  like  manner  the  laborer  owned  some  of  the  equities  in 
his  own  labor :  when  and  how  he  should  work  was  in  general  left  to 
him;  he  enjoyed  the  bountiful  harvest  which  came  from  his  diligent 
efforts.  But  certain  of  the  equities  of  his  labor  were  enjoyed  by  the 
lord :  on  special  occasions  he  had  to  give  of  his  labor  without  stint, 
he  could  not  insist  upon  lowering  his  rent,  he  could  not  free  himself 
from  his  "job."  Because  of  these  peculiar  property  arrangements 
the  lord  and  laborer,  the  man  and  his  "job,"  were  inseparably  linked 
in  a  permanent  scheme.  No  consent  of  either  party,  no  "contract" 
was  necessary  to  bring  them  together ;  custom  had  accomplished  that, 
and  once  for  all. 

If,  under  this  scheme,  the  laborer  lacked  personal  freedom  he 
was  immune  to  insecurity.  If  there  was  no  resplendent  future  before 
him  there  was  no  abyss  of  misery  into  which  he  might  fall.  Failure 
to  agree  on  terms  never  left  him  without  employment.  No  radical 
change  in  technique,  in  volume  of  business,  or  in  prices,  rendered 
his  store  of  technical  skill  a  worthless  possession,  and  left  him  a  "man 
without  a  job."  Sickness  did  not  threaten  irreparable  ruin ;  for  was 
he  not  possessed  of  property  rights  of  which  he  could  not  be  stripped? 
Industrial  accident  had  few  terrors  in  a  society  that  used  blunt 
plows  and  patient  oxen.  The  seasonal  round  of  work  was  not  in- 
jurious to  the  workman's  health  and  spirits ;  for  the  tyranny  of  the 
almanac  is  less  severe  than  that  of  the  clock.  If  the  frugality  of  his 
life  made  consumption  quite  monotonous,  there  was  at  least  the  com- 
pensating advantage  of  absence  of  monotony  in  production.  Under 
the  dictates  of  agrarian  institutions  such  talents  as  could  be  used  later 
were  in  little  danger  of  being  prematurely  wasted.    The  equities  in 


ANTECEDENTS  OF  INDUSTRIALISM  79 

property  gave  even  some  security  for  old  age  as  well  as  assurance  that 
the  premature  death  or  disability  of  the  head  of  the  family  would  not 
rob  children  of  their  opportunity.  If  dangers  were  still  left,  they 
were  finite,  personal,  and  intelligible  ;  they  did  not  proceed  from  some 
dark,  obscure,  and  undiscovered  part  of  an  impersonal  and  soulless 
machine  system. 

Like  all  others  the  system  possessed  both  insecurity  and  waste. 
The  former  was  manifest  in  the  clash  of  group  against  group,  the 
raid  of  a  rival  group,  and  the  reiterated  appearance  of  flood,  drought, 
and  fire.  The  stern  reality  of  these  things  make  famine,  nakedness, 
and  lack  of  shelter  more  than  vague  dreams.  But  the  insecurity  was 
communal  rather  than  individual ;  it  had  its  root  in  the  exigencies 
likely  to  befall  production  rather  than  in  the  vicissitudes  of  a  price 
system.  The  latter  was  manifest  in  the  monotony  of  the  industrial 
and  social  system.  The  lack  of  variety  in  goods  and  services,  in  oc- 
cupations and  professions,  gave  little  chance  for  the  development  of 
any  but  a  few  of  the  resources  of  mind  and  body  latent  in  the  popula- 
tion. A  narrow  caste  system,  vvhich  made  opportunity  very  largely 
a  matter  of  birth,  failed  completely  in  utilizing  and  conserving  the 
talents  of  the  masses. 

To  such  a  simple  environment  it  was  easy  for  the  individual  to 
adapt  his  life.  His  judgment  could  be  depended  upon  to  make  the 
decisions  necessary  to  his  own  welfare  and  that  of  those  dependent 
upon  him.  There  was  no  complicated  scheme  of  prices  to  cloud  and 
bewilder  his  judgment.  The  industrial  relations  of  laborer  and 
master  were  dictated  by  custom  and  required  no  conscious  choice. 
As  a  consequence  laborers  did  not  live  a  transitory  life,  being  here 
today  and  there  tomorrow.  They  belonged  to  permanent  communi- 
ties and  enjoyed  a  high  degree  of  neighborhood  life.  Through  this 
the  perplexities  which  were  still  left  in  the  simple  environment  was 
minimized  by  a  set  of  convictions,  religious,  industrial,  political,  and 
social  which  prescribed  quite  rigidly  the  life  which  the  individual 
should  lead.  They  were  in  reality  a  collection  of  conventional  form- 
ulas, revealing  the  experience  of  the  community  for  generations  as 
to  how  things  should  be  done.  They  were  quite  sufficient  for  such 
ordinary  matters  as  fixing  the  standard  of  living,  giving  moral  in- 
struction to  the  young,  inculcating  in  them  habits  of  industry,  and 
giving  them  the  technical  training  for  the  occupations  into  which 
they  were  expected  to  enter.  With  such  freedom  from  a  large  num- 
ber of  judgments  and  rigid  community  standards  to  guide  such  as 
had  to  be  made,  the  individual  was  not  likely  to  go  seriously  astray 
in  adapting  his  life  and  activities  to  his  community  environment.  The 
permanent  associations  with  place  and  group  gave  a  further  help  in 
imparting  a  sense  of  futurity  and  preventing  judgments  from  being 


8o  CURRENT  ECONOMIC  PROBLEMS 

based  upon  purely  the  immediate  considerations,  as  is  so  likely  to 
be  the  case  under  the  pecuniary  system.  If  the  tyranny  of  community 
standards  placed  a  discount  upon  individual  initiative  and  novelty, 
if  it  seriously  interfered  with  the  development  of  culture,  it  at  least 
permitted  the  individual  to  rationalize  his  activities  in  terms  of  the 
system  of  which  he  was  a  part. 

37.     Solidarity  in  the  Mediaeval  Town^* 

Town  and  gild  ordinances  furnish  abundant  evidence  of  a  spirit 
of  social  solidarity  animating  industrial  legislation  which  is  quite  for- 
eign to  the  modern  point  of  view.  There  was  a  determined  attempt  on 
the  part  of  the  authorities  to  prevent  "regrating,"  or  buying  to  sell 
again  at  a  higher  price;  "forestalling,"  or  outwitting  fellow-dealers 
by  purchasing  goods  before  they  came  into  open  market ;  and  "en- 
grossing," or  the  modern  cornering  the  market.  Gild  documents 
are  replete  with  statutes  the  purpose  of  which  was  to  secure  to  the 
consumer  the  use  of  the  best  raw  materials,  the  exercise  of  care  and 
skill  on  the  part  of  the  workman,  and  full  measure.  While  instances 
could  be  multiplied,  the  custom  in  the  city  of  Chester  that  "a  man 
or  woman  making  false  measure  and  being  arrested,  compounded 
for  it  with  four  shillings" ;  the  custom  in  the  same  town  of  punish- 
ing with  the  ducking  pool  the  maker  of  bad  ale ;  and  the  statute  of 
the  spurriers  of  London  to  the  effect  that  "no  one  of  the  trade  of 
spurriers  shall  work  longer  than  from  the  beginning  of  the  day  until 
curfew  rings  out  of  the  church  of  St.  Sepulcher,"  are  typical  exam- 
ples of  legislation  of  this  kind.  But  perhaps,  to  the  modem  mind, 
the  strangest  of  all  the  customs  was  the  levying  of  export  duties  and 
the  frequent  prohibition  of  the  export  of  certain  articles,  usually 
foodstuffs.  The  purpose  of  such  taxes  and  prohibition  is  implicit 
in  the  frequently  appended  clause,  "because  of  the  scarcity  of  the 
commodity  in  the  city  of  late."  A  careful  examination  of  the  evi- 
dence shows  that  it  was  framed  in  the  interest  of  producers-consum- 
ers by  men  who  were  not  sufficiently  used  to  the  intermediate  money 
term  to  separate  the  two  parts  of  the  economic  process. 

An  explanation  of  the  attitude  implicit  in  this  legislation  is  sim- 
ple when  the  conditions  of  life  in  the  mediaeval  town  are  kept  clearly 
in  mind.  These  laws  were  enacted,  not  because  men  of  the  Middle 
Ages  were  less  acquisitive  than  modern  men,  or  were  more  imbued 
with  the  spirit  of  Christianity,  but  because  of  the  peculiar  exigen- 
cies of  mediaeval  town  life.     The  mediaeval  town,  settled  by  alien 

i*An  editorial,  191 1. 


ANTECEDENTS  OF  INDUSTRIALISM  8i 

merchants,  villeins  from  nearby  manors,  emancipated  or  runaway 
serfs,  and  fortune  seekers  from  far  and  near,  began  its  career  with 
no  sharply  drawn  class  lines  and  few  local  traditions.  It  was  the 
product  of  a  new  industrial  movement  which  threatened  to  rob  the 
first  and  second  estates  of  the  social  and  economic  pre-eminence 
which  they  had  enjoyed  for  centuries.  The  nature  and  aspirations 
of  town  life  were  incompatible  with  the  customs  of  feudalism.  There 
was  an  inevitable  opposition  between  the  larger  industrial  entity 
which  bourgoisie  life  made  necessary  and  the  smaller  unit  in  which 
alone  the  spirit  of  feudalism  could  survive.  There  developed  con- 
sequently a  hostility  between  the  old  and  the  new,  and  it  became 
necessary  to  fight  for  existence.  From  such  a  common  struggle  a 
spirit  of  solidarity  necessarily  emerged. 

An  influence  even  stronger  was  the  economic  dependence  of  the 
town.  It  will  not  be  denied,  I  think,  that  where  the  conditions  of 
existence  are  severe,  a  strong  feeling  of  common  interests  grows 
up  within  the  group.  Such  conditions  existed  in  the  mediaeval  town. 
It  must  be  admitted  that  the  transition  from  the  Roman  system  of 
slavery  to  the  mediaeval  system  of  serfdom  represented  a  great  eco- 
nomic gain.  The  serf,  freed  from  gang  work  and  thrown  on  his 
own  resources,  with  rents  fixed  by  immutable  custom,  and  with  the 
assurance  of  a  right  to  enjoy  all  the  surplus  produced  above  the  stip- 
ulated rent,  held  a  position  that  gave  promise  of  efficiency.  He  was 
in  a  position  to  produce  an  agricultural  surplus,  a  necessary  antece- 
dent to  the  development  of  the  town.  But  the  real  gain  in  the  transi- 
tion from  slavery  to  serfdom  was  potential  and  not  actual.  It  is 
very  doubtful  whether  the  serf  of  the  twelfth  century  was  produc- 
ing as  much  as  the  slave  in  the  palmy  days  of  the  empire.  To  make 
this  potential  surplus  actual,  the  wants  of  the  agricultural  laborer 
had  to  be  developed.  Despite  the  principle  of  the  indefinite  expansi- 
bility of  wants,  this  process  was  slow,  depending  upon  the  chance 
visits  of  traveling  merchants,  the  fairs,  and  the  slow  development 
of  the  towns.  Consequently  the  precariousness  of  its  food  supply 
made  the  threat  of  starvation  a  very  real  one  in  the  town.  The 
result  was  necessarily  legislation  which  sought  to  conserve  the  food 
supply. 

It  is  true  that  differentiation  of  occupations  characterized  the 
town  almost  from  the  very  beginning.  Even  in  the  days  of  the 
early  gild  merchant  individual  interests  were  not  completely  iden- 
tical with  communal  interests.  But  the  technical  methods  of  the 
gildsman  were  simple  and  direct,  necessitating  the  use  of  very  little 
capital,  and  causing  industry  to  be  carried  on  on  a  small  scale.    The 


82  CURRENT  ECONOMIC  PROBLEMS 

relationship  of  the  master  workman  to  the  members  of  his  estab- 
Hshment  was  personal.  Generally  speaking  goods  were  made  to 
order.  The  artisan  knew  the  eccentricities  of  his  customers,  and  was 
anxious  to  humor  them.  The  industrial  process  was  a  short  time 
one,  goods  were  generally  consumed  in  the  neighborhood  in  which 
they  were  produced,  and  if  any  flaw  in  material  or  defect  in  work- 
manship was  discovered,  the  producer  would  likely  hear  of  it.  Under 
such  conditions  the  social  ownership  of  productive  goods  only  gradu- 
ally gave  way  to  the  ever-enlarging  area  of  individual  property  rights. 
Hence  the  two  processes  of  production  and  consumption  were  prac- 
tically identified  in  the  mind  of  the  townsman. 

This  breadth  of  viewpoint  in  domestic  relations  can  best  be 
understood  by  its  contrast  with  the  townsman's  conduct  of  foreign 
or  out-of-town  trade.  The  current  code  of  business  ethics  allowed 
inferior  materials  and  poor  workmanship  to  be  used  in  the  production 
of  articles  for  the  foreign  market.  The  interests  of  the  foreigner 
were  not  protected  by  the  customary,  or  just,  price;  and  if,  by  hook 
or  crook,  the  townsman  could  put  off  short  weight  on  the  foreigner, 
so  much  the  better.  In  short,  here  the  element  of  personality  was 
minimized  ;  and,  for  that  reason,  production,  the  social  means,  became 
to  the  artisan  an  individual  end.  In  this  attitude  toward  foreign 
trade  is  to  be  found  the  beginning  of  the  entrepreneur  viewpoint.  As 
the  industrial  entity  increased  in  size  and  complexity,  as  the  time 
of  the  productive  process  was  lengthened,  and  as  business  relations 
became  more  personal,  it  is  quite  natural  that  the  gildman's  attitude 
toward  foreigners  should  come  to  be  his  attitude  toward  all  customers. 

Yet  the  influence  of  mediaeval  thought  in  promoting  the  spirit  of 
solidarity  is  not  to  be  wholly  overlooked.  The  town  was  born  in  an 
atmosphere  saturated  with  the  spirit  of  mediaeval  Catholicism. 
Brotherhood  and  equality  had  long  been  preached  by  the  church. 
Vertical,  or  interclass  equality  was  never  realized,  either  in  chiv- 
alry or  in  the  church.  But  many  mediaeval  institutions  presented  at 
least  a  fair  semblance  of  horizontal,  or  intraclass  equality.  It  was 
under  the  influence  of  ecclesiastical  precedents  that  the  towns  es- 
tablished their  new  organizations.  A  study  of  the  characteristic 
features  of  the  gilds  shows  how  great  was  the  number  of  things  for 
which  they  were  indebted  to  religious  institutions  and  how  few 
were  the  real  innovations  springing  out  of  the  newly  created  urban 
life.  Influenced  by  such  habits  of  thought  and  freed  from  the  ob- 
stacles opposed  by  an  already  stratified  society,  the  merchant  gild 
legislated  with  the  end  in  view  of  placing  social  interests  above  class 
or  individual  interests.  Intellectual  conditions  and  the  pressure  of 
economic  and  political  necessity  prevented  the  formal  sacrifice  of 
social  weal  to  individual  acquisition. 


ANTECEDENTS  OF  INDUSTRIALISM  83 

38.     Articles  of  the  Spurriers  of  London^^ 

In  the  first  place — that  no  one  of  the  trade  of  Spurriers  shall 
work  longer  than  from  the  beginning  of  day  until  curfew  rang  out 
at  the  Church  of  St.  Sepulchre,  without  Newgate ;  by  reason  that  no 
man  can  work  so  neatly  by  night  as  by  day.  And  many  persons  of 
the  said  trade,  who  compass  how  to  practice  deception  in  their 
work,  desire  to  work  by  night  rather  than  by  day ;  and  then  they 
introduce  false  iron,  and  iron  that  has  been  cracked,  for  tin ;  and 
also  they  put  gilt  on  false  copper,  and  cracked.  And  further — 
many  of  the  said  trade  are  wandering  about  all  day,  without  work- 
ing at  all  at  their  trade ;  and  then  when  they  have  become  drunk 
and  frantic,  th^y  take  to  their  work,  to  the  annoyance  of  the  sick, 
and  all  their  neighborhood,  as  well  by  reason  of  the  broils  that  arise 
between  them  and  the  strange  folk  who  are  dwelling  among  them. 
And  then^hey  blow  up  their  fires  so  vigorously,  that  their  forges 
begin  all  at  once  to  blaze  to  the  great  peril  of  themselves  and  of  all 
the  neighborhood  around.  And  then,  too,  all  the  neighbors  are 
much  m  dread  of  the  sparks,  which  so  vigorously  issue  forth  in  all 
directions  from  the  mouths  of  the  chimneys  in  their  forges.  By 
reason  thereof  it  seetns  unto  them  that  working  by  night  should  be 
put  an  end  to,  in  order  such  false  work  and  such  perils  to  avoid: 
and,  therefore,  the  Mayor  and  the  Aldermen  do  will,  by  the  assent 
of  the  good  folks  of  the  said  trade,  and  for  the  common  profit,  that 
from  henceforth  such  time  for  working,  and  such  false  work  made 
in  the  trade,  shall  be  forbidden. 

39.     Mediaeval  Tricks  of  Trade^^ 

BY  BERTHOLD  VON  REGENSBURG 

The  first  are  ye  that  work  in  clothing,  silks,  or  wool  or  fur, 
shoes  or  gloves  or  girdles.  Men  can  in  nowise  dispense  with  you ; 
men  must  needs  have  clothing;  therefore  should  ye  so  serve  them 
as  to  do  your  work  truly ;  not  to  steal  half  the  cloth,  or  to  use  other 
guile,  mixing  hair  with  your  wool  or  stretching  it  out  longer,  where- 
by a  man  thinketh  to  have  gotten  good  cloth,  yet  thou  hath  stretched 
it  to  be  longer  than  it  should  be,  and  maketh  a  good  cloth  into 
worthless  stuflf.  Nowadays  no  man  can  find  a  good  hat  for  thy 
falsehood ;  the  rain  will  pour  down  through  the  brim  into  his  bosom. 
Even  such  deceit  is  there  in  shoes,  in  furs,  in  curriers'  work ;  one 

^•''Adapted  from  Universitj'  of  Pennsylvania   (1345),  op.  cit.,  pp.  21-22. 

'•^Adapted  from  a  thirteenth-century  sermon,  translated  in  Coulton,  A 
Mediaeval  Garner,  pp.  348-54.     Published  by  Constable  &  Co.,  London. 


84  CURRENT  ECONOMIC  PROBLEMS 

man  sells  an  old  skin  for  a  new,  and  how  manifold  are  thy  deceits 
no  man  knoweth  so  well  as  thou  and  thy  master  the  devil. 

The  second  folk  are  such  as  work  with  iron  goods.  They  should 
all  be  true  and  trustworthy  in  their  office,  whether  they  work  by  the 
day  or  by  the  piece.  When  they  labor  by  the  day,  they  should  not 
stand  all  the  more  idle  that  they  may  multiply  the  days  at  their  work. 
If  thou  laborest  by  the  piece,  then  thou  shouldest  not  hasten  too  soon 
therefrom,  that  thou  mayest  be  rid  of  the  work  as  quickly  as  possi- 
ble, and  that  the  house  may  fall  down  in  a  year  or  two.  Thou 
shouldest  work  at  it  truly,  even  as  it  were  thy  own.  Thou  5mith, 
thou  wilt  shoe  a  steed  with  a  shoe  that  is  naught ;  and  the  beast  will 
go  perchance  a  mile  thereon  when  it  is  already  broken,  and  the 
horse  may  go  lame,  or  a  man  be  taken  prisoner,  or  lose  his  life.  Thou 
art  a  devil  and  an  apostate. 

The  third  are  such  as  are  busied  with  trade ;  we  cannot  do  with- 
out them.  They  bring  from  one  kingdom  to  another  what  is  good 
cheap  there,  and  whatever  is  good  cheap  beyond  the  sea  they  bring 
to  this  town,  and  whatever  is  good  cheap  here  they  carry  0¥€r  the 
sea.  Thou,  trader,  shouldst  trust  God  that  He  will  find  thee  a  liveli- 
hood with  true  winnings.  Yet  now  thou  swearest  so  loudly  how 
good  thy  wares  are,  and  what  profit  thou  givest  the  buyer  thereby ; 
more  than  ten  or  thirty  times  takest  thou  the  names  of  the  saints  in 
vain — God  and  all  His  saints,  for  wares  scarce  worth  five  shillings ! 
That  which  is  worth  five  shillings  thou  sellest,  maybe,  sixpence 
higher  than  if  thou  hadst  not  been  a  blasphemer  of  our  Lord,  for 
thou  swearest  loud  and  boldly:  'T  have  been  already  offered  far 
more  for  these  wares" :  and  that  is  a  lie.  And  if  thou  wilt  buy  any- 
thing from  simple  folk,  thou  turnest  all  thy  mind  to  see  how  thou 
mayest  get  it  from  them  without  money,  and  weavest  many  lies  be- 
fore his  face ;  and  thou  biddest  thy  partner  go  to  the  fair  also,  and 
goest  then  a  while  away  and  sayest  to  thy  partner  what  thou  wilt 
give  the  man  for  his  wares,  and  biddest  him  come  and  offer  less. 
Then  the  simple  country  fellow  is  affrightened,  and  will  gladly  see 
thee  come  back.  "Of  a  truth,"  thou  sayest,  "by  all  the  saints,  no 
man  will  give  thee  so  much  for  this  as  1 1"  Yet  another  would  have 
given  more. 

The  fourth  are  such  as  sell  meat  and  drink,  which  no  man  can 
disregard.  Wherefore  it  is  all  the  more  needful  that  they  shouldst 
be  true  and  honest  therein ;  for  other  deceit  dealeth  only  with  earth- 
ly goods,  but  this  deceit  with  a  man's  body.  If  thou  ofTerest  measly 
or  rotten  flesh  that  thou  hast  kept  so  long  until  it  be  corrupt,  then 
art  thou  guilty  perchance  of  one  man's  life,  perchance  of  ten.  Or 
if  thou  offerest  flesh  that  was  unwholesome  before  the  slaughter,  or 
unripe  of  age,  which  thou  knowest  well  and  yet  givest  it  for  sale. 


ANTECEDENTS  OF  INDUSTRIALISM  85 

so  that  folk  eat  it  into  their  clean  souls  which  are  so  dear  a  treasure 
to  Almighty  God,  then  dost  thou  corrupt  the  noble  treasure  which 
God  hast  buried  in  every  man ;  thou  art  guilty  of  the  blood  of  these 
folk.  The  same  say  I  of  him  who  selleth  fish.  So  are  certain  inn- 
keepers and  cooks  in  the  town,  who  keep  their  sodden  flesh  too 
long,  whereof  a  guest  eateth  and  falleth  sick  thereafter  for  his  life 
long.  So  also  do  certain  others  betray  folk  with  corrupt  wine  or 
mouldy  beer,  unsodden  mead,  or  give  false  measure,  or  mix  water 
with  the  wine.  Certain  others,  again,  bake  rotten  corn  to  bread, 
whereby  a  man  may  lightly  eat  his  own  death ;  and  they  salt  their 
bread  which  is  most  unwholesome. 

The  fifth  folk  are  such  as  till  the  earth  for  wine  or  corn.  They 
should  live  truly  toward  their  lords  and  toward  their  fellows,  and 
among  each  other ;  not  plough  one  over  the  other's  landmark,  nor 
trespass  nor  reap  beyond  the  mark,  nor  feed  their  cattle  to  another's 
harm,  nor  betray  their  fellows  to  the  lord.  Ye  lords,  ye  deal  some- 
times so  ill  with  your  poor  folk,  and  can  never  tax  them  too  high ; 
ye  would  fain  ever  tax  them  higher  and  higher.  Thou  boor,  thou 
bringest  to  the  town  a  load  of  wood  that  is  all  full  of  crooked  billets 
beneath ;  so  sellest  thou  air  for  wood !  And  the  hay  thou  layest  so 
cunningly  on  the  wagon  that  no  man  can  profit  thereby ;  thou  art  a 
right  false  deceiver. 

The  sixth  folk  are  all  that  deal  with  medicine,  and  these  must  take 
great  heed  against  untruth.  He  who  is  no  good  master  of  that  art, 
let  him  in  no  wise  undertake  it,  or  folks'  blood  will  be  upon  his 
head.  Take  heed,  thou  doctor,  and  keep  thyself  from  this  as  thou 
lovest  the  kingdom  of  heaven.  We  have  murderers  enough  without 
thee  to  slay  honest  folk. 

So  are  some  men  deceivers  and  liars  like  the  craftsmen.  The 
shoemaker  sayeth,  "See,  there  are  two  most  excellent  soles,"  and  he 
hath  burned  them  before  the  fire.  And  the  baker  floods  his  dough 
with  yeast,  so  that  thou  hath  bought  mere  air  for  bread.  And  the 
huxter  pours  sometimes  beer  or  water  into  his  oil ;  and  the  butcher 
will  sell  calves'  flesh  at  times,  saying:  "It  is  three  weeks  old,"  and 
it  is  scarce  a  week  old. 

40.     The  Control  of  Industry  in  the  Gild  Period^^ 

BY  L.   F.   SALZMANN 

Broadly  speaking,  the  control  of  industry  may  be  said  to  be  either 
external,  by  parliamentary  or  municipal  legislation,  or  internal,  by 
means  of  craft  gilds.  These  two  sections  again  admit  of  subdivision 
according  as  their  objects  are  the  protection  of  the  consumer,  the 

1^ Adapted  from  English  Industries  in  the  Middle  Ages  (1913),  pp.  200-237. 


^6  CURRENT  ECONOMIC  PROBLEMS 

employer,  or  the  workman.  Nor  can  we  entirely  ignore  legislation 
for  purpose  of  revenue — subsidies  and  customs. 

If  a  large  number  of  parliamentary  enactments  were  protective 
of  the  producer,  as  for  instance  the  prohibition  in  1463  of  the 
import  of  a  vast  variety  of  goods  from  silk  ribbands  to  dripping- 
pans,  and  from  razors  to  tennis  balls,  including  such  incompatibles 
as  playing-cards  and  sacring  bells,  yet  still  more  were  they  protective 
of  the  consumer.  For  one  thing,  of  course,  a  single  act  prohibiting 
certain  imports  might  protect  a  dozen  classes  of  manufacturers,  while 
the  denunciation  of  one  particular  species  of  fraud  would  probably 
lead  ingenious  swindlers  to  invent  a  succession  of  others,  each 
requiring  a  separate  act  for  its  suppression.  Sentimental  admirers 
of  the  past  are  likely  to  imagine  that  the  mediaeval  workman  loved 
a  piece  of  good  work  for  its  own  sake  and  never  scamped  a  job. 
Nothing  could  be  farther  from  the  truth.  The  mediaeval  craftsman 
was  not  called  a  man  of  craft  for  nothing!  He  had  no  more  con- 
science than  a  plumber,  and  his  knowledge  of  ways  that  are  dark 
and  tricks  that  are  vain  was  extensive  and  peculiar.  The  subtle 
craft  of  the  London  bakers,  who,  while  making  up  their  customer's 
dough,  stole  a  large  portion  of  the  dough  under  their  customers'  eyes 
by  means  of  a  little  trap-door  in  the  kneading  board  and  a  boy  sit- 
ting under  the  counter,  was  exceptional  only  in  its  ingenuity.  Cloth 
was  stretched  and  strained  to  the  utmost  and  cunningly  folded  to 
hide  defects,  or  a  length  of  bad  cloth  would  be  joined  on  to  a  length 
of  superior  quality ;  inferior  leather  was  faked  up  to  look  like  the 
best,  and  sold  at  night  to  the  unwary ;  pots  and  kettles  were  made  of 
bad  metal  which  melted  when  put  on  the  fire,  and  everything  that 
could  be  weighed  or  measured  was  sold  by  false  measure. 

From  the  customer's  point  of  view  the  regulation  of  prices  was 
perhaps  the  most  important  problem.  The  price  of  raw  material 
was  too  dependent  upon  supply  and  demand  to  admit  of  much 
regulation.  The  local  authorities,  civic  and  manorial,  took  constant 
measures  to  prevent  the  artificial  enhancement  of  what  we  may  call 
raw  foodstuffs,  corn,  fish,  and  meat,  the  "regrator  and  forestaller," 
that  is  to  say,  the  middleman  who  intercepted  supplies  before  they 
reached  the  market  and  forced  the  prices  up  for  his  own  sole  benefit, 
being  universally  regarded  as  a  miscreant.  The  economists  of  that 
period  had  not  grasped  the  fact  that  the  cleverness  shown  in  buying 
an  article  cheap  and  selling  the  same  thing  without  any  further 
expenditure  of  labor,  dear,  if  done  on  a  sufficiently  large  scale,  justi- 
fies the  bestowal  of  the  honor  of  knighthood  or  a  peerage.  In  the 
case  of  manufactured  foodstuffs,  such  as  bread  and  ale,  the  price  was 
automatically  fixed  by  the  price  of  the  raw  material,  and  in  general 
prices  of  manufactures  were  regulated  by  the  cost  of  the  materials. 


ANTECEDENTS  OF  INDUSTRIALISM  87 

The  principle  that  the  craftsman  should  be  content  with  a  reasonable 
profit  and  not  turn  the  casual  needs  of  his  neighbors  to  his  own  bene- 
fit is  constantly  brought  out  in  local  regulations. 

The  question  of  prices,  which  were  thus  so  largely  composed  of  a 
varying  sum  for  material,  and  a  fixed  sum  for  workmanship,  is 
very  intimately  connected  with  the  question  of  wages.  The  mediaeval 
economist  seems  to  have  accepted  the  Ruskinian  theory  that  all  men 
engaged  in  a  particular  branch  of  trade  should  be  paid  equal  wages. 
There  were,  of  course,  grades  in  each  profession,  as  master  or  fore- 
man, workman,  and  assistant  or  common  laborer,  but  within  each 
grade  the  rate  of  payment  was  fixed.  Wages  were  at  all  times  paid 
on  the  two  systems  of  piecework  and  time,  and  the  hours  were,  as 
a  rule,  long.  For  the  building  trade  at  Beverley  in  the  fifteenth  cen- 
tury work  began  in  summer  at  4:00  a.m.  and  continued  until  7:00 
P.M.;  at  6:00  A.M.  there  was  a  quarter  of  an  hour's  interval  for 
refreshment,  at  8:00,  half  an  hour  for  breakfast,  at  11  :oo  an  hour 
and  a  half  to  dine  and  sleep,  and  at  3  :oo  half  an  hour  for  further 
refreshment.  During  the  winter  months  the  builders  worked  from 
dawn  till  dusk,  with  half  an  hour  for  breakfast  at  9  :oo  o'clock,  an 
hour  for  dinner  at  noon,  and  a  quarter  of  an  hour's  interval  at  3  :oo. 
Wages,  of  course,  when  paid  by  the  day,  varied  in  winter  and  sum- 
mer. But,  against  the  long  hours,  we  have  to  set  oflF  the  comparative 
frequency  of  holidays. 

For  the  protection  of  the  consumer  a  very  thorough  system  of 
search  or  inspection  was  established.  The  search  of  weights  and 
measures,  provisions,  cloth,  and  tanned  leather  usually  belonged  to 
the  mayor  or  equivalent  borough  officer,  or  in  county  districts  to  the 
manorial  lord,  but  usually  with  other  manufactures,  and  very  often 
in  the  case  of  cloth  and  leather,  the  mayor  deputed  the  duty  of 
search  to  members  of  the  craft  gilds  elected  and  sworn  for  that  pur^ 
pose.  They  could  inspect  the  wares  either  in  the  workshops  or 
when  they  were  exposed  for  sale,  and  seize  any  badly  made  articles. 
The  forfeited  goods  were  either  burnt  or  given  to  the  poor,  and  the 
offending  craftsman  fined,  set  in  the  pillory,  or,  if  an  old  offender, 
banished  from  the  town.  T6  facilitate  tracing  the  responsibility  for 
bad  work,  weavers,  fullers,  hatters,  metal-workers,  tile-makers,  and 
other  craftsmen,  including  bakers,  were  ordered  to  put  their  private 
trademarks  on  their  wares.  This  process  must  have  been  much  sim- 
plified by  the  custom  so  prevalent  of  segregating  or  localizing  the 
trades,  so  that  the  goldsmiths  dwelt  in  one  quarter,  the  shoemakers 
in  another,  etc. 

As  the  trades  were  kept  each  to  its  own  district,  so  was  the 
craftsmen  restricted  to  his  own  trade.  By  a  law  issued  in  1364  artif- 
icers were  obliged  to  keep  to  one  "mystery"  or  craft,  an  exception 


88  CURRENT  ECONOMIC  PROBLEMS 

being  made  in  favor  of  women  acting  as  brewers,  bakers,  carders, 
spinners,  and  workers  of  wool  and  linen  and  silk — the  versatility  of 
woman,  the  "eternal  amateur,"  being  thus  recognized  some  five  cen- 
turies and  a  half  before  Mr.  Chesterton  rediscovered  it.  Later 
statutes  forbade  shoemakers,  tanners,  and  curriers  to  infringe  on 
each  other's  province.  The  general  tendency  was  to  keep  trades, 
and  more  especially  the  allied  trades,  separate,  in  order  presumably 
to  avoid  the  growth  of  "combines"  and  monopolies.  For  this  rea- 
son fishmongers  and  fishermen  were  forbidden  to  enter  into  partner- 
ship in  London,  because  the  dealers,  knowing  the  needs  of  the  city, 
would  be  able  to  manipulate  supplies  and  keep  up  prices. 

How  far  the  desire  to  restrict  output  was  at  the  bottom  of  regula- 
tions forbidding  the  employment  of  more  than  a  strictly  limited 
number  of  apprentices  and  journeymen,  and  how  far  such  prohibi- 
tions were  inspired  by  fear  of  the  monopolization  of  labor  by  capi- 
talists it  is  difficult  to  say.  Probably  the  dread  of  the  capitalist  was 
the  chief  incentive  for  such  regulations,  which  are  very  numerous. 
The  same  principle  of  fair  play  between  employers  led  to  the  ordain- 
ing of  heavy  penalties  for  taking  away  another  man's  servant,  or 
employing  any  journeyman  who  had  not  fulfilled  his  engagement 
with  his  previous  master,  and  to  the  strict  prohibition  of  paying  more 
than  the  fixed  maximum  wages.  This  last  provision  was  sometimes 
got  over  by  the  master's  wife  giving  his  servant  extra  gratuities  and 
gifts.  So  also  the  use  of  the  cheap  labor  of  women  was  as  a  rule 
regarded  with  disfavor.  The  fullers  of  Lincoln  were  forbidden  to 
work  with  any  woman  who  was  not  the  wife  or  maid  of  a  master, 
and  the  "bracers"  or  makers  of  braces,  of  London,  in  1355,  laid 
down  "that  no  one  shall  be  so  daring  as  to  set  any  woman  to  work 
in  his  trade,  other  than  his  wedded  wife  or  his  daughter."  Of  child 
labor  we  hear  very  little,  one  of  the  few  notices  being  an  order  on 
the  children's  behalf  made,  suitably  enough,  by  Richard  Whittington, 
in  1398,  that  whereas  some  "hurlers"  (makers  of  fur  caps)  send 
their  apprentices  and  journeymen  and  children  of  tender  ago  down 
to  the  Thames  and  other  exposed  places,  amid  horrible  tempests, 
frosts,  and  snows,  to  scour  caps,  to  the  very  great  scandal  of  this 
city,  this  practice  is  to  cease  at  once. 

Too  much  attention  must  not  be  given  to  the  quarrelsome  side  of 
the  gilds,  for  they  were  essentially  friendly  societies  for  mutual 
assistance.  One  of  the  rules  of  the  London  leather-dressers  was  that 
if  a  member  should  have  more  work  than  he  could  complete  and  the 
work  was  in  danger  of  being  lost,  the  other  members  should  help 
him.  A  still  more  essential  feature  of  the  gilds  was  their  grant  of 
assistance  to  members  who  had  fallen  ill  or  become  impoverished 
through  no  fault  of  their  own.    Nor  did  their  benevolence  end  with 


ANTECEDENTS  OF  INDUSTRIALISM  89 

the  poor  craftsman's  death,  for  they  made  an  allowance  to  his  widow 
and  celebrated  masses  for  the  repose  of  his  soul. 

41.     Labor  on  the  Southern  Plantations^^ 

Let  us  consider  briefly  the  nature  of  the  institution  of  chattel 
slavery  as  it  existed  upon  the  southern  plantation  before  the  Civil 
War.  The  welfare  of  the  slave,  like  that  of  the  agricultural  laborer 
considered  above,  depended  largely  upon  the  nature  of  "property 
rights,"  Under  the  plantation  system  all  the  equities  alike  in  land  and 
in  laborers,  so  far  as  they  were  individually  owned,  belonged  to  the 
"master."  It  was  his  sole  right  to  determine  what  work  should  be 
done,  when  it  should  be  done,  to  prescribe  conditions  of  employment, 
and  to  supervise  the  work  in  every  particular.  Upon  him  devolved 
the  costs  incident  to  the  maintenance  of  the  laborers ;  to  him  alone 
belonged  the  whole  product.  The  master's  control  over  the  slaves 
extended  to  their  children. 

This  arrangement  made  the  immediate  welfare  of  the  slave  a 
matter  of  status.  It  was  determined  by  the  requirements  of  physical 
efficiency.  Because  of  the  master's  pecuniary  interest  in  him,  the 
slave  received,  if  not  a  wage,  at  least  nourishing  food  in  sufficient 
quantity,  clothing  at  least  sufficient  for  comfort  in  a  warm  climate, 
and  a  roof  over  his  head  that  kept  out  the  rain.  Since  the  state  of 
the  mind  has  a  great  influence  upon  work,  rest,  recreation,  holidays, 
and  amusements  were  offered  to  him.  The  only  occupation  in  which 
he  could  profitably  be  used  was  agriculture.  This  furnished  an  out- 
of-doors  life,  conducive  to  health,  and  physically,  even  if  not  mentally, 
stimulating.  The  seasonal  character  of  the  work  offered  periods  of 
partial  rest.  Only  rarely  could  there  be  a  succession  of  "long  days." 
The  very  nature  of  the  crops  gave  variety  from  month  to  month  and 
prevented  the  routine  monotony  of  industrial  toil.  Industrial  acci- 
dent was  at  a  minimum  ;  for  by  reason  of  long  and  intimate  compan- 
ionship the  negro  had  become  immune  to  the  mule,  the  most  danger- 
ous mechanism  upon  the  plantation. 

But  the  interest  of  the  master  in  the  welfare  of  the  slave  was 
more  than  immediate.  He  exercised  over  him  the  right  of  ownership, 
which  economically  was  nothing  else  than  a  proprietary  interest  in 
the  whole  capitalized  value  of  the  future  services  which  the  slave 
might  be  expected  to  yield.  The  master's  pecuniary  interest  in  realiz- 
ing this  future  value  acted  as  a  powerful  incentive  in  securing  the 
conservation  of  the  slave's  strength  and  resources.  The  health  of  so 
valuable  a  piece  of  property  was  guarded  by  prohibitions  against  over- 
work.    Care  was  taken  not  to  use  him  in  dangerous  and  unhealthy 

i^An  editorial  (igi6). 


90  CURRENT  ECONOMIC  PROBLEMS 

employments.  It  was  an  established  custom  in  Mississippi  to  hire 
whites  to  work  in  the  malaria-infected  river  bottoms,  reserving  the 
slaves  for  the  more  salubrious  employment  of  the  uplands.  If  per- 
chance the  black  fell  sick,  he  had  the  best  of  medical  assistance  and 
nursing.  Generally  feelings  of  humanity,  which  have  their  best 
chance  for  expression  in  a  small  group  society,  particularly  if  per- 
sonal relations  are  of  long  standing,  could  be  depended  upon  to  secure 
provision  for  the  slave's  old  age. 

The  same  pecuniary  interest  was  a  guaranty  of  the  conservation 
of  the  resources  of  the  young.  For  them  security  and  opportunity, 
training  and  immunity  from  premature  exploitation,  did  not  depend 
upon  the  economic  fortunes  of  the  "bread  winner."  Should  he 
become  partially  disabled,  totally  dependent,  or  die,  their  personal 
fortunes  would  not  be  affected  thereby.  They  were  the  master's 
property  and  much  too  valuable  to  be  used  up  before  they  could 
render  services  of  importance  under  the  plantation  system.  The  same 
property  interest  brought  it  about  that  they  were  taught  habits  of 
industry  and  honesty,  and  were  given  so  much  of  technical  training  as 
they  were  likely  to  need  later.  If  they  were  denied  "book  learning," 
the  system  required  that  they  should  have  such  consolations  as  inhere 
in  the  Christian  religion. 

Still  the  system  left  the  larger  problems  of  the  conservation  of 
resources  unsolved.  It  reconciled  itself  to  the  use  of  slave  labor  for 
a  single  purpose,  thus  allowing  a  very  small  number  of  the  negro's 
latent  powers  to  be  developed.  The  owners  kept  in  their  own  hands 
control  of  technique,  thus  inhibiting  any  advance  which  might  come 
from  the  activity  of  the  slave's  intellect.  The  use  of  laborers  in  gangs 
broke  effectively  the  nexus  of  work  and  reward,  thus  furnishing  no 
proper  incentive  to  an  intelligent  doing  of  the  day's  work.  Closely 
associated  was  a  failure  to  develop  and  utilize  the  moral  values  in- 
herent in  personal  responsibility.  It  is  quite  unnecessary  to  mention 
the  subsidiary  waste  of  the  labor  of  others,  of  materials  and  tools  of 
accumulated  wealth,  and  the  exhaustion  of  the  soil,  all  of  which  were 
necessary  compliments  of  this  waste  of  human  resources. 

D.     PRE-INDUSTRIAL  RIGHTS  AND  DUTIES 
42.     The  Classic  Statement  of  the  Organic  Nature  of  Society" 

BY  ST.  PAUL 

For  as  the  body  is  one,  and  hath  many  members,  and  all  the  mem- 
bers of  that  one  body,  being  many,  are  one  body :  so  also  is  Christ. 
For  by  one  Spirit  are  we  all  baptized  into  one  body,  whether  we  be 

1"  From  I  Cor.  12:12-31. 


ANTECEDENTS  OF  INDUSTRIALISM  91 

Jews  or  Gentiles,  whether  we  be  bond  or  free ;  and  have  been  all 
made  to  drink  unto  one  Spirit.  For  the  body  is  not  one  member,  but 
many.  If  the  foot  shall  say,  Because  I  am  not  the  hand,  I  am  not  of 
the  body;  is  it  therefore  not  of  the  body?  And  if  the  ear  shall  say, 
Because  I  am  not  the  eye,  I  am  not  of  the  body ;  is  it  therefore  not  of 
the  body  ? 

If  the  whole  body  were  an  eye,  where  were  the  hearing?  If  the 
whole  were  hearing,  where  were  the  smelling?  But  now  hath  God 
set  the  members  every  one  of  them  in  the  body,  as  it  hath  pleased 
him.  And  if  they  were  all  one  member,  where  were  the  body?  But 
now  they  are  many  members,  yet  but  one  body.  And  the  eye  cannot 
say  unto  the  hand,  I  have  no  need  of  thee :  nor  again  the  head  to  the 
feet,  I  have  no  need  of  you. 

Nay,  much  more  those  members  of  the  body,  which  seem  to  be 
more  feeble,  are  necessary.  And  those  members  of  the  body  which 
we  think  to  be  less  honorable,  upon  these  we  bestow  more  abundant 
honor ;  and  our  uncomely  parts  have  more  abundant  comeliness.  For 
our  comely  parts  have  no  need :  but  God  hath  tempered  the  body 
together,  having  given  more  abundant  honor  to  that  part  which 
lacked :  that  there  should  be  no  schism  in  the  body ;  but  that  the 
members  should  have  the  same  care  one  for  another.  And  whether 
one  member  suflfer,  all  the  members  suffer  with  it ;  or  one  member 
be  honored,  all  the  members  rejoice  with  it. 

Now  ye  are  the  body  of  Christ,  and  members  in  particular.  And 
God  hath  set  some  in  the  church,  first  apostles,  secondarily  prophets, 
thirdly  teachers,  after  that  miracles,  then  gifts  of  healing,  helps,  gov- 
ernments, diversities  of  tongues.  Are  all  apostles  ?  are  all  prophets  ? 
are  all  teachers?  are  all  workers  of  miracles?  have  all  the  gifts  of 
healing?  do  all  speak  with  tongues?  do  all  interpret?  But  covet 
earnestly  the  best  gifts :  and  yet  show  I  unto  you  a  more  excellent 
way. 

43.     The  Gospel  of  Stewardship-" 

BY  THOMAS   AQUINAS 

Exterior  goods  have  the  character  of  things  useful  to  an  end. 
Hence  human  goodness  in  the  matter  of  these  goods  must  consist 
in  the  observation  of  a  certain  measure  as  is  done  by  a  man  seeking 
to  have  exterior  riches  in  so  far  as  they  are  necessary  to  his  life 
according  to  his  rank  and  condition.  And,  therefore,  sin  consists  in 
exceeding  this  measure,  and  trying  to  acquire  or  retain  riches  beyond 
the  due  limit. 

zoAdapted  from  Summa  Theologica.  Quaest,  CXVIII;  LXXIX,  a^t.  i, 
vi  et  viii  (1265-1274). 


92  CURRENT  ECONOMIC  PROBLEMS 

Covetousness  may  involve  immoderation  in  two  ways :  in  one  way 
immediately  as  to  the  receiving  or  keeping  of  them,  when  one  acquires 
or  keeps  beyond  the  due  amount ;  and  in  this  respect  it  is  directly  a 
sin  against  one's  neighbor,  because  in  exterior  riches  one  cannot  have 
superabundance  without  another  being  in  want,  since  temporal  goods 
cannot  be  simultaneously  possessed  by  many.  The  other  way  is  in 
interior  affections,  in  immoderate  love,  or  desire  of,  or  delight  in, 
riches.  In  this  way  it  is  a  sin  of  man  against  himself  by  the  disorder- 
ing of  his  affection.  It  is  also  a  sin  against  God  by  the  despising  of 
eternal  good  for  temporal. 

The  Philosopher  says :  "It  belongs  to  the  magnanimous  man  to 
want  nothing  or  hardly  anything."  This,  however,  must  be  under- 
stood in  human  measure,  for  it  is  beyond  the  condition  of  man  to 
have  no  wants  at  all.  For  every  man  needs  first  of  all  the  divine 
assistance,  and  secondly  also  human  assistance,  for  man  is  naturally 
a  social  animal,  not  being  self-sufficient  for  the  purpose  of  life. 

Magnanimity  regards  two  objects,  honor  as  its  matter,  and  some 
good  deed  in  view  as  its  end.  Goods  of  fortune  co-operate  to  both 
these  objects.  For  honor  is  paid  to  the  virtuous,  not  by  the  wise 
only,  but  by  the  multitude.  Now  the  multitude  make  most  account 
of  the  external  goods  of  fortune ;  consequently  greatest  honor  is  paid 
by  them  to  those  who  have  these  things.  In  like  manner  goods  of 
fortune  serve  as  instruments  to  acts  of  virtue,  because  by  riches  there 
is  opportunity  for  action.  Clearly  the  goods  of  fortune  contribute  to 
magnanimity.  Virtue  is  said  to  be  self-sufficient,  because  it  can  exist 
even  without  these  external  goods ;  nevertheless,  it  needs  these  ex- 
ternal goods  to  have  more  of  a  free  hand  in  its  working. 

Solicitude  for  temporal  things  is  unlawful  if  we  seek  temporal 
things  as  our  final  goal.  Temporal  things  are  subject  to  man  that  he 
may  use  them  for  his  necessity,  not  that  he  may  set  up  his  rest  in 
them,  or  be  idly  solicitous  about  them. 


44.     The  Bill  of  Rights^^ 

And  thereupon  the  said  Lords  Spiritual  and  Temporal,  and  Com- 
mons, pursuant  to  their  respective  letters  and  elections,  being  now 
assembled  in  a  full  and  free  representation  of  this  nation,  taking  into 
their  most  serious  consideration  the  best  means  of  attaining  the  ends 
aforesaid,  do  in  the  first  place  (as  their  ancestors  in  like  case  have 
usually  done),  for  the  vindicating  and  asserting  their  ancient  rights 
and  liberties,  declare : 

^^A  part  of  the  great  constitutional  document  passed  by  Parliament  in 
October,  1689,  Statutes  of  the  Realm,  i  W.  &  MS.  2,  c.  2. 


ANTECEDENTS  OF  INDUSTRIALISM  93 

1.  That  the  pretended  power  of  suspending  of  laws,  or  the  execu- 
tion of  laws,  by  regal  authority,  without  consent  of  Parliament,  is 
illegal. 

2.  That  the  pretended  power  of  dispensing  with  laws,  or  the 
execution  of  laws  by  regal  authority,  as  it  hath  been  assumed  and 
exercised  of  late,  is  illegal. 

3.  That  the  commission  for  erecting  the  late  Court  of  Commis- 
sioners for  Ecclesiastical  Causes,  and  all  other  commissions  and 
courts  of  like  nature,  are  illegal  and  pernicious. 

4.  That  levying  money  for  or  to  the  use  of  the  Crown,  by  pre- 
tense of  prerogative,  without  regard  of  Parliament,  for  longer  time 
or  in  other  manner  than  the  same  is  or  shall  be  granted,  is  illegal. 

5.  That  it  is  the  right  of  the  subjects  to  petition  the  King,  and 
all  commitments  and  prosecutions  for  such  petitioning  are  illegal. 

6.  That  the  raising  or  keeping  a  standing  army  within  the  king- 
dom in  time  of  peace,  unless  it  be  with  consent  of  Parliament,  is 
against  law. 

7.  That  the  subjects  which  are  Protestants  may  have  arms  for 
their  defense  suitable  to  their  conditions,  and  as  allowed  by  law. 

8.  That  election  of  members  of  Parliament  ought  to  be  free. 

.  9.  That  the  freedom  of  speech,  and  debates  or  proceedings  in 
Parliament,  ought  not  to  be  impeached  or  questioned  in  any  court 
or  place  out  of  Parliament. 

10.  That  excessive  bail  ought  not  to  be  required,  nor  excessive 
fines  imposed ;  nor  cruel  and  unusual  punishments  inflicted. 

11.  That  jurors  ought  to  be  duly  impaneled  and  returned,  and 
jurors  which  pass  upon  men  in  trials  for  high  treason  ought  to  be 
freeholders. 

12.  That  all  grants  and  promises  of  fines  and  forfeitures  of  par- 
ticular persons  before  conviction  are  illegal  and  void. 

13.  And  that  for  redress  of  all  grievances,  and  for  the  amend- 
ing, strengthening,  and  preserving  of  the  laws.  Parliament  ought  to 
be  held  frequently. 

45.     The  Theory  of  Natural  Right 

a)     The  Declaration  of  Independence  ^^ 

When  in  the  course  of  huiiian  events  its  becomes  necessary  for 
one  people  to  dissolve  the  political  bonds  which  have  connected  them 
with  another,  and  to  assume  among  the  powers  of  the  earth  the  sepa- 
rate and  equal  station  to  which  the  laws  of  Nature  and  Nature's  God 
entitles  them,  a  decent  respect  to  the  opinions  of  mankind  requires 
that  they  should  declare  the  causes  which  impel  them  to  the  separation. 

22  Passed  by  the  Continental  Congress.    Popularly  dated  July  4,  1776. 


94 


CURRENT  ECONOMIC  PROBLEMS 


We  hold  these  truths  to  be  self-evident,  that  all  men  are  created 
equal ;  that  they  are  endowed  by  their  Creator  with  certain  inalienable 
rights  ;  that  among  these  are  life,  liberty,  and  the  pursuit  of  happiness. 
That  to  secure  these  rights,  governments  are  instituted  among  men, 
deriving  their  just  powers  from  the  consent  of  the  governed.  That, 
whenever  any  form  of  government  becomes  destructive  of  these  ends, 
it  is  the  right  of  the  people  to  alter  or  to  abolish  it,  and  to  institute  a 
new  government,  laying  its  foundations  on  such  principles  and 
organizing  its  powers  in  such  form  as  shall  seem  to  them  most  likely 
to  effect  their  safety  and  happiness. 

h)     The  Rights  of  Men  and  of  Citizens  ^^ 

The  representatives  of  the  people  of  France,  formed  into  a 
National  Assembly,  considering  that  ignorance,  neglect,  or  contempt 
of  human  rights  are  the  sole  causes  of  public  misfortunes  and  cor- 
ruptions of  government,  have  resolved  to  set  forth  in  a  solemn  decla- 
ration those  natural,  imprescribable,  and  inalienable  rights  (and  do) 
recognize  and  declare,  in  the  presence  of  the  Supreme  Being,  and 
with  the  hope  of  his  blessing  and  favor,  the  following  sacred  rights 
of  men  and  of  citizens : 

I.  Men  are  born  and  always  continue  free  and  equal  in  respect 
to  their  rights.  Civil  distinctions  therefore  can  only  be  founded  upon 
public  utility. 

II.  The  end  of  all  political  associations  is  the  preservation  of  the 
natural  and  imprescribable  rights  of  man,  and  these  rights  are  liberty, 
property,  security,  and  resistance  of  oppression. 

c)     The  American  Bill  of  Rights  ^* 

I.  Congress  shall  make  no  law  respecting  an  establishment  of 
religion,  or  prohibiting  the  free  exercise  thereof;  or  abridging  the 
freedom  of  speech  or  of  the  press,  or  the  right  of  the  people  peaceably 
to  assemble  and  to  petition  the  government  for  a  redress  of 
grievances. 

II.  A  well-regulated  militia  being  necessary  to  the  security  of  a 
free  state,  the  right  of  the  people  to  keep  and  bear  arms  shall  not  be 
infringed. 

III.  No  soldier  shall,  in  time  of  peace,  be  quartered  in  any  house, 
without  the  consent  of  the  owner,  nor  in  time  of  war  but  in  a  manner 
to  be  prescribed  by  law. 

23  Issued  by  the  National  Assembly  of  France,  1789. 

2*  The  first  nine  amendments  to  the  Constitution  of  the  United  States, 
proposed  by  the  first  Congress  on  September  25,  1789,  and  ratified  by  the 
required  three-fourths  of  the  states  during  the  next  two  years. 


ANTECEDENTS  OP  INDUSTRIALISM  95 

IV.  The  right  of  the  people  to  be  secure  in  their  persons,  houses, 
papers,  and  effects,  against  unreasonable  searches  and  seizures,  shall 
not  be  violated,  and  no  warrants  shall  issue  but  upon  probable  cause, 
supported  by  oath  or  affirmation,  and  particularly  describing  the  place 
to  be  searched,  and  the  persons  or  things  to  be  seized. 

V.  No  person  shall  be  held  to  answer  for  a  capital  or  otherwise 
infamous  crime,  unless  on  a  presentation  or  indictment  of  a  grand 
jury,  except  in  cases  arising  in  the  land  and  naval  forces,  or  in  the 
militia,  when  in  actual  service  in  time  of  war  or  public  danger ;  nor 
shall  any  person  be  subject  for  the  same  offense  to  be  twice  put  in 
jeopardy  of  life  or  limb;  nor  shall  be  compelled  in  any  criminal  case 
to  be  a  witness  against  himself;  nor  be  deprived  of  life,  liberty,  or 
property,  without  due  process  of  law ;  nor  shall  private  property  be 
taken  for  public  use  without  just  compensation. 

VI.  In  all  criminal  prosecutions,  the  accused  shall  enjoy  the 
right  to  a  speedy  and  public  trial,  by  an  impartial  jury  of  the  State 
and  district  wherein  the  crime  shall  have  been  committed,  which 
district  shall  have  been  previously  ascertained  by  law,  and  to  be  in- 
formed of  the  nature  and  cause  of  the  accusation;  to  be  confronted 
with  the  witnesses  against  him ;  to  have  compulsory  process  for  ob- 
taining witnesses  in  his  favor,  and  to  have  the  assistance  of  counsel 
for  his  defense. 

VII.  In  suits  at  common  law,  where  the  value  in  controversy  shall 
exceed  twenty  dollars,  the  right  of  trial  by  jury  shall  be  preserved, 
and  no  fact  tried  by  a  jury  shall  be  otherwise  re-examined  in  any 
court  of  the  United  States,  than  according  to  the  rules  of  the  common 
law. 

VIII.  Excessive  bail  shall  not  be  required,  nor  excessive  fines 
imposed,  nor  cruel  and  unusual  punishments  inflicted. 

IX.  The  enumeration  in  the  Constitution  of  certain  rights  shall 
not  be  construed  to  deny  or  disparage  others  retained  by  the  people. 

d)  Some  Addenda 

XIII.  Sec.  i.-^  Neither  slavery  nor  involuntary  servitude,  except 
as  a  punishment  for  crime  whereof  the  party  shall  have  been  duly 
convicted,  shall  exist  within  the  United  States,  or  any  place  subject 
to  their  jurisdiction. 

XIV.  Sec.  i.^°  All  persons  born  or  naturalized  in  the  United 
States,  and  subject  to  the  jurisdiction  thereof,  are  citizens  of  the 
United  States  and  of  the  State  wherein  they  reside.    No  state  shall 

^^Adopted  as  part  of  the  Constitution  of  the  United  States,  December  18, 
1865. 

-"  The  Fourteenth  Amendment  to  the  Constitution  of  the  United  States, 
of  which  the  paragraph  above  is  section  i,  was  declared  adopted  July  21,  1868. 


96  CURRENT  ECONOMIC  PROBLEMS 

make  or  enforce  any  law  which  shall  abridge  the  privileges  or  im- 
munities of  citizens  of  the  United  States ;  nor  shall  any  State  deprive 
any  person  of  life,  liberty,  or  property,  without  dUe  process  of  law; 
nor  deny  to  any  person  within  its  jurisdiction  the  equal  protection 
of  the  laws. 

XV.  Sec.  1."  The  rights  of  citizens  of  the  United  States  to 
vote  shall  not  be  denied  or  abridged  by  the  United  States  or  by  any 
state  on  account  of  race,  color,  or  previous  condition  of  servitude. 

The  right  of  citizens  of  the  United  States  to  vote  shall  not  be 
denied  or  abridged  by  the  United  States  or  by  any  state  on  account 
of  sex.^* 

^^Adopted  as  part  of  the  Constitution  of  the  United  States,  March  30,  1870. 
28  Submitted  to  the  states  for  ratification  by  Congress,  June  4,  1919. 


Ill 

THE  INDUSTRIAL  REVOLUTION 

Our  historical  sketch  requires  for  its  completion  a  study  of  that  later  aspect 
of  social  development  which  we  so  often  and  so  strangely  call  the  "industrial 
revolution."  This  movement  has  done  far  more  than  shower  upon  us  a  series 
of  "great  inventions"  or  bless  mankind  with  a  new  technique.  Appearing 
gradually  and  working  indirectly,  as  well  as  directly,  it  has  affected  our  whole 
world  of  thought,  of  action,  and  of  institutions;  it  has  modified  our  economics, 
our  politics,  our  ethics,  and  even  our  religion ;  it  has  changed  in  nature,  number, 
and  form  our  baffling  problems;  it  has  written  itself  large  in  our  culture.  In 
view  of  its  many-sidedness  and  the  gradual  way  in  which  it  has  effected  and  is 
still  effecting  its  changes,  it  seems  amiss  either  to  call  it  "industrial"  or  to 
refer  to  it  as  a  "revolution." 

We  look  in  vain  for  its  beginnings.  We  know  that  early  mediaevalism 
could  have  given  us  nothing  which,  even  erroneously,  could  be  called  an 
"industrial  revolution."  Before  it  could  appear  the  mediaeval  scheme  of 
values  had  to  be  transformed.  Desires  for  earthly  things  had  to  be  freed 
from  their  unethical  taint ;  a  wholesome  respect  for  the  world  had  to  be 
built  up ;  man  had  to  acquire  greater  reverence  for  his  own  powers  and 
functions;  people  had  to  learn  to  conform  to  the  things  of  this  world  if  they 
would  transform  it.  This  change  in  the  attitude  toward  life  and  its  problems 
was  intimately  associated  with  several  other  lines  of  development.  There 
appeared  a  new  interest  in  nature  as  nature,  a  new  philosophy,  a  new  mathe- 
matics, and  a  new  physics.  These  laid  the  foundation  of  the  new  technique. 
Many  discoveries  of  new  lands  were  made,  adding  tremendous  resources 
calling  for  utilization.  There  was  brought  to  Europe  gold  alike  serviceable 
for  the  furtherance  of  the  new  money  economy  and  the  more  rapid  accumula- 
tion of  capital.  Colonial  ventures  led  to  an  extension  of  the  market  and  a 
great  increase  in  the  size  of  the  industrial  unit.  This  necessitated  a  reorgani- 
zation of  the  "factory"  and  a  more  extensive  use  of  the  principle  of  the  division 
of  labor.  The  last  produced  a  minute  specilization  which  both  served  to  create 
an  incentive  for  the  invention  of  new  machines  and  furnished  an  opportunity 
for  their  use.  Together  with  accumulated  capital  and  the  necessary  scientific 
knowledge  this  new  organization  led  to  the  new  technique.  Even  this  is  not 
the  whole  story;  for  in  England  the  movement  was  hastened  by  conditions 
peculiar  to  the  country.  The  indented  coastline,  by  cheapening  transportation 
and  enlarging  the  market,  must  have  been  a  factor  of  prominence.  It  has 
been  suggested,  too,  that  an  institution,  seemingly  as  extraneous  as  primo- 
geniture, played  its  part  by  forcing  into  mercantile  pursuits  those  whose  veins 
contained  the  adventurous  blood  of  nobility. 

The  course  of  the  "revolution"  has  been  as  comprehensive  as  its  ante- 
cedents. The  changes  in  technique  are  most  clearly  appreciated.  Even  here 
the  tendency  toward  a  "machine  process"  embracing  a  large  part  of  the 
industrial  system  is  generally  overlooked,  as  is  also  the  seemingly  antagon- 
istic fact  that  up  to  the  present  the  conquest  of  the  older  system  by  the  machine 
has  been  partial  and  incomplete.  On  the  economic  side,  the  increasing  im- 
portance of  capital,  the  rise  of  the  "factory  system,"  the  disappearance  of 
"domestic  industry,"  the  trend  toward  large-scale  production,  the  separation 
of  the  laborer  from  the  "tools  of  his  trade,"  and  increasing  class  differentiation 
based  upon  differences  in  industrial  functions  are  most  clearly  seen.  These 
aspects  of  the  movement  raise  the  questions  of  artificially  controlling  the  ten- 
dencies inherent  in  the  development  of  the  machine  system,  tb"  <ietenr-nation 

97 


qS  current  economic  problems 

of  the  size  of  the  industrial  entity,  the  social  control  of  large  aggregates  of 
wealth  such  as  railroads  and  capitalistic  monopolies,  the  elimination  of  economic 
insecurity  which  alike  attends  labor  and  capital,  the  equities  of  the  distribution 
of  wealth,  and  the  urban  enigmas  of  overcrowding,  housing,  sanitation,  vice, 
and  poverty.  They  reveal,  too,  just  over  the  horizon  the  more  ominous  ques- 
tions of  property  inheritance,  and  the  reconstruction  of  industrial  society. 

The  questions  reveal  but  a  single  aspect  of  the  influence  of  the  indus- 
trial revolution.  Political,  ethical,  religious,  and  social  questions  have  all 
been  involved  in  the  general  transformation  of  life  and  values.  In  many 
cases  they  are  inseparably  connected  with  economic  problems.  For  instance, 
when  the  machine  took  over  the  work  of  the  home,  the  latter  became  a  new 
institution.  One  writer  insists  that  the  home,  and  woman  as  well  for  all  that, 
has  not  yet  adapted  itself  to  the  new  society.  We  all  complain  that  the 
"machine  process"  has  entered  our  colleges,  and  that  college  instruction  is 
being  "standardized"  and  college  graduates  "tagged."  We  all,  at  least  occa- 
sionally, complain  of  the  inability  of  law  and  religion  alike  to  adjust  them- 
selves to  modern  industrialism.  Our  friends  in  ethics  tell  us  that  the  newer 
industrial  life  is  effecting  startling  changes  in  our  standards  of  social  and 
individual  ethics. 

Are  we  sure  that  we  have  reached  the  end  of  the  "revolution"?  Most 
likely  we  are  in  a  second  stage  of  the  process  where  problems  are  vastly  differ- 
ent from  those  met  in  the  first  stage  which  occupied  the  larger  part  of  the 
nineteenth  century.  Perhaps  there  will  be  a  third  stage  unlike  the  second. 
Clearly  the  end  of  the  new  technology  is  not  yet.  The  technique  first  intro- 
duced has  not  as  yet  produced  its  full  complement  of  social  results.  Quite 
as  important,  the  new  technique  is  being  rapidly  extended  over  a  wider  and 
wider  area,  constantly  affecting  the  fortunes  of  people  less  and  less  adapted 
to  it.  Its  extension  preserves  a  frontier  where  machine  culture  is  constantly 
pushing  back  a  civilization  founded  on  a  less  complex  technique.  The  reac- 
tion upon  our  system  is  fraught  with  grave  consequences. 


A.     THE  ANTECEDENTS  OF  THE  REVOLUTION 
46.     English  Industry  on  the  Eve  of  the  Revolution^ 

BY  ARNOLD  TOYNBEE 

I  must  ask  you  to  transport  yourselves  in  imagination  to  Eng- 
land as  it  was  a  century  and  a  quarter  ago.  Then  the  farms  were 
small  and  the  method  of  cultivation  primitive.  The  old  system  of 
common  cultivation  was  still  to  be  seen  at  work  in  a  large  number 
of  parishes  in  the  midland  counties.  Rotation  of  crops  was  only 
imperfectly  understood ;  the  practice  of  growing  winter  roots  and 
artificial  grasses  was  only  slowly  spreading.  "As  for  the  sheep/* 
said  an  old  Norfolk  shepherd,  speaking  of  a  still  more  recent  period, 
"they  hadn't  such  food  provided  for  them  as  they  have  now.  In 
winter  there  was  little  to  eat  except  what  God  Almighty  sent  for 
them,  and  when  the  snow  was  deep  on  the  ground  they  ate  the  ling 
or  died  off."  The  cotton  industry,  which  now  supports  more  than 
half  a  million  of  persons,  was  then  oppressed  by  Parliament  as  a 

^  Adapted  from  "Industry  and  Democracy,"  Lectures  on  the  Industrial 
"devolution  (1881),  pp.  179-88. 


THE  INDUSTRIAL  REVOLUTION  99 

possible  rival  to  older  industries,  and  was  too  insignificant  to  be 
mentioned  more  than  once,  and  then  incidentally,  by  Adam  Smith. 
The  iron  industry,  with  which  the  material  greatness  of  England 
has  during  the  present  century  been  so  conspicuously  associated,  was 
gradually  dying  out.  Much  of  the  ore  was  still  smelted  by  charcoal 
in  small  furnaces  blown  by  leather  bellows  worked  by  oxen.  Not 
cotton  and  iron,  but  wool  was  considered,  in  those  days,  the  great 
pillar  of  national  prosperity.  There  were  few  people  who  doubted 
but  that  the  ruin  of  England  would  follow  the  decay  of  this  cher- 
ished industry.  It  was  only  philosophers  like  Bishop  Berkeley,  who, 
going  very  deep  into  matters,  ventured  to  ask  whether  other  coun- 
tries had  not  flourished  without  the  woolen  trade. 

To  show  you  the  external  conditions  of  industrial  life  in  the 
middle  of  the  last  century,"  I  cannot,  I  think,  do  better  than  give  a 
short  description  of  the  way  in  which  wool  was  manufactured  in 
the  neighborhood  of  Leeds.  The  business  was  in  the  hands  of 
small  master-manufacturers  who  lived,  not  in  the  town,  but  in  home- 
steads in  the  fields,  and  rented  little  pasture- farms.  Every  master 
worked  with  his  own  hands,  and  nearly  all  the  processes  through 
which  the  wool  was  put — the  spinning,  the  weaving,  and  the  dyeing 
— were  carried  on  in  his  own  house.  Few  owned  more  than  three 
or  four  looms,  or  employed  more  than  eight  or  ten  people — men, 
women  and  children.  This  method  of  carrying  on  the  trade  was 
called  the  domestic  system.  "What  I  mean,"  said  a  .witness,  "by  the 
domestic  system  is  the  little  clothiers  living  in  villages  or  detached 
places,  with  all  their  comforts,  carrying  on  business  with  their  own 
capital ;  every  one  must  have  some  capital,  more  or  less,  to  carry 
on  his  trade,  and  they  are  in  some  degree  little  merchants  as  well 
as  manufacturers,  in  Yorkshire."  A  spinning-wheel  was  to  be  found 
in  every  cottage  and  farmhouse  in  the  kingdom,  a  loom  in  every 
village. 

The  mention  of  this  fact  brings  me  to  another  point  in  the  eco- 
nomic history  of  this  period — the  extremely  narrow  circle  in  which 
trade  moved.  In  many  districts  the  farmers  and  laborers  used  few 
things  which  were  not  the  work  of  their  own  hands,  or  which  had 
not  been  manufactured  a  few  miles  from  their  homes.  The  poet 
Wordsworth's  account  of  the  farmers'  families  in  Westmoreland, 
who  grew  on  their  own  land  the  corn  with  which  they  were  fed, 
spun  in  their  own  homes  the  wool  with  which  they  were  clothed,  and 
supplied  the  rest  of  their  wants  by  the  sale  of  yarn  in  the  neighbor- 
ing market  town,  was  not  so  inapplicable  to  other  parts  of  England 
as  we  might  at  first  imagine.  If  the  inland  trade  was  thus  circum- 
scribed, we  shall  not  be  surprised  to  find  that  our  foreign  trade  was, 
compared  with  its  present  dimensions,  on  a  tiny  scale. 


100         CURRENT  ECONOMIC  PROBLEMS 

Though  there  were  periods  of  keen  distress,  there  was  no  such 
thing  as  long-continued  widespread  depression  of  trade.  Overpro- 
duction was  impossible  when  the  producer  lived  next  door  to  the 
consumer,  and  knew  his  wants  as  well  as  the  country  shoemaker 
of  today  knows  the  number  of  pairs  of  boots  that  are  wanted  in  his 
village.  And  when  foreign  trade  was  so  insignificant,  wars  and 
rumors  of  wars  could  exercise  but  little  influence  over  the  general 
circle  of  commerce. 

The  expense  of  carriage  was  enormous — it  cost  forty  shillings 
to  send  a  ton  of  coal  from  Manchester  to  Liverpool — and  it  was  as 
slow  as  it  was  expensive.  Adam  Smith  tells  us  that  it  took  a  broad- 
wheeled  wagon,  drawn  by  eight  horses,  and  attended  by  two  men, 
three  weeks  to  carry  four  tons  of  goods  from  London  to  Edinburgh. 
The  roads — even  the  main  roads — were  often  impassable.  A  famous 
traveler  describes  how  the  high  road  between  Preston  and  Wigam 
had,  even  in  summer,  ruts  four  feet  deep,  floating  with  mud ;  and 
in  many  parts  of  the  country  the  principal  means  of  communication 
were  tracks  used  by  pack  horses.  Was  it  not  natural  that,  shut  up 
within  such  narrow  confines,  unstimulated  by  wide  markets  and 
varied  intercourse,  manufactures  advanced  but  slowly  and  inven- 
tions were  rare?  Man's  life  moved  on  from  generation  to  genera- 
tion in  a  quiet  course  which  would  seem  to  us  a  dull,  unvarying 
routine. 

The  majority  of  employers  were  small  masters — manufacturers 
like  those  already  described,  who,  in  ideas  and  habits  of  life,  were 
little  removed  from  the  workmen,  out  of  whose  ranks  they  had 
risen,  and  to  whose  ranks  they  might  return  once  more.  There  were, 
of  course,  even  then  capitalist  employers,  but  on  a  small  scale ;  nor 
was  their  attitude  to  their  workmen  very  different  from  that  of  the 
little  masters  in  the  same  trade.  Few  of  the  small  masters  of  whom 
I  have  spoken  did  not  work  with  their  own  hands;  and  it  was  the 
common  thing  for  them  to  teach  their  apprentices  the  trade.  Both 
the  apprentices,  for  whose  moral  education  he  was  responsible,  and 
the  journeymen  were  lodged  and  boarded  in  the  master's  house. 
Between  men  living  in  such  close  and  continuous  relations  the  bonds 
were  naturally  very  intimate.  Nor  were  these  bonds  loosened  when 
the  journeyman  married  and  lived  in  his  own  house.  The  master 
knew  all  his  affairs,  his  particular  wants,  his  peculiarities,  his  re- 
sources, the  number  of  his  children,  as  well  as  he  did  before.  If  the 
weaver  was  sick,  the  master  lent  him  money ;  if  trade  was  slack  he 
kept  him  on  at  a  loss.  "Masters  and  men,"  said  an  employer,  "were 
in  general  so  joined  together  in  sentiment,  and,  if  I  may  be  permit- 
ted to  use  the  term,  in  love  to  each  other,  that  they  did  not  wish  to 
be  separated  if  they  could  help  it."     The  workmen  corroborated 


THE  INDUSTRIAL  REVOLUTION  loi 

the  assertion.  "It  seldom  happens,"  said  a  weaver,  "that  the  small 
clothiers  change  their  men  except  in  case  of  sickness  and  death." 
It  was  not  uncommon  for  a  workman  to  be  employed  by  the  same 
master  for  forty  years;  and  the  migration  of  laborers  in  search  of 
work  was  small  compared  with  what  goes  on  in  the  present  day.  A 
workman  would  live  and  die  on  the  spot  where  he  was  born,  and 
the  same  family  would  remain  for  generations  working  for  the 
same  employers  in  the  same  village.  Under  such  conditions  the  mas- 
ter busies  himself  with  the  welfare  of  the  workman,  and  the  educa- 
tion of  his  children ;  the  workman  eagerly  promotes  the  interests  of 
the  master,  and  watches  over  the  fortunes  of  the  house.  They  are 
not  two  families  but  one. 

There  is  yet  one  other  characteristic  of  industry  in  those  days 
which  remains  for  us  to  scrutinize.  This  is  the  network  of  restric- 
tions and  regulations  in  which  it  was  entangled  and  which  exercised 
an  important  influence  over  both  its  inner  and  its  outer  life.  Most 
conspicuous  were  the  combination  laws — laws  which  made  it  illegal 
for  laborers  to  combine  to  raise  wages,  or  to  strike.  "We  have  no 
Acts  of  Parliament,"  says  Adam  Smith,  "against  combining  to  lower 
the  price  of  work,  but  many  against  combining  to  raise  it."  In 
another  passage  he  describes  a  strike  as  generally  ending,  "in  noth- 
ing but  the  punishment  or  ruin  of  the  ringleaders."  Not  only  was 
combination  to  raise  wages  illegal,  but  emigration  from  parish  to 
parish  in  search  of  work  was  rendered  almost  impossible  by  the 
law.  These  laws,  which  cruelly  hindered  the  workman  in  his  eflforts 
to  secure  a  livelihood,  were  bad ;  but  there  were  other  laws  directly 
affecting  the  position  of  the  workman  as  a  citizen  which  were  worse. 
I  select  one  example.  The  law  of  master  and  servant  made  breach 
of  contract  on  the  part  of  an  employer  a  civil  offense,  on  the  part  of 
the  laborer  a  crime. 

Except  as  a  member  of  a  mob,  the  laborer  had  not  a  shred  of 
political  influence.  The  power  of  making  laws  was  concentrated 
in  the  hands  of  the  landowners,  the  great  merchant  princes,  and  a 
small  knot  of  capitalist-manufacturers  who  wielded  that  power  in 
the  interests  of  their  class,  rather  than  for  the  good  of  the  people. 
Nor  is  the  famous  assertion  of  the  great  economist  that,  whenever 
Parliament  attempted  to  regulate  differences  between  masters  and 
their  workmen,  its  counsellors  were  always  the  masters,  unsupported 
by  facts.  It  receives  lively  illustration  from  the  pen  of  a  pamph- 
leteer of  the  period,  who  remarks  with  an  air  of  great  naturalness 
and  simplicity  that  "the  gentlemen  and  magistrates  ought  to  aid  and 
encourage  the  clothier  in  the  reduction  of  the  price  of  labor,  as  far 
as  is  consistent,  with  the  laws  of  humanity,  but  necessary  for  the 
preservation  of  foreign  trade."    The  position  of  the  workman  was 


102  CURRENT  ECONOMIC  PROBLEMS 

a  transitional  one.  He  halted  half-way  between  the  position  of  the 
serf  and  the  position  of  the  citizen;  he  was  treated  with  kindness 
by  those  who  injured  him ;  he  was  protected,  oppressed,  dependent. 

47.     Geographical  Discovery  and  the  Revolution^ 

BY  WILLIAM  CUNNINGHAM 

In  the  latter  part  of  the  eighteenth  century  there  was  a  burst 
of  inventive  genius  in  Great  Britain.  Many  improvements  were 
rapidly  introduced,  and  the  useful  arts,  as  practised  from  time  im- 
memorial, were  revolutionized  in  a  few  years.  This  was  no  mere 
accident,  but  was  at  least  partly  due  to  the  fact  that  the  conditions 
of  economic  life  had  become  more  favorable  to  such  change  than 
they  had  ever  been  before.  The  age  of  geographical  discovery  had 
paved  the  way  for  the  age  of  invention;  England  had  succeeded  in 
surpassing  each  of  the  rivals  who  during  a  century  and  a  half  had 
striven  with  her  for  the  commercial  supremacy  of  the  world ;  her 
predominance  afforded  the  English  inventors  of  the  eighteenth  cen- 
tury unexampled  opportunities  for  turning  their  talents  to  account. 

Holland  was  no  longer  the  carrier  of  the  world;  her  manufac- 
tures had  declined  in  importance.  In  France  over-centralization 
destroyed  the  initiative  of  the  people  and  injured  all  branches  of 
industry  and  agriculture.  English  shipping  had  increased,  and  dis- 
tant markets  for  national  wares  had  been  opened.  The  East  Indies 
were  willing  to  accept  unlimited  supplies  of  cotton  cloth ;  and  the 
continent  of  Europe  and  the  colonies  of  America  were  largely  de- 
pendent on  Great  Britain  for  woolen  goods ;  manufacturing  pould 
be  conducted  on  a  larger  and  larger  scale  without  immediate  risk  of 
glutting  the  widespread  demand  by  overproduction.  So  long  as 
commerce  had  been  organized  as  an  intercivic  affair,  or  on  the  old 
regulated  lines  of  exclusive  privilege  in  limited  markets,  there  could 
not  have  been  any  such  stimulus  to  the  invention  and  introduction  of 
machinery  as  the  world-wide  markets  naturally  afforded. 

But  more  than  this:  the  mines  of  the  New  World  and  the  suc- 
cessful commerce  with  the  East  had  given  England  the  material 
means  for  the  formation  of  large  amounts  of  capital,  which  were 
now  available  for  employment.  There  had  been  much  admirable 
ingenuity  among  seventeenth  century  engineers  and  mechanics,  but 
they  were  hampered  by  want  of  capital ;  their  projects  could  not  be 
carried  out.  In  the  eighteenth  century  London  had  become  the 
monetary  center  of  the  world,  and  it  was  no  longer  impossible  to 
venture  on  the  long  and  costly  experiments  that  were  often  needed 

2  Adapted  from  An  Essay  on  Western  Civilization  in  Its  Economic 
Aspects,  II,  225-28.     Published  by  Cambridge  University  Press,  1900. 


THE  INDUSTRIAL  REVOLUTION  103 

to  render  some  mechanical  improvement  a  financial  success.  We  are 
not  detracting  from  the  genius  of  Watt  or  Arkw^ight  if  we  say  that 
they  seized  and  made  the  most  of  opportunities,  such  as  no  other 
men  had  ever  had  before.  Had  they  lived  under  the  conditions 
which  were  in  vogue  in  preceding  centuries,  both  as  to  demand  for 
goods  and  the  supply  of  capital,  these  great  inventors  could  only 
have  enjoyed  the  meager  distinction  which  future  generations  accord 
to  men  who  were  in  advance  of  their  times. 

The  great  geographical  discoveries  were  the  result  of  long-con- 
tinued and  conscious  effort,  directed  to  a  clearly  understood  aim ; 
great  expeditions  had  to  be  organized  to  sail  on  unknown  seas  and 
establish  friendly  relations  with  distant  potentates.  Explorers  were 
forced  to  wait  on  courtly  patronage  and  royal  initiative ;  but  me- 
chanical invention  has  run  a  different  course.  The  coincidence  of 
the  two  phenomena,  a  world-wide  demand  and  a  large  supply  of 
capital,  enabled  humble  and  unknown  men  to  push  on  step  by  step ; 
political  prestige  and  elaborate  organization  were  not  so  essential 
as  in  schemes  for  colonization ;  mechanical  skill  and  personal  inge- 
nuity had  at  last  obtained  their  chance.  The  new  industrial  era, 
which  the  age  of  invention  brought  in  its  train,  has  offered  a  free 
field  and  given  the  greatest  rewards  to  individual  enterprise.  It  is 
commonly  said  that  the  physical  advantage  of  England  in  the  pos- 
session of  enormous  supplies  of  coal  and  iron  side  by  side,  have 
enabled  her  to  outdistance  her  rivals,  not  only  in  commerce  but  in 
industry ;  still,  the  proximity  and  quantity  of  coal  and  iron  do  not 
in  themselves  account  for  her  success  completely ;  in  the  case  of 
such  inventions  as  Arkwright's  they  do  not  account  for  it  at  all. 
The  favorable  conditions  which  English  manufacturers  enjoyed,  in 
the  eighteenth  century,  and  the  reliance  on  individual  enterprise 
which  had  been  traditional  in  Great  Britain,  were  not  unimportant 
factors  in  rendering  this  island  the  workshop  of  the  world. 

B.     THE  NATURE  AND  SCOPE  OF  THE  RESOLUTION 

48.     Technology  and  the  Revolution^ 

The  industrial  revolution  was  no  sudden  transformation  of  the 
structure  of  industry  and  the  organization  of  social  life.  It  is  an 
unfortunate  emphasis  upon  the  "great  inventions"  and  their  imme- 
diate consequences  which  has  caused  us  to  lose  sight  of  the  broad 
scope  and  varied  content  of  the  movement.  This  emphasis  has 
too  frequently  conveyed  the  impression  that  the  sudden  appearance 
upon  the  scene  of  industrial  action  of  several  very  wonderful  ma- 
chines, born  of  the  inventive  genius  of  the  great  men  of  old,  wrought 

3  An  editorial  (1915). 


I04  CURRENT  ECONOMIC  PROBLEMS 

a  great  change,  substituting  an  entirely  new  and  more  efficient  sys- 
tem for  the  archaic  one  which  had  done  service  before.  This  view 
commits  the  double  error  of  regarding  the  movement  as  industrial 
and  as  a  revolution. 

It  was  not  industrial ;  for  its  antecedents  cannot,  any  more  than 
its  consequences,  be  pent  up  in  any  narrow  causal  formula  to  which 
the  term  industrial  can  be  properly  applied.  An  attempt  to  find  its 
beginning  forces  one  into  excursions  into  fields  as  complex  as  human 
life  itself.  Certainly  the  common-sense  scheme  of  social  values,  the 
estimates  placed  by  people  upon  their  institutions,  thsir  aspirations, 
and  their  instruments  cannot  be  excluded  from  the  catalogue  of  ante- 
cedents. The  change  in  such  a  scheme  was  one  of  the  most  potent 
of  the  factors  leading  to  this  great  movement.  Clearly  the  mediaeval 
scheme  of  values  would  have  inhibited  the  invention  of  the  steam 
engine.  It  would  not  even  have  permitted  the  consideration  of  the 
problem  the  partial  answer  to  which  the  steam  engine  became.  For 
such  a  society  the  high  values  were  in  things  of  the  "other  world." 
To  it  nature  was  not  a  thing  worth  conquering ;  if  it  had  been,  man 
was  impotent  to  efifect  the  conquest.  Improvement  in  industrial 
technique  demanded  placing  a  higher  value  upon  life  in  this  wor'd, 
upon  the  material  means  toward  its  fulness,  and  upon  man's  depen- 
dence upon  nature's  bounty  and  laws.  It  demanded,  too,  that  the 
individual  develop  confidence  in  the  soundness  of  his  worldly  desires 
and  in  his  capacity  to  do  things  worth  while.  When  an  adequate 
account  of  this  great  movement  is  written,  one  of  its  most  important 
chapters  will  trace  the  development  of  this  new  scheme  of  values. 

But,  passing  over  the  larger  social  aspects  of  the  subject,  even 
industrially  the  movement  was  hardly  a  revolution.  This  is  evi- 
denced by  a  study  of  the  transition  from  the  craft  to  the  machine 
regime.  Under  the  former,  population  had  been  adjusted  to  the 
available  supply  of  natural  resources ;  and  the  existing  technique 
had  adapted  itself  to  both.  In  fact  so  harmoniously  did  the  three 
fit  together  that  the  craft  technique  was  just  adequate  to  supply  the 
customary  wants  of  a  slowly  increasing  population  by  making  use 
of  the  whole  of  the  available  natural  resources.  In  view  of  its  ade- 
quacy, this  technique,  almost  perfect,  was  in  little  danger  of  being 
replaced. 

However,  the  gradual  revelation  of  the  natural  resources  of  the 
New  World,  or  the  "economic  discovery  of  America,"  created  an 
acute  technical  problem,  whose  solution  promised  alike  individual 
fortune  and  social  prosperity.  Its  significance  lies  in  the  fact  that 
it  disturbed  the  happy  harmony  between  population,  technique,  and 
natural  resources.     Resources  were  all  of  a  sudden  tremendously 


the\industrial  revolution  105 

increased.  Being  potential  wealth,  they  promised  fortune  to  him  who 
could  turn  them  into  finished  commodities.  The  craft  technique, 
however,  was  incapable  of  handling  so  large  an  order.  At  best,  it 
could  but  leave  large  quantities  of  resources  untouched.  Yet  the 
almost  infinite  expansibility  of  human  wants,  particularly  in  view 
of  the  inability  of  population  mechanically  to  assume  a  given  size, 
demanded  that  the  largest  possible  quantity  of  raw  material  be  con- 
verted into  usable  goods.  Consequently  the  problem  of  finding  a 
new  and  adequate  technique  became  one  of  increasing  social  impor- 
tance during  the  seventeenth  and  eighteenth  centuries.  In  terms  of 
an  instinctive  and  semiconscious  struggle  to  solve  this  problem  much 
of  the  intellectual  history  of  these  centuries  becomes  intelligible. 

Properly  speaking,  the  problem  included  two  closely  related  prob- 
lems, that  of  technique  proper,  and  that  of  industrial  organization. 
The  first  of  these  presented  grave  difficulties.  The  craft  technique 
could,  of  course,  suggest,  and  parts  of  it  could  even  be  taken  over. 
But,  for  all  that,  its  development  was  complete;  its  primary  basis 
was  individual  skill ;  and  certainly  in  view  of  its  present  high  develop- 
ment, it  was  impossible  to  establish  a  more  adequate  technique  by 
a  further  development  of  human  dexterity.  Furthermore,  the  devel- 
opment of  skill  pointed  to  delicacy,  quality,  refinement.  Since  these 
were  not  what  was  wanted,  the  new  technique  had  to  start  from  new 
beginnings.  Its  demands  were  cruder  than  those  made  upon  the 
older  system.  Its  problem  was  to  find  a  means  of  handling  immense 
quantities  of  raw  material  in  the  rough,  and  of  turning  out  large 
quantities  of  crude  products.  It  involved,  too,  handling  these  masses 
rapidly,  which  necessitated  finding  a  source  of  power  other  fhan 
human  labor.  The  first  requirement  imposed  the  necessity  of  the 
exact  handling  of  materials ;  the  second  involved  devising  a  scheme 
for  throwing  the  burden  of  the  work  upon  nature.  The  first  imposed 
an  understanding  of  the  laws  of  quantity;  this  made  necessary  the 
development  of  mathematics,  and  rendered  it  a  basic  science  of  the 
new  technique.  The  second  rendered  imperative  a  study  of  the 
phenomena  of  expansion,  heat,  motion,  etc. ;  this  necessitated  the 
further  development  of  the  science  of  physics,  or  natural  philosophy, 
and  prescribed  it  as  antecedent  to  technique.  How  diligently  and 
successfully  these  preliminary  studies  were  made,  the  histories  of 
mathematics  and  of  physics  in  the  seventeenth  and  eighteenth  cen- 
turies abundantly  attest.  It  is  significant  that  chemistry  and  biology, 
which  were  not  needed  for  the  new  technique  which  found  expres- 
sion in  the  industrial  revolution,  did  not  receive  their  significant 
development  until  later.  How  closely  developments  in  physics  and 
mathematics  were  related  to  the  general  social  movement  is  evidenced 
by  the  expression  of  rationalism  and  empiricism  in  the  philosophy 


io6  CURRENT  ECONOMIC  PROBLEMS 

of  these  centuries,  culminating  in  the  naturaHstic  philosophy  of  the 
later  eighteenth  century.  It  is  of  note,  too,  that  many  of  the  philos- 
ophers of  the  period  were  deeply  interested  in  mathematics,  several 
making  notable  contributions  to  the  subject.  These  sciences  had  to 
do  the  basic  work,  before  significant  technical  development  could 
occur.    Technology  had  to  bide  its  time. 

For  a  time  the  development  of  industrial  organization  distanced 
that  of  pure  technique.  Gradually  England  built  up  a  foreign  trade 
for  its  finished  commodities.  This  was  greatly  increased  by  the 
over-seas  demand.  In  proper  economic  order  the  larger  market  led 
to  an  increase  in  the  size  of  the  industrial  establishment,  and  the 
latter,  to  a  thorough  reorganization.  The  object  of  this  was  to  sub- 
divide tasks,  and  thus  to  reap  the  advantage  of  increased  individual 
efficiency  due  to  a  more  minute  specialization  of  labor.  The  expected 
advantage  of  a  decrease  in  costs  was  realized.  Further  it  has  an 
ulterior,  and  perhaps  more  permanent,  effect  in  supplying  the  last 
condition  necessary  to  the  appearance  of  the  new  technique.  Spe- 
cialization is  nothing  else  than  the  breaking  up  of  a  production 
operation  into  its  elements :  it  is  a  differentiation  of  productive  acts, 
the  isolation  of  a  unit  of  the  process.  It  tends  to  make  the  work  of 
the  laborer  the  monotonous  repetition  of  a  single  routine  act.  The 
task,  consequently,  assumes  just  the  form  in  which  it  can  better  be 
done  by  some  mechanical  contrivance,  that  repeats  the  single  neces- 
sary motion,  than  by  a  laborer.  It  was  in  just  this  way  that  factory 
reorganization  constantly  threw  off  new  isolated  tasks  and  visualized 
the  need  of  the  machine.  How  important  this  is  as  a  necessary 
antecedent  of  the  machine  is  indicated  by  the  use  of  the  term  "indus- 
trial revolution"  as  synonymous  with  factory  reorganization  by  a 
recent  writer,  who  contends  that  the  machine  was  not  the  cause,  but 
the  result,  of  the  industrial  revolution. 

The  very  introduction  of  the  machine  led  to  a  tendency  toward 
the  extension  of  its  use.  Four  aspects  of  this  tendency  are  note- 
worthy. First,  the  introduction  of  machines  in  industrial  establish- 
ments is  followed  by  a  lack  of  harmony  between  the  machine  work 
and  the  auxiliary  craft  work  in  the  establishment.  Secondly,  there 
is  a  like  incompatibility  between  the  machine  operations  carried  on 
in  an  industrial  establishment  and  the  craft  operations  which  are 
antecedent  or  subsequent  to  it  in  the  industrial  process.  Friction  in 
such  cases  leads  to  an  extension  of  the  machine  system  to  comple- 
mentary activities  within  or  without  the  factory.  Thirdly,  complete 
harmony,  as  Marx  has  pointed  out,  requires  the  application  of  the 
machine  method  to  the  making  of  machines.  Fourthly,  the  application 
of  machinery  to  transportation  demands,  for  anything  more  than  its 


THE  INDUSTRIAL  REVOLUTION  107 

most  meager  use,  a  thoroughgoing  locaHzation  of  industry  and  a  great 
enlargement  of  the  market  for  particular  commodities. 

In  these  subsequent  developments  industrial  organization  and 
the  machine  technique  have  evidenced  a  constant  interdependence. 
An  enlargement  of  the  market  increases  the  size  of  the  factory;  this 
leads  to  a  further  specialization  in  industrial  acts ;  in  this  certain 
parts  of  the  larger  process  are  isolated  and  are  taken  over  by  ma- 
chines ;  this  leads  to  a  decrease  in  costs  and  to  a  lower  price  for  the 
goods ;  and  this  leads  to  an  enlargement  of  the  market  and  to  a 
repetition  of  the  cycle.  One  point  as  well  as  another  marks  the 
beginning  of  this  endless  round ;  logically  there  is  no  absolute  cause 
and  no  absolute  effect.  But  we  must  remember  that  as  the  cycle 
tends  again  and  again  to  run  its  course,  its  convolutions  become 
narrower ;  for  even  such  a  magical  sequence  is  itself  subject  to  the 
law  of  diminishing  returns.  Just  as,  if  we  attempt  to  find  the  begin- 
ning of  the  industrial  revolution,  we  get  lost  in  a  complicated  past; 
so,  if  we  look  for  its  end,  we  lose  ourselves  in  industrial  change 
whose  completion  is  not  as  yet. 

Great  as  the  change  in  technique  has  been,  the  conquest  of  the 
machine  has  by  no  means  been  complete.  To  call  the  present  system 
the  machine  system  is  to  overlook  the  great  fields  which  the  machine 
has  failed  to  subdue.  In  practically  all  agriculture  the  larger  part 
of  production  is  still  under  the  control  of  the  craft ;  some  agrarian 
work  the  machine  has  hardly  touched.  Professional  and  clerical 
work,  as  well  as  a  large  part  of  commercial  work,  knows  as  yet  little 
of  the  machine.  In  country  towns  and  small  cities  the  crafts  still 
survive.  Even  in  the  larger  industrial  centers  the  small  establishment 
and  handwork  loom  much  larger  in  total  than  at  first  would  appear. 
Even  in  the  largest  and  best  organized  industrial  establishments  large 
oases,  as  it  were,  of  the  older  system  are  left.  It  is  perhaps  true 
that  the  influence  of  the  machine  reaches  far  beyond  the  physical  fact, 
and  that  it  exercises  an  overlordship  over  the  habits  and  lives  of  all. 
But  this  overlordship  is  partial  and  incomplete.  The  lives  and  habits 
of  the  great  majority  are  still  more  immediately  affected  by  the  older 
craft  which  directly  affects  their  work  than  by  the  influence  of  the 
newer  and  more  brilliant  technique. 

49.     The  Comprehensiveness  of  the  Revolution* 

BY   J.   H.    CLAPHAM 

No  region  of  Europe  remained  altogether  unaffected  by  that  long 
series  of  economic  developments  which  has  changed  the  face  and 

^Adapted  from  chap,  xxiii,  "Economic  Change,'"'  in  A  Cambridge  Modern 
History,  X,  727-29.  Copyright  by  the  Cambridge  University  Press  and  the 
Macmillan  Co.,  1907. 


io8  CURRENT  ECONOMIC  PROBLEMS 

profoundly  affected  the  structure  of  modern  society.  It  was  no 
mere  industrial  revolution;  its  story  is  not  a  list  of  inventions  or  a 
biography  of  inventors.  Nor  is  it  simply  the  story  of  capital  and 
capitalistic  production.  Side  by  side  with  mechanical  invention,  the 
rising  power  of  capital,  the  extension  of  economic  freedom,  and  the 
expansion  of  international  trade  went  an  astonishing  growth  in  pop- 
ulation and  a  partial  introduction  of  the  methods  and  results  of  exact 
science  into  economic  affairs.  The  distinctive  mark  of  economic 
history  during  this  period  is  to  be  found,  not  in  any  change  or  group 
of  changes,  but  rather  in  the  coincidence  of  many  types  of  change 
and  the  rapidity  with  which  some  of  these  types  developed.  Every- 
where there  was  movement,  but  the  causes  of  the  movement  were 
infinitely  varied. 

The  whole  eighteenth  century  had  been  an  age  of  steady  indus- 
trial development  and  of  great  commercial  activity.  Intercourse 
among  the  nations  was  more  frequent  and  more  free  than  ever  be- 
fore. The  more  or  less  scientific  and  comparative  study  of  natural 
resources  was  now  no  new  thing.  Imitation  of  superior  foreign 
methods  in  agriculture,  commerce,  and  the  arts,  was  keenly  pur- 
sued. There  was  an  accelerating  accumulation  of  capital.  Banking, 
the  necessary  prerequisite  to  investment  and  the  organ  of  highly 
developed  commerce,  had  made  conspicuous  progress. 

Trade  was  cutting  its  own  channels,  wherever  government  would 
permit.  In  the  more  advanced  countries  it  had  refused,  long  before 
the  middle  of  the  eighteenth  century,  to  confine  itself  to  fairs  and 
markets,  after  the  mediaeval  fashion.  It  had  become  an  everyday 
matter,  had  ceased  to  be  a  thing  of  times  and  seasons. 

A  widespread  care  for  the  improvement  of  internal  means  of 
communication,  combined  with  an  ever-growing  international  trade, 
had  quickened  the  pulse  of  economic  life.  In  Holland,  Italy,  and 
even  bankrupt  France,  the  work  went  on.  In  Great  Britain  the  task 
of  improving  river  navigation,  reconstructing  roads,  and  cutting 
navigable  canals  was  in  full  swing  in  the  seventies.  Because  of 
excess  of  tolls  elsewhere,  Britain  alone  was  able  to  make  full  use  of 
the  work  of  the  road  and  canal  builders. 

England  exemplified  the  close  connection  which  must  always 
exist  between  improvement  in  the  means  of  transport,  the  concen- 
tration of  population,  and  a  progressive  agriculture.  Where  the 
cultivator  works  only  to  supply  his  own  needs  he  rarely  escapes  from 
the  crushing  compulsion  of  traditional  methods.  The  demand  of 
the  town  and  roads  are  essential  if  there  is  to  be  a  rapid  movement  on 
the  land.  In  England  the  growth  of  London,  to  which  most  of  the 
new  roads  led,  furnished  a  main  driving  force.     Decline  in  com- 


THE  INDUSTRIAL  REVOLUTION 


109 


mon  field  husbandry  was  associated  in  Great  Britain  with  free  and 
rational  methods  and  with  spontaneous  agricultural  progress. 

The  similar  series  of  revolutionary  inventions  toward  the  close 
of  the  century  fell  upon  prepared  soil.  In  all  the  western  nations 
there  existed  some  mining  and  manufacturing  on  a  large  scale,  and 
many  trades  in  which  the  handworkers  were  to  a  considerable  ex- 
tent dependent  on  the  capitalist  employer.  Large  and  small  indus- 
trial enter])rises  were  everywhere  encouraged  by  the  governments. 
The  progress  in  organization  along  industrial  lines  was  due  mainly 
to  the  fact  that  industrial  establishments  worked  for  export  and  so 
were  brought  under  the  influence  of  a  commercial  system  already 
organized  on  capitalistic  lines. 

A  right  instinct  has  selected  the  invention  of  spinning  machin- 
ery and  the  perfection  of  the  steam  engine  as  the  chief  industrial 
events  of  the  later  eighteenth  century.  The  first  led  to  the  reor- 
ganization of  what  had  long  been  the  greatest  group  of  industries ; 
the  second  furnished  motive  power  for  both  new  and  old  mechanical 
processes.  But  they  were  only  the  most  important  links  in  a  long 
chain  of  improvements  which  freer  industry,  increasing  skill  and 
capital,  expanding  commerce,  and  a  more  scientific  handling  of 
technical  problems,  introduced  into  various  branches  of  manufac- 
ture. In  almost  all  branches  of  industry  England  evolved  and  ap- 
plied fresh  methods  of  production.  Of  great  significance  for  the 
general  progress  of  manufacturing  was  the  increased  production  of 
raw  iron.  Of  even  greater  significance  was  the  establishment,  dur- 
ing the  first  forty  years  of  the  nineteenth  century,  of  mechanical  en- 
gineering as  the  organized  capitalistic  industry,  upon  which  all  other 
industries  were  beginning  to  depend. 

The  cotton  trade  occupies  an  unique  position  in  the  general  move- 
ment. It  was  young ;  in  the  eighteenth  century  its  various  parts  had 
been  but  imperfectly  organized ;  and,  consequently,  it  was  adapt- 
able. The  wool-working  trades  on  the  contrary  were  old,  highly 
organized,  and  in  certain  districts  most  conservative.  It  is  in  no 
way  surprising  therefore  that  machinery  and  steam  were  more  slowly 
introduced  in  them  than  in  the  cotton  trade.  Wool  and  flax  and 
cotton  spinning  on  the  wheel  died  as  the  machine  gained  ground. 
Cotton,  an  exotic,  had  never  been  spun  extensively  outside  the 
actual  manufacturing  districts.  As  a  result  the  work  passed  much 
more  quickly  than  that  of  spinning  wool  into  the  mills. 

In  fact  few  trades  remained  untouched  by  the  general  advance 
in  technique  and  the  movement  toward  a  more  capitalistic  organi- 
zation. To  the  steady  improvement  of  manufacturing  processes 
were  added  the  new  and  expensive  motor  power,  better  and  more 
complex  machines,  and  the  new  knowledge  of  the  natural  sciences. 


no  CURRENT  ECONOMIC  PROBLEMS 

Trades  ancillary  to  those  of  spinning  and  weaving,  such  as  calico- 
printing,  bleaching,  and  dyeing,  were  refashioned.  Machinery  and 
chemistry  began  to  influence  the  ancient  and  conservative  crafts  of 
tanning  and  leather-working.  In  pottery-making,  in  printing,  in 
brewing,  in  glass-making,  and  in  a  score  of  other  industries,  methods 
were  revised  and  the  scale  of  operations  for  the  individual  firm  ex- 
tended. The  power-driven  machine  took  hold  even  of  simple  crafts 
like  carpentry  and  shoemaking.  In  coal-mining  the  combined  effects 
of  the  new  power,  the  new  needs,  and  the  new  knowledge  were 
conspicuous.  It  was  in  the  mines  that  steam  had  first  been  used 
for  pumping.  Yet  all  these  things  were  but  small  beginnings  com- 
pared with  the  developments  of  the  later  nineteenth  century. 

The  system  of  transportation  consequent  upon  the  changes  men- 
tioned was  not  developed  until  well  in  the  nineteenth  century.  Turn- 
pikes tended  to  become  more  numerous  and  to  be  better  laid  and 
better  graded.  Work  on  harbors  and  estuaries  and  docks  was  un- 
dertaken concurrently  with  that  on  roads.  Canals  were  constructed. 
The  Napoleonic  wars  witnessed  the  beginnings,  the  peace  the  utili- 
zation of  steam  transport  both  on  land  and  sea.  It  was  in  the  year 
of  Waterloo  that  a  steamer  first  made  the  passage  from  London  to 
Glasgow.  Yet  progress  was  slow.  In  fact  the  second  quarter  of 
the  nineteenth  century  was  not  really  an  age  of  steam  navigation. 
On  land  a  more  real  and  rapid  revolution  occurred ;  but  it  remained 
incomplete  in  the  early  forties.  The  railway  found  the  reform  of 
the  old  means  of  transport  still  unfinished.  The  electric  telegraph, 
'which  was  joined  with  the  railway  to  create  the  modern  market,  had 
hardly  passed  the  experimental  stage;  and  the  shortsighted  critics 
who  could  treat  the  railway  as  a  mere  nuisance  or  a  novel  luxury 
had  but  recendy  been  silenced. 

C.     THE  NEW  INDUSTRIALISM 
50.     The  Function  of  CapitaP 

BY   J.    DORSE Y    FORREST 

Before  the  revolution  capital  had  little  significance  except  in 
agriculture  and  commerce.  Such  simple  tools  and  machines  as  were 
used  in  manufacturing  were  the  property  of  the  workmen  them- 
selves, and  consequently  had  no  such  social  importance  as  modern 
capital  has.  Except  for  the  introduction  of  the  great  mechanical 
devices  and  the  application  of  steam  power,  capital  could  never  have 
assumed  the  tremendous  importance  which  it  has  attained.     The 

^Adapted  from  The  Development  of  Western  Civilization,  pp.  331-38. 
Copyright  by  the  University  of  Chicago,  1906. 


THE  INDUSTRIAL  REVOLUTION  in 

function  of  capital,  then,  is  the  same  in  kind  as  it  was  before  the 
beginning  of  machine  industry,  but  the  quantitative  difference  is  so 
great  as  to  constitute  "capitahsm"  a  virtually  new  phenomenon. 

The  immensity  of  modern  industrial  undertakings  necessitates 
the  employment  of  the  surplus  wealth  of  the  entire  community.  No 
small  company  of  men  can  furnish  the  requisite  amount  of  capital. 
It  is  demanded  in  such  gigantic  quantities  that  it  cannot  be  supplied 
by  the  managers  of  industry,  nor  even  by  those  more  conspicuous 
capitalists  who  manipulate  stocks  and  shape  policies.  These  very 
wealthy  men  may  own  a  large  share  of  the  whole;  well-to-do  people 
who  take  no  active  part  in  business  management  also  own  a  large 
share ;  while  the  better  class  of  artisans  likewise  supply  hundreds 
of  millions  of  capital,  especially  of  that  floating  portion  which  is 
supplied  through  the  banks  for  the  payment  of  their  own  wages  and 
the  purchase  of  materials.  Modern  capitalistic  production  is  essen- 
tially co-operative. 

The  wide  ownership  of  the  means  of  production  is  an  indication 
of  the  social  character  of  production.  Practically  all  of  the  available 
wealth  of  society  is  now  directed  to  productive  uses.  If  a  completely 
socialistic  scheme  could  be  carried  out,  it  would  be  necessary,  unless 
society  should  confiscate  all  private  property  now  held,  to  obtain 
the  capital  from  those  who  are  now  furnishing  it.  If  public  bonds 
should  be  given  to  the  present  capitalists,  it  is  difficult  to  see  how 
the  new  system  would  differ  materially  from  the  present  one.  In 
short,  there  has  been  developed,  along  with  this  great  industrial  sys- 
tem, a  banking  and  credit  system  through  which  all  wealth  not  re- 
served for  consumption  may  be  made  available  for  production.  Be- 
fore the  industrial  revolution,  banking  was  of  very  minor  import- 
ance. At  present  the  enormous  banking  interests  of  all  civilized 
countries  and  the  equally  important  credit  arrangements  by  which 
capital  may  easily  be  turned  into  the  industries  which  need  it,  make 
possible  the  employment  of  the  resources  of  the  whole  society  in  the 
production  of  the  goods  desired  by  society. 

The  individual  is  compelled  to  serve  society  in  caring  for  his  own 
interests  by  turning  back  into  the  productive  processes  much  of  the 
profit  derived  from  invested  capital  or  managerial  ability.  The  in- 
"comes  of  the  wealthy  are  largely  turned  back  to  productive  purposes, 
making  possible  the  enlargement  of  plants,  the  employment  of  more 
laborers,  the  increase  of  production,  the  cheapening  of  prices.  In 
many  directions  the  consuming  capacity  of  the  individual,  rich  or 
poor,  is  limited.  Extravagant  consumption  is  possible  to  a  certain 
extent,  and  is,  perhaps,  a  growing  evil.  But  the  total  waste  of  the 
rich  is  probably  a  small  item  which,  if  saved  and  distributed  through- 
out the  whole  society,  would  be  of  little  consequence.    The  chief 


112  CURRENT  ECONOMIC  PROBLEMS 

use  which  the  wealthy  capitaHst  can  make  of  the  income  of  his  capital 
is  to  add  it  to  his  capital  and  employ  it  in  the  production  of  still  larger 
quantities  of  the  goods  of  common  consumption.  The  evil  of  the 
possession  of  great  wealth  lies  rather  in  the  unworthy  social  prestige 
and  opportunity  for  corrupt  use  which  its  possession  gives  to  the 
rich  than  in  the  greater  amount  of  goods  which  the  rich  consume. 
The  evils  connected  with  capitalism  should  not  blind  us  to  the  real 
efficiency  of  our  present  social  system  in  harmonizing  individual  and 
social  interests  by  controlling  all  surplus  wealth  in  the  interests  of 
society. 

51.     The  Factory  System" 

BY  CARL  BUCHER 

The  factory  system  organizes  the  whole  process  of  production ; 
it  unites  various  kinds  of  workers,  by  mutual  relations  of  control 
and  subjection,  into  a  compact  and  well-disciplined  body,  brings  them 
together  in  a  special  business  establishment,  provides  them  with  an 
extensive  and  complex  outfit  of  the  machinery  of  production,  and 
thereby  immensely  increases  their  productive  powers.  Just  as  in  an 
army  corps  ready  for  battle,  troops  of  varied  training  and  accoutre- 
ment.— infantry,  cavalry,  and  artillery  regiments,  pioneers,  engineers, 
ammunition  columns,  and  commissariat — are  welded  into  one,  so 
under  the  factory  system  groups  of  workers  of  varied  skill  and  equip- 
ment are  united  and  enabled  to  accomplish  the  most  difficult  tasks  of 
production. 

The  secret  of  the  factory's  strength  for  production  thus  lies  in 
the  effective  utilization  of  labor.  To  accomplish  this,  it  takes  a  peculiar 
road,  which  at  first  appears  circuitous.  It  divides  as  far  as  possible 
all  the  work  necessary  to  a  process  of  production  into  its  simplest 
elements,  separates  the  difficult  from  the  easy,  the  mechanical  from 
the  intellectual,  the  skilled  from  the  rude.  It  thus  arrives  at  a  system 
of  successive  functions,  and  is  enabled  to  employ  simultaneously  and 
successively  human  powers  of  the  most  varied  kind — trained  and 
untrained  men,  women  and  children,  workers  with  the  hand  and 
head,  workers  possessing  technical,  artistic,  and  commercial  skill. 
The  restriction  of  each  individual  to  a  small  section  of  the  process 
effects  a  mighty  increase  in  the  volume  of  work  turned  out.  A  hun- 
dred workmen  in  a  factory  accomplish  more  than  a  hundred  inde- 
pendent master  craftsmen,  although  each  of  the  latter  understands 
the  whole  process,  while  none  of  the  former  understands  more  than 
a  small  part  of  it. 

^  Adapted  from  Industrial  Evolution,  pp.  i7Z-7^,  translated  by  S.  Morley 
Wickett.     Copyright  by  Henry  Holt  &  Co.,  1900. 


TEE  INDUSTRIAL  REVOLUTION  113 

The  machine  is  not  the  essential  feature  of  the  factory,  although 
the  subdivision  of  work  just  described  has,  by  breaking  up  labor 
into  simple  movements,  multiplie.d  the  application  of  machinery.  Its 
application  attained  its  present  importance  only  when  men  succeeded 
in  securing  a  motive  power  that  would  work  unintermittently,  uni- 
formly and  ubiquitously,  namely,  steam.  An  example  will  illustrate. 
In  1787  the  canton  of  Zurich  had  34,000  male  and  female  hand-spin- 
ners producing  cotton  yarn.  After  the  introduction  of  English  spin- 
ning machines  a  few  factories,  employing  one-third  the  former  num- 
ber of  workers,  produced  an  even  greater  quantity  of  thread.  What 
is  the  explanation?  The  machine?  But  was  not  the  former  spin- 
ning-wheel a  machine?  Certainly  it  was,  and  a  very  ingenious  one. 
Machine  was  thus  ousted  by  machine.  Or  better,  the  entire  spinning 
process  had  been  decomposed  into  its  simplest  elements,  and  per- 
fectly new  operations  had  arisen  for  which  even  immature  powers 
could  in  part  be  utilized. 

In  the  subdivision  of  work  originate  these  further  peculiarities 
of  factory  production — the  necessity  of  manufacturing  on  a  large 
scale,  the  requirement  of  a  large  capital,  and  the  economic  depend- 
ence of  the  workman. 

Finally,  its  large  fixed  capital  assures  to  factory  work  greater 
steadiness  in  production  than  was  possible  under  other  systems.  The 
manufacturer  must  go  on  producing,  because  he  fears  loss  of  interest 
and  shrinkage  in  the  value  of  his  fixed  capital,  and  because  he  can- 
not afford  to  lose  his  trained  body  of  workmen. 

52,     The  Machine  Process' 

BY  THORSTEIN  VEBLEN 

In  its  bearing  on  modern  life  and  modern  business,  the  "machine 
process"  means  something  more  comprehensive  and  less  external 
than  a  mere  aggregation  of  mechanical  appliances.  The  civil  engineer, 
the  mechanical  engineer,  the  mining  expert,  the  industrial  chemist — 
the  work  of  all  these  falls  within  the  limits  of  the  modern  machine 
process.  The  scope  of  the  process  is  larger  than  the  machine.  Many 
agencies  which  are  not  to  be  classed  as  mechanical  appliances  have 
been  drawn  into  the  process,  and  have  become  integral  factors  in  it. 
Wherever  manual  dexterity,  the  rule  of  thumb,  and  the  fortuitous 
conjectures  of  the  seasons  have  been  supplanted  by  a  reasoned  pro- 
cedure on  the  basis  of  a  systematic  knowledge  of  the  forces  em- 
ployed, there  the  mechanical  industry  is  to  be  found,  even  in  the 
absence  of  intricate  mechanical  contrivances.    It  is  a  question  of  the 

'^  Adapted  from  The  Theory  of  Business  Enterprise,  pp.  5-19.  Copyright 
by  Charles  Scribner's  Sons,  1904. 


114  CURRENT  ECONOMIC  PROBLEMS 

character  of  the  process  rather  than  a  question  of  the  contrivances 
employed.  Chemistry,  agricultural,  and  animal  industries,  as  carried 
on  by  modern  methods  and  in  due  touch  with  the  market,  are  to  be 
included  in  the  modern  complex  of  mechanical  industry. 

Not  one  of  the  processes  carried  on  by  the  use  of  a  given  outfit 
of  appliances  is  independent  of  other  processes  going  on  elsewhere. 
Each  draws  upon  and  presupposes  the  proper  working  of  many  other 
processes  of  a  similar  mechanical  character.  Each  of  the  processes 
in  the  mechanical  industries  follows  some  and  precedes  other  proc- 
esses in  an  endless  sequence,  into  which  each  fits  and  to  the  require- 
ments of  which  each  must  adapt  its  own  working.  The  whole  concert 
of  industrial  operations  is  to  be  taken  as  a  machine  process,  made 
up  of  interlocking  detail  processes,  rather  than  as  a  multiplicity  of 
mechanical  appliances  each  doing  its  particular  work  in  severalty. 
The  whole  makes  a  more  or  less  delicately  balanced  complex  of  sub- 
processes. 

Looked  at  in  this  way  the  industrial  process  shows  two  well- 
marked  general  characteristics :  (a)  the  running  maintenance  of 
interstitial  adjustments  between  the  several  sub-processes  or  branches 
of  industry ;  and  (h)  an  unremitting  requirement  of  quantitative  pre- 
cision, accuracy  in  point  of  time  and  sequence,  in  the  proper  inclusion 
or  exclusion  of  forces  affecting  the  outcome,  in  the  magnitude  of  the 
various  physical  characteristics,  weight,  size,  density,  etc.,  of  the 
materials  handled  as  well  as  the  materials  used.  This  requirement  of 
mechanical  accuracy  and  nice  adaptation  to  specific  uses  has  led  to  a 
gradual  enforcement  of  uniformity,  to  a  reduction  to  staple  grades 
and  staple  character  in  the  materials  handled,  and  to  a  thorough 
standardizing  of  tools  and  units  of  measurement.  Standard  physical 
measurements  are  the  essence  of  the  machine  regime. 

Standardization  has  outrun  urgent  industrial  needs  and  has  pene- 
trated every  corner  of  the  mechanical  industries.  Modern  communi- 
ties show  an  unprecedented  uniformity  in  legally  adopted  weights  and 
measures.  As  a  matter  of  course  tools  and  the  various  structural 
materials  used  are  made  of  standard  sizes,  shapes,  and  gauges.  The 
adjustment  and  adaptation  of  part  to  part  and  of  process  to  process 
has  passed  out  of  the  category  of  craftsmanlike  skill  into  the  category 
of  mechanical  standardization.  Modern  industry  has  little  use  for, 
and  can  make  little  use  of,  what  does  not  conform  to  the  standard. 
This  latter  calls  for  too  much  of  craftsmanHke  skill,  reflection,  and 
individual  elaboration,  and  is  therefore  not  available  for  economic 
use  in  the  processes.  Irregularity  is  itself  a  fault  in  any  item,  for 
it  brings  delay,  and  a  delay  at  any  point  means  a  more  or  less  far- 
reaching  and  intolerable  retardation  of  the  comprehensive  industrial 
process  at  large. 


THE  INDUSTRIAL  REVOLUTION  115 

The  materials  and  moving  forces  of  industry  are  undergoing  a 
like  reduction  to  staple  kinds,  styles,  grades,  and  gauges.  The  like 
is  true  of  finished  products.  As  regards  the  mass  of  civilized  man- 
kind, the  idiosyncrasies  of  the  individual  consumers  are  required 
to  conform  to  the  uniform  gradations  imposed  upon  consumable  goods 
by  the  comprehensive  mechanical  processes  of  industry.  Because  of 
this  it  follows  that  the  demand  for  goods  settles  upon  certain  defined 
lines  of  production  which  handle  certain  materials  of  definite  grade, 
in  certain,  somew'hat  invariable,  forms  and  proportions.  Standardiza- 
tion means  economy  at  nearly  all  points  of  the  process  of  supplying 
goods,  and  at  the  same  time  it  means  certainty  and  expedition  at 
nearly  all  points  in  the  business  operations  involved  in  meeting  cur- 
rent wants.  It  also  reduces  the  interdependence  of  business  to  more 
definite  terms.  Machine  production  also  leads  to  a  standardization 
of  services. 

By  virtue  of  this  concatenation  of  processes  the  modern  industrial 
system  at  large  bears  the  character  of  a  comprehensive,  balanced  me- 
chanical process.  To  an  efficient  working  of  this  industrial  process 
at  large,  the  various  constituent  sub-processes  must  work  in  due 
coordination  throughout  the  whole.  Any  degree  of  maladjustment  in 
some  degree  hinders  its  working.  Similarly,  any  detailed  process  or 
industrial  plant  will  do  its  work  to  full  advantage  only  when  due 
adjustment  is  had  between  its  work  and  the  work  done  by  the  rest. 
The  more  fully  a  given  industry  has  taken  on  the  character  of  a 
mechanical  process,  the  more  urgent  is  the  need  of  maintaining  proper 
working  arrangements  with  other  industries, 

SS.'^^The  New  Domestic  System^ 

BY  HERBERT  J.   DAVENPORT 

So  long  as  industry  held  its  place  in  the  home — down,  that  is,  to 
the  close  of  the  handicraft  era — even  the  palace  and  the  castle  re- 
tained their  share  of  industrial  activity.  Under  the  supervision  of 
the  lady-mistress,  the  spinning  maiden  and  the  weavers  were  at 
their  tasks.  In  truth  each  great  dame  was  a  lady  in  the  strict  and 
early  sense  of  the  word,  a  bread-dispenser,  the  mistress  of  an  ex- 
tended and  active  and  intricately  organized  domestic  activity — a 
serious  and  absorbing  and  difficult  function  for  which  the  training 
was  arduous  and  in  which,  in  the  actual  doing,  the  tests  of  efficiency 
were  manifest  and  severe. 

But  now,  with  the  complete  establishment  of  the  typically  mod- 
ern organization  of  industry,  have  arrived  fundamental  changes  in 

^Adapted  from  an  unpublished  address  entitled  "The  Economics  of 
Feminism,"  1914. 


ii6  CURRENT  ECONOMIC  PROBLEMS 

the  organization  of  the  home — changes  to  which  no  adequate  read- 
justments have  as  yet  been  devised.  The  flax  and  the  hemp  are  no 
longer  there  for  preparation.  The  spinning  has  migrated  to  the 
factory.  The  weaving  is  done  by  the  great  machines.  The  cutting 
and  the  making  of  garments  have  departed.  The  butter  is  churned 
at  the  creamery.  More  and  more  the  bakeries  are  furnishing  us  with 
our  bread.  Gas  and  electricity  leave  no  room  for  candle-making,  or 
even  for  the  filling  and  the  care  of  lamps.  The  jam,  the  pickles,  and 
the  preserves,  we  buy  of  the  grocer.  There  are  no  more  festoons  of 
dried  apples  in  the  attic.  The  smoking  of  the  ham  and  the  bacon  the 
packer  does  for  us,  along  with  the  killing  and  the  cleansing.  There 
is  no  longer  any  leaching  of  ashes  or  boiling  of  soap  to  be  done  in 
the  backyard.  The  steam  laundry  cleans  and  irons  for  us,  and  fades 
out  and  wears  out  for  us,  the  garment  which  the  factory  has  provided 
for  ready  use.  The  electric  sweeper  cleans  our  floors,  the  while  that 
the  day  laborer  runs  it,  and  the  dry-cleaner  and  the  pantatorium  care 
for  our  suits  and  our  gowns.  The  mother  no  longer  teaches  her 
children  at  the  knee,  sending  them  instead  to  the  tax-paid  employee 
of  the  schools.  ^ 

Yet  somehow,  with  all  its  occupations  gone,  the  home  still  retains 
its  exterior  seeming  and  organization ;  and  somehow  also  is  so  busy 
a  place  that,  if  it  conform  at  all  to  the  standard  and  ideal  of  American 
life,  it  requires  an  ever-larger  array  of  housemaids  and  nurse  girls. 
Still  our  women  folk  grow  worn  and  tired  with  its  burdens,  and,  if 
the  housemaid  fails,  even  desperate.  Ill  health,  dyspepsia,  and 
nervous  breakdown  are  increasingly  feminine  phenomena.  Along 
with  it  all,  a  strange  accompaniment,  there  are  fewer  and  fewer  chil- 
dren to  be  reared  as  the  time  of  the  mother  ought  to  be  more.  Race 
suicide  confronts  our  modern  societies. 

It  is  evident  that  the  machine  industry  and  the  cheapened  processes 
of  production  have  taken  away  from  women  in  large  part  their 
fundamental  economic  functions.  Things  have  grown  too  cheap  to 
be  done  by  the  old  domestic  time-consuming  methods.  As  mere  mat- 
ters of  dollars  and  cents  production  can  take  place  in  the  home  only 
at  a  cost  greater  than  the  purchase  price  on  the  market.  There  is  no 
place  for  the  home  woman  in  the  industrial  activities  of  the  present 
society. 

But  something  quite  other  has  been  the  meaning  of  the  new  in- 
dustrial processes  for  the  life  and  the  labor  of  men.  The  new  ma- 
chinery has  served  to  provide  them  with  tools  by  which  vastly  to 
enlarge  the  field  of  their  effort,  and  to  multiply  their  accomplishment 
in  every  single  field.  No  matter  what  the  deficiencies  in  the  organ- 
ization of  all  this  new  power,  men  have  not  grown  idle  or  sluggish. 
They  have  not  forfeited  their  functions,  their  jurisdiction,  their 
aspirations,  or  their  accomplishment. 


THE  INDUSTRIAL  REVOLUTION  117 

But  the  history  of  the  race  does  not  indicate  that  to  men  exclu- 
sively belongs  the  duty  or  the  privilege  of  labor,  or  that  the  present 
economic  status  of  women  is  an  adequate  certification  of  progress 
in  civilization.  If  women  should  not  work,  why  should  men?  If 
self-respecting  man  must  work,  by  what  title  is  it  now  honorific  to 
women  to  be  idle?  We  have  arrived  at  an  unfortunate  reversal  of 
an  earlier  institution.  In  early  society,  an  almost  crushing  amount 
of  labor  fell  upon  the  female;  under  modern  conditions  among  the 
fully  civilized  classes  an  unduly  excessive  share  devolves  upon  the 
male. 

The  explanation  of  the  existing  situation  is  chiefly  in  modern 
technology.  The  fault  is  in  the  failure  of  society  to  work  out  those 
readjustments  by  which  a  significant  share  in  the  world's  work  shall 
be  preserved  for  women,  either  within  the  home  or  outside  of  it. 
When  the  home  is  losing  its  economic  utility,  it  can  be  available  for 
those  men  alone  who,  being  able  to  afford  the  luxury,  are  disposed 
to  pay  the  attendant  price.  The  increasing  expensiveness  of  the  home 
under  modern  conditions,  its  restriction  of  function  to  mere  consump- 
tion and  spending,  explains  the  progressive  swerving  of  men  away 
from  it,  and  the  derivative  and  increasing  horde  of  homeless  and 
childless  women  outside. 

Women  breadwinners  within  the  home  our  present  American  life 
doubtless  has.  But  of  these  it  holds  true,  as  of  the  women  of  the 
factory,  the  shop,  or  the  street,  that,  although  belonging  by  sheer 
necessity  to  our  American  life,  they  yet  have  no  place  in  that  society 
which  America  holds  as  its  ideal.  They  are  our  unfortunates  among 
women,  in  that  they  have  not  found  each  her  man,  and  attached  him 
to  her  to  work  for  her,  to  shelter  her  from  all  productive  effort,  and 
to  support  her.  For  it  is  the  grievous  fact  that  the  American  ideal 
of  reputable  living  denies  to  women  the  role  of  economic  producer 
and  commiserates  the  girl  who  does  not  marry  into  a  life  of  pecuniary 
ease ;  prescribes  as  a  duty  upon  any  self-respecting  man  that  he 
neither  offer  nor  enter  marriage  if  his  wife  need  be  more  than  deco- 
ratively  active ;  and,  if  he  fail  of  this,  insults  her  with  pity  and  him 
with  contempt. 

It  is  in  the  cause  of  motherhood  that  we  make  our  protest  against 
the  typical  home  of  the  American  ideal.  The  economic  dependence 
of  women  cannot  be  defended  by  the  test  of  children;  they  are  in 
inverse  ratio  to  the  room  for  them.  The  poor  alone  can  afford  to  be 
prolific. 

But  not  all  housebound  women  would  confess  themselves  to  be 
idle.  Think  how  absorbing  and  complicated  the  keeping  of  the  home 
has  become :  its  meticulous  refinement,  its  ornate  entertainments,  its 
keeping  busy — absorbed  in  the  empty  competition  of  modern  house- 
furniture  and  bric-a-brac  for  dusting,  its  curtains  for  cleaning,  its 


ii8  CURRENT  ECONOMIC  PROBLEMS 

rugs  for  beating.  Busy  indeed  these  women  will  be — but  busy  in 
keeping,  in  the  collection  of  work-compelling  plunder,  in  the  main- 
tenance of  exhibition  rooms,  and  in  the  general  annihilation  of  com- 
fort. The  two  hours'  labor  that  should  suffice  for  all  rational  dailv 
needs,  were  there  only  something  else  to  do,  is  devoted  to  the  prepa- 
ration of  mayonnaise  dressings  or  to  the  concoction  of  snow  puddings, 
or  to  other  certification  of  useless  skill.  Dishwashing,  instead  of  com- 
ing thrice  a  week,  comes  three  times  a  day.  The  laundry  work  piles 
up  to  the  proportions  of  a  nightmare.  The  one  child,  wearied  by  over- 
dressing and  spoiled  by  fussing  care,  pines  for  the  forbidden  joys  of 
dirt  and  bare  feet.  Acquiescing  in  all  this  futility,  the  housewife  find*, 
enough  her  mere  labors  of  supervision. 

Meanwhile,  the  man  whose  business  it  is  to  pay  the  bills  is  busy 
enough  in  the  process — too  busy,  indeed,  in  making  the  income  to 
have  either  the  time  or  the  taste  for  the  spending  of  it.  But  no  pity 
is  due  to  this  tired  captain  of  industry,  or  this  busy  moiler  in  trade 
or  finance  for  the  burden  he  carries.  He  may,  no  doubt,  appear  to 
be  a  mere  pack-animal  in  the  service  of  his  family — a  weary  though 
willing  slave  to  their  folly — a  man  solely  occupied  in  canceling  the 
bills  they  are  busy  in  contracting.  But  he  is  aiming  at  his  own  glory. 
To  the  women,  as  helpless  victims  of  the  competition  of  display,  the 
function  of  spending  has  been  delegated.  Institutionally  the  wife  is 
a  mere  agent  in  the  process.  Not  only  must  she,  to  the  degree  that 
her  lord  is  wealthy  or  is  aping  the  possessors  of  wealth  avoid  whatever 
remnant  of  useful  activity  is  open  to  her,  lest  the  suspicion  of  need 
should  attach  to  shame  him ;  but  also,  by  waste  and  lavish  outlay, 
must  she  place  upon  exhibit  and  in  continuous  view  the  wealth  and 
achievements  of  her  master.  In  this  process  of  certifying  the  fact  of 
his  financial  prowess  by  seeming  to  spend  upon  herself,  she  seems 
to  afford  both  motive  and  excuse  for  gaining  the  wealth.  Such  glory 
as  belongs  to  her  part  is  in  being  the  wife  of  such  a  one,  and  in  the 
delusion  that  he  is  making  the  money  for  her  spending,  rather  than 
that  she  is  spending  it  for  his  glory.  The  personal  relation  easily 
obscures  the  larger  meanings  of  the  institutional  fact. 

D.     THE  WORLD  OF  LABOR 
54.     Why  Labor  Resists  Machines^ 

BY  EDWIN  CAN  NAN 

When  we  work  directly  for  ourselves  we  welcome  with  joy  meth- 
ods and  appliances  which  reduce  the  labor  of  obtaining  any  particular 

''Adapted  from  The  Influence  of  War  on  Commercial  Policy  (in  "Re- 
organization of  Industry  Series,"  III),  pp.  37-38.  Published  by  the  Council 
of  Ruskin  College,  London,  1917. 


THE  INDUSTRIAL  REVOLUTION  119 

article,  even  if  we  want  little  or  no  more  of  the  article  than  we  have 
been  getting.  Just  now  we  all  garden  for  ourselves  and  know  how 
nice  it  is  to  get  a  more  effective  tool  or  to  learn  of  some  method  which 
saves  labor  in  digging  and  hoeing.  We  do  not  regret  the  lost  labor. 
Nor  do  we  make  reservations  in  favor  of  skilled  labor:  we  cheer- 
fully scrap  our  laboriously  acquired  talents  if  they  are  rendered  un- 
necessary by  the  discovery  of  new  methods  or  implements.  The 
situation  is  obviously  the  same  whenever  a  number  of  people  co-oper- 
ate consciously.  There  is  no  reason  to  suppose  that  a  purely  com- 
munistic society  would  have  the  slightest  objection  to  adopting  labor- 
saving  methods  or  appliances :  the  labor  saved  would  be  regarded  as 
a  pure  gain,  since,  if  little  or  no  more  of  the  article  produced  by  it  is 
required,  it  can  be  applied  in  other  directions,  with  the  result  of  an 
increased  total  of  desirable  results,  or  it  could  be  simply  abandoned 
in  favor  of  greater  leisure. 

But  when  we  co-operate  unconsciously  by  way  of  selling  our  own 
products  and  buying  those  of  other  people  with  the  proceeds,  changes 
in  the  direction  of  labor-saving  generally  have  an  unpleasant  side.  It 
may  happen,  of  course,  that  the  demand  for  the  article  is  so  elastic 
that  when  its  production  is  made  twice  as  easy  and  the  price  falls  to 
one-half  of  what  it  was,  a  double  quantity  will  be  sold.  In  that  case 
no  inconvenience  will  be  felt :  there  will  be  no  reduction  of  employ- 
ment in  producing  the  article.  People  are  apt  to  think  that  this  should 
always  be  so,  but  in  fact,  of  course,  the  demand  for  most  things  is 
not  and  cannot  be  so  elastic.  It  is  much  more  usual  for  the  demand 
to  be  such  that  an  increase  of  production  proportionate  to  the  reduc- 
tion of  labor  will  cause  such  a  fall  of  price  that  there  will  be  less 
available  for  the  remuneration  of  labor,  so  that  if  all  the  previous 
workers  insist  on  continuing,  their  position  will  be  worsened ;  the 
same  number  can  only  be  employed  if  they  submit  to  reduced  earn- 
ings, otherwise  some  must  be  excluded,  which  of  course  involves 
hardship,  or  at  the  very  least  inconvenience,  varying  in  degree  chiefly 
with  the  suddenness  of  the  change.  There  is,  of  course,  nothing  ex- 
ceptional or  anomalous  in  this.  In  the  case  of  an  individual  produc- 
ing things  for  himself,  a  transfer  of  labor  from  one  kind  of  produc- 
tion to  another  can  be  effected  without  inconvenience  of  hardship  by 
the  exercise  of  the  sovereign  power  wielded  by  his  brain.  In  the 
case  of  a  communistic  society  transfers  of  labor  from  one  occupation 
to  another  would  be  effected  similarly  without  hardship  to  the  persons 
concerned  by  simple  decree  of  the  labor  ministry  or  whatever  depart- 
ment of  government  was  intrusted  with  the  distribution  of  individuals 
between  employments.  But  in  society  as  we  have  it,  people  are^  at- 
tracted into  employments  and  deterred  from  joining  them,  kept  in 


I20  CURRENT  ECONOMIC  PROBLEMS 

them  and  driven  out  of  them,  by  the  different  and  changing  compara- 
tive advantages  which  they  offer  as  means  of  earning  a  Hving.  Recog- 
nition of  this  hardship  is  of  course  the  most  substantial  cause  of  the 
sympathy  which  is  widely  felt  with  those  who  resist  labor-saving 
methods  and  appliances. 

55.     Labor's  Willing   Slaves^° 

BY  EDWIN  ARNOLD 

Look  at  common  modern  existence  as  we  see  it,  and  note  to  what 
rich  elaboration  and  large  degrees  of  comfort  it  has  come.  I  invite 
you  briefly  to  contemplate  the  material  side  of  an  artisan's  existence 
in  your  own  Birmingham.  Let  alone  the  greatness  of  being  an  Eng- 
lishman, and  the  supreme  safety  and  liberty  of  his  daily  life,  what 
king  of  old  records  ever  fared  so  royally?  What  magician  of  fairy 
tales  ever  owned  so  many  slaves  to  bring  him  treasures  and  pleasures 
at  a  wish  ?  Observe  his  dinner-board.  Without  being  luxurious,  the 
whole  globe  has  played  him  serving-man  to  spread  it.  Russia  gave  the 
hemp,  orW;ndia,  or  South  Carolina  the  cotton,  for  that  cloth  which 
his  wife  lays  upon  it.  The  Eastern  islands  placed  there  those  con- 
diments and  spices  which  were  once  the  secret  relishes  of  the  wealthy. 
Australian  downs  sent  him  frozen  mutton  or  canned  beef,  the  prairies 
of  America  meal  for  his  biscuit  and  pudding;  and  if  he  will  eat  fruit, 
the  orchards  of  Tasmania  and  the  palm  woods  of  the  West  Indies 
proffer  delicious  gifts,  while  the  orange  groves  of  Florida  and  of  the 
Hesperides  cheapen  for  his  use  those  "golden  apples"  which  dragons 
used  to  guard.  His  coffee  comes  from  where  the  jeweled  humming- 
birds hang  in  the  bowers  of  Brazil,  or  purple  butterflies  flutter  amid 
the  Javan  mangroves.  Great  clipper  ships,  racing  by  night  and  day 
under  clouds  of  canvas,  convey  to  him  his  tea  from  China  or  Assam, 
or  from  the  green  Singhalese  hills.  The  sugar  which  sweetens  it  was 
crushed  from  canes  that  waved  by  the  Nile  or  the  Orinoco ;  and  the 
plating  of  the  spoon  with  which  he  stirs  it  was  dug  for  him  from 
Mexican  or  Nevadan  mines.  The  currants  in  his  dumpling  are  a 
tribute  from  classic  Greece,  and  his  tinned  salmon  or  kippered  her- 
ring are  taken  from  the  seas  and  rivers  of  Canada  or  Norway.  He 
may  partake,  if  he  will,  of  rice  that  ripened  under  the  hot  skies  of 
Patna  or  Rangoon ;  of  cocoa,  that  "food  of  the  gods,"  plucked  under 
the  burning  blue  of  the  equator.  For  his  rasher  of  bacon,  the  hog 
express  runs  daily  with  10,000  grunting  victims  into  Chicago ;  Dutch 
or  Brittany  hens  have  laid  him  his  eggs,  and  Danish  cows  grazed  the 
daisies  of  Elsinore  to  produce  his  cheese  and  butter.     If  he  drinks 

i^Adapted  from  an  address  delivered  at  the  Birmingham  and  Midland 
Institute,  October  10,  1893. 


THE  INDUSTRIAL  REVOLUTION  121 

beer,  it  is  odds  that  Belgium  and  Bavaria  have  contributed  to  it  the 
barley  and  the  hops ;  and  vi^hen  he  has  finished  eating,  it  will  be  the 
Mississippi  flats  or  the  gardens  of  the  Antilles  that  fill  for  him  his 
pipe  with  the  comforting  tobacco.  He  has  fared,  I  say,  at  home  as 
no  Heliogabalus  or  Lucullus  ever  fared ;  and  then,  for  a  trifle,  his 
daily  newspaper  puts  at  his  command  information  from  the  whole 
globe,  the  freshness  and  fulness  of  which  make  the  newsbearers  of 
Augustus  Caesar,  thronging  hourly  into  Rome,  ridiculous.  At  work, 
machinery  of  wonderful  invention  redeems  his  toil  from  servitude, 
and  elevates  it  to  an  art.  Is  he  fond  of  reading?  There  are  free 
libraries  open  to  him,  full  of  intellectual  and  imaginative  wealth.  Is 
he  artistic?  Galleries  rich  with  beautiful  paintings  and  statues  are 
prepared  for  him.  Has  he  children  ?  They  can  be  educated  for  next 
to  nothing.  Would  he  communicate  with  absent  friends?  His  mes- 
sengers pass  in  the  Queen's  livery,  bearing  his  letters  everywhere  by 
sea  and  land ;  or  in  hour  of  urgency  the  Ariel  of  electricity  will  flash 
for  him  a  message  to  the  ends  of  the  Kingdom  at  the  price  of  a  quart 
of  small-beer.  Steam  shall  carry  him  wherever  he  would  go  for  a 
halfpenny  a  mile ;  and  when  he  is  ill  the  charitable  institutions  he 
has  too  often  forgotten  in  health  render  him  such  succor  as  sick  god- 
desses never  got  from  Aesculapius,  nor  Ulysses  at  the  white  hands  of 
Queen  Helen.  Does  he  encounter  accident?  For  him  as  for  all 
others  the  benignant  science  of  our  time,  with  the  hypodermic  syringe 
or  a  waft  of  chloroform,  has  abolished  agony;  while  for  dignity  of 
citizenship,  he  may  help,  when  election  time  comes,  by  his  vote  to 
sustain  or  to  shake  down  the  noblest  empire  ever  built  by  genius  or 
valor.  Let  fancy  fill  up  the  imperfect  picture  with  those  thousand 
helps  and  adornments  that  civilization  has  brought  even  to  lowly 
lives ;  and  does  it  not  seem  stupid  and  ungrateful  to  say,  as  some 
go  about  saying,  that  such  an  existence,  even  if  it  were  transitory,  is 
not  for  itself  distinctly  worth  possessing? 

56.     The  Wage  Slaves" 

BY  ALLAN  L.  BENSON 

Poverty  did  not  go  out  when  steam  and  electricity  came  in.  On 
the  contrary,  the  fear  of  want  became  intensified.  Nobody  who  has 
not  capital  can  live  unless  he  can  get  a  job.  In  the  days  that  preceded 
the  steam  engine,  nobody  had  to  look  for  a  job.  The  shoemaker 
could  make  shoes  for  his  neighbors.  The  weaver  could  weave  cloth. 
Each  could  work  at  his  trade  without  anybody's  permission,  because 
the  tools  of  his  trade  were  few  and  inexpensive.     Now  neither  of 

11  Adapted  from  The  Truth  about  Socialism,  pp.  6-7.  Copyright  by  the 
author,  191 1. 


122  CURRENT  ECONOMIC  PROBLEMS 

them  can  work  at  his  trade,  because  the  tools  of  his  trade  have  become 
numerous  and  expensive.  The  tools  of  the  shoemaker's  trade  are  in 
the  great  factory  that  covers,  perhaps,  a  dozen  acres.  The  tools  of  the 
weaver's  trade  are  in  another  enormous  factory.  Neither  the  shoe- 
maker nor  the  weaver  can  ever  hope  to  own  the  tools  of  his  trade. 
Nor,  with  the  little  handtools  of  the  past  centuries,  can  either  of  them 
compete  with  the  modern  factories.  The  shoe  trust,  with  steam, 
electricity,  and  machinery,  can  make  a  pair  of  shoes  at  a  price  that 
no  shoemaker,  working  by  hand,  could  touch. 

Thus  the  handworkers  have  been  driven  to  knock  at  the  doors 
of  the  factories  that  rich  men  own  and  ask  for  work.  If  the  rich 
men  can  see  a  profit  in  letting  the  poor  men  work,  the  poor  men  are 
permitted  to  work.  If  the  rich  men  cannot  see  a  profit  in  letting 
the  poor  men  work,  then  the  poor  men  may  not  work.  Though  there 
be  the  greatest  need  for  shoes,  if  those  in  need  have  no  money,  the 
rich  men  lock  up  their  factories  and  wave  the  workers  away.  The 
workers  may  starve,  if  they  like.  Their  wives  and  children  may 
starve.  The  workers  may  become  tramps,  criminals,  or  maniacs ; 
their  wives  and  their  children  may  be  driven  into  the  street — but  the 
rich  men  who  closed  their  factories  because  they  could  see  no  profit 
in  keeping  them  open — these  rich  men  take  no  part  of  the  responsi- 
bility. They  talk  about  "the  laws  of  trade,"  go  to  their  clubs  and  have 
a  little  smoke,  and,  perhaps,  the  next  week  give  a  few  dollars  to 
"worthy  charity"  and  forget  all  about  the  workers. 

E.     NATIONAL  EXPRESSIONS  OF  INDUSTRIALISM 
57.     Individualism  and  American  Efficiency ^- 

BY   ARTHUR   SHADWELL 

The  United  States  is  new,  partly  developed,  and  untrammeled  by 
traditions.  It  is  not  a  homogeneous  country,  but  a  medley  of  peoples, 
nations,  languages,  creeds,  and  climates,  having  in  daily  life  little  in 
common  but  the  mail,  the  currency,  and  the  tariff.  The  British 
Empire  itself  hardly  comprises  a  more  heterogeneous  racial  assort- 
ment ;  it  has  the  white  man,  the  black,  the  red,  the  yellow,  and  the 
hybrid ;  the  yellow  includes  most  kinds  of  Asiatic  and  the  white, 
every  kind  of  European.  Soil  and  climate  are  no  less  varied  than  the 
population ;  and  though  laws  and  social  conditions  exhibit  more 
homogeneity,  yet  they  exhibit  large  and  numerous  discrepancies. 
Still  the  United  States  is  a  nation,  and  the  people  possess  some  dis- 
tinctive national  qualities,  well  worth  considering. 

i^Adapted  from  Industrial  Efficiency,  I,  1-47.  Published  by  Longmans, 
Green  &  Co.,  1900. 


THE  INDUSTRIAL  REVOLUTION  123 

In  general  they  are  alert,  inventive,  ingenious,  and  adventurous 
beyond  all  other  people,  but  hurried,  careless,  and  unthorough.  The 
merits  of  this  temperament  are  more  immediately  obvious  than  its 
defects.  The  roar  and  bustle  of  industrial  life  in  America,  the  ex- 
citement, the  abundance  of  novelty,  the  enormous  scale  of  operations, 
the  boundless  adventure,  the  playing  with  millions — all  these  impress 
the  mind  and  draw  attention  from  the  defects  which  they  foster  and 
conceal.  An  English  workman  who  had  lived  for  years  in  the  heart 
of  it,  where  the  smoke  is  thickest,  the  roar  of  machinery  loudest,  and 
the  sound  of  millions  most  common,  summed  it  up  better  than  anyone 
I  have  met.  "This  is  an  adventurous  country,"  he  said ;  "they  think 
nothing  of  millions;  but  it's  all  hurry-skurry  work.  Let  her  go! 
Give  her  hell !    That's  the  word." 

The  recklessness  is  magnificent,  and  I  suppose  that  at  present  it 
is  business  ;  but  that  is  because  the  country  is  not  yet  filled  up.  There 
seem  to  be  boundless  possibilities  within  the  reach  of  every  man,  and 
being  generally  intelligent,  alert,  and  ambitious  they  hurry  to  realize 
them.  If  a  man  fails  today  in  one  direction,  no  matter;  he  can  try 
again  tomorrow  in  another. 

The  Yankee  of  old,  as  presented  in  literature,  was  an  astute  but 
deliberate  person,  saying  very  incisive  things  in  a  slow,  drawling  way, 
quick  of  mind,  but  slow  of  movement,  not  to  be  hurried,  and  much 
given  to  "whittling,"  which  is  not  a  very  feverish  and  purposeful  oc- 
cupation. Does  anyone  whittle  now  ?  The  present  spirit  arose  with 
the  development  of  the  railway  system,  which  opened  up  the  coun- 
try, poured  in  the  population,  brought  the  natural  wealth  to  the 
market,  and  produced  the  millionaire.  Since  then  industrial  activity 
has  gone  with  a  rush.  There  was  money  to  start  industries  and  money 
to  be  made  out  of  them.  There  were  power  and  raw  materials  in  the 
ground ;  there  was  labor,  skilled  or  unskilled,  coming  along  all  the 
time.  There  was  nothing  to  hinder ;  no  enemies  to  watch,  no  army 
to  keep  up,  perfect  security  and  tranquillity.  A  great  industrial  ex- 
pansion was  inevitable ;  it  could  not  help  coming  and  bringing  with  it 
boundless  possibilities  of  wealth.  The  millionaire  multiphed,  swelled 
to  double,  treble,  tenfold  his  former  bulk,  and  set  such  a  glorious, 
shining,  dazzling  example  that  no  man  could  behold  it  unmoved.  In 
the  United  States  there  is  "equality  of  opportunity,"  and  all  men 
with  millionairedom  in  their  souls — a  numerous  body — felt  that  even 
if  they  could  not  reach  that  height  they  might  get  near  to  it.  So  the 
scramble  for  money  became  the  occupation  of  a  large  part  of  the 
people.    Hence  the  commercial  hurry-scurry. 

Trouble-saving,  rather  than  time-saving,  is  characteristic  of  the 
Americans.  It  is  the  former,  not  the  latter,  that  has  an  intimate  re- 
lation to  the  distinctive  qualities  of  their  industrial  success.    The  line 


124  CURRENT  ECONOMIC  PROBLEMS 

in  which  they  are  supreme  is  the  invention  of  labor-saving  machinery. 
They  possess  an  inexhaustible  fertility  in  devising  ingenious  con- 
trivances for  replacing  toil.  One  explanation  of  this  is  the  necessity 
of  minimizing  labor  because  of  its  high  cost.  No  doubt  that  is  a 
great  stimulus,  but  there  is  more  than  that.  There  is  a  positive  dis- 
like of  processes  involving  physical  exertion.  Perhaps  it  is  charge- 
able to  mental  activity  and  eventually  traceable  to  climate.  At  any 
rate  it  exhibits  the  paradoxical  combination  of  love  of  hurry  and 
dislike  of  bodily  exertion. 

These  qualities  have  a  weak  side.  They  are  fatal  to  thorough- 
ness and  finish  unless  these  can  be  attained  by  mechanical  means, 
which  is  very  rarely  the  case.  For  first-class  work  some  plodding 
is  required.  It  is  surely  remarkable  that  so  little  first-class  work 
of  any  kind  is  produced  in  the  United  States,  with  all  its  wealth, 
population,  intelligence,  and  educational  keenness.  All  the  recent 
discoveries  of  importance,  from  bacteria  to  radium,  have  come  from 
Europe.  The  number  who  go  into  the  profession  is  large,  and  they 
produce  a  great  deal  of  a  certain  quality,  but  nothing  really  first  class. 
They  never  carry  anything  to  its  legitimate  development,  to  the  point 
of  being  a  masterpiece.  What  is  wrong  is  an  attitude  of  mind  that 
has  never  gotten  beyond  adolescence. 

There  is  danger  that  slovenliness  may  become  a  national  habit. 
"Slovenliness  is  something  more  than  a  violation  of  good  taste ;  it  is 
indifference  to  the  best  way  of  doing  things ;  it  is  a  kind  of  easy- 
going morality  in  matters  of  method."  "Let  it  go  at  that"  seems  to 
be  written  all  over  the  face  of  the  land.  You  see  it  in  the  slovenliness 
of  their  language  ;  in  their  affectation  of  slovenliness  as  a  smart  thing. 
You  see  it  in  wretchedly  laid  railway  tracks,  in  swaying  telegraph 
poles,  in  sliding  embankments,  in  broken-down  vehicles  with  rickety 
wheels  too  slight  for  their  work,  in  harness  tied  up  with  a  string,  in 
scamped  and  hurried  work  everywhere.  There  seems  to  be  a  dis- 
dain of  thorough  workmanship  and  detail  in  finish. 

The  same  national  feeling  is  conspicuous  in  the  factory  and  work- 
shop. You  may  see  machinery  racketing  itself  to  pieces  and  spoiling 
the  material  in  the  attempt  to  run  faster  than  it  can ;  you  see  waste 
of  fuel  and  steam,  machinery  clogged  and  spoiling  for  want  of  care 
and  cleanliness,  the  place  in  a  mess  and  the  stuff  turned  out  in  a 
rough,  badly  finished  state.  When  you  see  this  over  and  over  again, 
you  begin  to  understand  why  the  United  States,  with  all  its  natural 
advantages,  requires  a  prohibitive  duty  on  foreign  manufactures 
which  it  ought  to  produce  better  itself. 

The  Americans  are  a  highly  emulative  people,  and  anxious  to 
beat  not  only  their  competitors  but  themselves.  "Beat  our  own 
record"  is  one  of  the  mottoes.  A  different  trait  is  embodied  in  another 


THE  INDUSTRIAL  REVOLUTION  125 

motto — "Don't  grumble,  boost."  One  method  of  boosting  in  America 
deserves  particular  attention,  that  of  advertisement.  In  this  Ameri- 
cans lead  the  world  so  successively  that  no  competitor  is  in  the  run- 
ning. Its  development  is  assisted  by  the  very  curious  trait  of 
toleration  of  shams.  Like  the  toleration  of  unfinished  work  with 
which  it  is  connected,  the  toleration  of  shams  is  pervasive.  It  is 
illustrated  in  daily  life  by  the  pretense  of  a  single  class  in  railway 
traveling,  by  the  use  of  such  euphemisms  as  "help"  for  servant  and 
"charity"  for  pauperism.  Almost  an  affection  for  shams  is  shown  in 
the  encouragement  given  to  every  kind  of  imposture.  America  is 
the  land  above  all  others  where  everything  that  appeals  to  credulity 
and  ignorance  flourishes.  It  is  there  that  new  religions  arise.  It  is 
there  that  the  medical  quackeries,  the  patent  foods,  the  beautifiers, 
and  all  that  gallery  flourish  most.  I  attribute  this  vogue  to  the  bound- 
less faith  of  Americans  in  their  own  country  as  the  pioneer  of  civiliza- 
tion and  enlightenment,  to  the  wide  diffusion  of  superficial  education, 
and  to  the  general  contempt  for  the  experience  of  mankind  at  large. 

They  have  no  reverence  for  what  is  old  and  proved  outside  their 
own  borders.  The  mass  of  people  believe  that  there  is  nothing  to 
learn  from  other  countries  and  that  all  things  are  possible  in  their 
own  land.  This  feeling  amounts  to  a  superstition.  In  Europe,  Ger- 
many, for  instance,  laws  are  made  to  be  kept,  and  to  that  end  they 
are  very  carefully  made.  In  the  United  States  the  general  contempt 
for  law  is  astonishing.  I  am  inclined  to  think  that  it  is  the  most 
salient  feature  of  American  civilization.  Laws  thought  to  be  op- 
pressive are  not  obeyed ;  they  are  evaded  or  defied.  I  know  no  coun- 
try in  which  laws  that  interfere  with  liberty  of  the  individual  are  so 
common.  They  seem  to  be  intended,  not  for  the  protection  of  the 
public  and  the  maintenance  of  order,  but  for  the  promotion  of 
morality.    Of  course,  they  cannot  possibly  be  enforced. 

The  position  of  woman  in  America  is  peculiar,  resting  upon  the 
accidental  fact  that  there  she  is  in  a  minority.  The  law  of  supply 
and  demand  gives  her  an  effective  advantage  which  the  theory  of 
equality  enables  her  to  utilize.  In  Europe,  women  are  subordinated ; 
in  America,  they  are  dominant.  In  the  former  they  take  orders ;  in 
the  latter  they  give  them.  In  the  former  the  man  is  the  boss ;  in  the 
latter,  the  woman.  The  ideal  wife,  I  suppose,  is  at  once  a  helpmeet 
and  a  stimulus.  In  Europe  the  former  predominates;  in  America, 
the  latter.  Each  exercises  a  powerful  influence  on  national  life.  In 
the  former  one  of  the  largest  elements  of  national  strength  is  the 
domestic  character  of  the  women.  In  the  latter  the  feminine  stimulus 
is  a  great  incentive  to  that  strenuous  application  and  restless  enter- 
prise which  stand  out  so  strongly.  Both  characters  have  their  weak 
points ;  the  helpmeet  is  likely  to  be  blunted  to  a  drudge,  the  stimulus  to 


126  CURRENT  ECONOMIC  PROBLEMS 

be  sharpened  to  a  goad.  Of  the  two  the  latter  is  the  greater  evil.  The 
spoiling  of  women,  though  it  makes  the  men  work,  is  not  good  for  the 
women ;  it  fosters  an  exacting  disposition,  extravagance,  love  of 
amusement,  and  a  distaste  for  domestic  duties  which  threatens  na- 
tional vitality,  and  it  reacts  on  the  men,  who  console  themselves  else- 
where for  exactions  submitted  to  at  home. 

But,  as  for  America,  there  is,  after  all,  a  spirit  in  the  air  which  is 
not  all  due  to  climate — the  spirit  of  endeavor,  of  expansion,  of  belief 
in  a  great  destiny  in  which  every  individual  shares.  It  is  an  inspiring 
atmosphere. 

58.     German  Socialized  Efficiency^^ 

BY  SAMUEL  P.  ORTH 

Is  Germany  a  model  for  our  democracy  ?  What  price  is  she  pay- 
ing for  her  well-advertised  efficiency?  How  is  her  paternalism 
affecting  humannature  ? 

The  lure  is  a  socialized  Germany.  The  state  owns  railroads,  canals, 
river  transportation,  harbors,  telegraphs,  and  telephones.  Banks,  in- 
surance, pawnshops,  are  conducted  by  the  state.  Municipalities  are 
landlords  of  vast  estates :  they  are  capitalists  owning  street  car  lines, 
gas  plants,  electric  light  plants,  theatres,  markets,  warehouses.  The 
cities  conduct  hospitals  for  the  sick,  shelters  for  the  homeless,  soup- 
houses  for  the  hungry,  asylums  for  the  weak  and  unfortunate,  nur- 
series for  the  babies,  homes  for  the  aged,  and  cemeteries  for  the  dead. 

Add  to  this  vast  and  complex  system  of  state  education,  a  system 
of  training  that  aims  at  livelihood.  Nothing  like  the  perfection,  the 
drill,  and  the  earnest,  unsmiling  efficiency  of  these  elementary  and 
trade  schools  exists  anywhere  else  in  the  world.  In  1907,  there  were 
9,000,000  children  in  the  elementary  schools,  taught  by  1 50,000  teach- 
ers, nearly  all  masters,  as  the  "school  ma'am"  does  not  flourish  in  th'^ 
Kaiser's  realm.  Every  one  of  these  pupils  is  headed  for  a  bread-and- 
butter  niche  in  this  land  of  super-orderliness.  More  than  300,000 
persons  are  employed  by  the  state  in  some  form  of  educational  work, 
training  the  youth  into  adeptness,  in  all  sorts  of  schools. 

The  army,  as  well  as  the  school,  brings  home  to  every  German 
family  the  fact  that  the  state  is  watchful — and  jealous.  It  demands 
that  the  two  full  years  of  every  young  man  be  "socialized";  and  the 
peasant  woman  and  the  artisan's  wife  must  contribute  her  toil  to 
the  toll  that  the  vast  system  of  state  discipline  demands. 

Even  the  Church,  that  form  of  organized  social  effort  which  is 
everywhere  first  to  break  away  from  the  regimen  of  the  state,  re- 

"Adapted  from  an  article  in  The  World's  Work,  XXVI,  315-21.  Copy- 
right, 1912. 


TBE  INDUSTRIAL  REVOLUTION  127 

mains  "established."  So  I  might  continue  through  almost  every 
activity — the  vast  system  of  state  railroads,  mines,  shipyards — and 
include  even  art  and  music. 

This  socialized  Germany  is  also  an  industrialized  Germany. 
Everyone  knows  how  cleverly  advertised  are  German  goods.  But  it 
is  always  well  to  remember  that  this  race  of  traders  and  manufac- 
turers has  somehow,  in  one  generation,  come  from  a  race  of  solid 
scholars,  patient  artisans,  and  frugal  peasants.  The  old  Germany 
has  disappeared ;  the  Germany  of  the  spectacles,  the  shabby  coat,  and 
the  book ;  the  Germany  of  Heidelberg  and  Weimar.  A  new  order  has 
taken  its  place.  As  you  ride  in  the  great  express,  from  Cologne  to 
Berlin,  you  never  are  out  of  sight  of  clusters  of  tall,  smoking  chim- 
neys. Symbolic  of  the  new  Germany  are  the  Deutsche  Bank,  the 
trade  of  Hamburg,  and  the  steel  works  of  Essen. 

How  has  it  been  possible  to  make  this  transformation  ?  To  create 
out  of  a  slow,  plodding,  peasant-artisan  people  an  industrialized 
population,  out  of  a  race  of  scholars  a  race  of  manufacturers  ;  to  fill  a 
land  no  larger  than  one-half  of  Texas  with  65,000,000  people  who 
are  breeding  at  the  rate  of  nearly  a  million  a  year,  and  to  engage  the 
state  in  doing  all  sorts  of  things  for  these  thriving  families?  It  is 
the  political  miracle  of  the  century,  and  its  socialized  efficiency  is  the 
talk  of  the  hour.    How  has  it  been  accomplished? 

The  Kaiser  has  adapted,  line  for  line  and  point  for  point,  the 
pattern  of  mediaeval  feudalism  to  the  exigencies  of  modern  indus- 
trialism. So,  to  begin  with,  the  Kaiser  has  an  obedient  people,  in 
whom  the  feudal  notion  of  caste  is  second  nature.  Everyone  has 
his  place,  and  shall  keep  it.  Such  shifting  as  now  is  tolerated  is  due 
to  wealth  and  to  the  kind  of  ambition  which  luxury  always  awakens. 

You  cannot  have  superimposed  classes  without  obedience.  The 
average  German  is  docile  and  wants  to  be  told  what  to  do. 

The  government  has  its  eager  hands  in  every  pocket,  its  anxious 
fingers  on  every  pulse.  From  the  cradle  to  the  grave,  the  state 
watches  the  individual,commands  him  and,  in  a  way,  cares  for  him ; 
always  seeing  to  it  that  he  has  a  place  in  the  national  economy  and 
that  he  keeps  it. 

To  an  outsider,  of  course,  the  inner  workings  of  the  mind  and 
heart  are  hidden.  But  the  outer  aspect  of  the  German  state  is  per- 
fectly patent.  It  is  mechanism — there  can  be  no  doubt  about  it — 
the  mechanism  of  the  solar  system.  It  is  a  land  where  every  mem- 
ber of  society  has  an  ordained  orbit  and  moves  in  it  around  the  cen- 
tral sun,  the  state,  which  radiates  a  mystic  gravitation  into  every 
activity — almost  every  thought — of  every  man,  woman,  and  child. 

Here  you  see  the  most  varied  activities  held  to  the  ideals  of 
efficiency  through  a  perfected  feudalism.    So  that  all  Carl  and  John 


128  CURRENT  ECONOMIC  PROBLEMS 

need  to  do  is  to  obey ;  then  they  are  taught  the  rudiments  of  learn- 
ing and.  a  trade,  are  insured  against  the  most  disturbing  episodes  of 
life,  assured  also  of  some  leisure,  considerable  amusement,  and  a 
decent  burial.    And  that  is  life ! 

Of  all  invented  contrivances  this  German  machine  is  the  most 
amazing,  this  vast  enginery  of  state  with  the  patents  of  Hohenzol- 
lern,  Bismarck  and  Company  on  every  part,  that  has  reduced  the  life 
of  a  great  people  to  complacent  routine  and  merged  the  rough  eccen- 
tricities of  all  into  a  uniformity  of  effort  s^d  ambition. 

It  is  true  that  John  and  Carl  can  live  their  ordered  lives  in  routine 
and  contentment,  rounding  out  year  after  year  of  plodding  toil,  pay- 
ing their  dues  to  the  various  funds  and  their  taxes  to  the  government, 
rearing  their  families,  and  intrusting  them  to  the  same  over-care. 
But  what  sort  of  creatures  does  it  make  of  John  and  Carl,  and  of 
their  children,  and  their  childrens'  children? 

There  is  no  exact  way,  not  even  a  German  way,  of  measuring 
originality,  individual  initiative,  and  independence.  But  this  also 
is  certain :  patience,  obedience,  minute  training,  do  not  foster  daring 
and  versatility.  John  and  Carl  settle  down,  literally  settle  down,  to 
an  uneventful  life,  looking  forward  to  no  change,  taking  no  risks, 
seeking  no  alternatives.  Once  a  butcher,  always  a  butcher.  This 
makes  Germany  depressing  to  a  restless  American  who  is  always 
willing  to  "go  it  alone"  and  to  get  "a  run  for  his  money." 

Some  years  ago,  Mr.  Ludwig  Max  Goldberger  gave  his  country- 
men the  cheering  news  that  Americans  need  not  be  feared,  because 
"all  that  they  have  done,  we  can  imitate."  This  is  an  actual  policy. 
I  have  been  told  by  American  manufacturers  that  they  have  found 
their  machines  so  exactly  copied  in  German  shops  that  only  the  ab- 
sence of  the  patent  dates  and  of  the  name  of  the  makers  told  them 
that  the  machines  were  not  made  in  the  American  shops.  Already 
this  land  of  drill  and  obedience  is  becoming  an  empire  of  conscious 
imitators. 

There  are  on  the  German  horizon  ominous  portents.  First  I 
should  place  the  moral  and  psychological  effects  of  luxury.  Few 
nations  can  stand  the  sapping  suction  of  plenty.  The  effect  of  the 
profligacy  that  is  everywhere  apparent  in  the  New  Germany  will  be 
particularly  swift  and  fatal  in  a  people  who  for  generations  have 
been  frugal  and  plain. 

On  top  of  this  wealth  is  an  imperial  debt  that  has  risen  from 
$490,000,000  in  1901  to  $1,345,000,000  in  1912;  this  without  reckon- 
ing the  provincial  and  municipal  debt  which  is  four  times  larger 


THE  INDUSTRIAL  REVOLUTION  129 

than  the  imperial.  The  burden  of  taxation  in  1912  was  $70  per 
average  family. 

On  top  of  this  burden  of  debts  sits  the  militarist,  1911-12,  taking 
622,520  young  men  out  of  the  fields  and  factories  for  the  standing 
army.  This  year  130,000  more  are  to  be  called  out;  and  a  new  and 
unheard-of  war  program  is  proposed  to  this  patient  and  obedient 
people.  One  must  admire  alike  the  audacity  of  the  proposal,  the 
patriotism  of  the  voter,  and  the  magnificent  discipline  that  has 
wrought  such  submissiveness. 

The  red  omen  is  the  most  conspicuous.  Socialism  is  skilfully 
combining  the  revolt  against  this  imperial,  personal  government, 
and  the  desire  of  the  workmen  for  a  greater  share  of  the  wealth  of 
the  land. 

If  a  revolt  succeeds,  what  will  happen  to  this  centralized  bureau- 
cracy ?  What  will  become  of  the  system  of  state  aid  and  municipal 
socialism  ?  For  without  an  efficient  bureaucracy  you  cannot  have  an 
effective  paternalism ;  and  without  centralized  administration  you 
cannot  run  railroads,  theaters,  and  pawnshops. 

It  is  the  one  point  usually  overlooked  by  the  enthusiasts.  They 
paint  glowing  pictures  of  socialized  Germany,  but  they  fail  to  look 
under  the  surface.  Germany's  system  is  built  upon  discipline ;  hard, 
military,  iron  discipline,  that  grips  every  baby  in  its  vise  and  forces 
every  man  into  his  place ;  a  benevolent  tyranny,  no  doubt,  but  never- 
theless a  tyranny ;  an  efficient  feudalism,  but  none  the  less  a  feud- 
alism of  self-conscious  caste  and  fixed  tradition. 

No  doubt  the  time  has  come  when  we  must  modify  our  system 
of  extreme  individualism  by  some  system  of  social  co-operation. 
How  far  shall  we  proceed  in  this  path  of  socialized  efficiency  ?  Are 
we  willing  to  pay  the  German  price?  Could  we  do  it  even  if  we 
wished  to  ?  Only  a  few  peoples  are  fitted  for  such  rigor.  I  believe 
that  America  would  be  a  poor  place  for  a  Hohenzollern  efficiency 
test.  The  carefully  trained  American  barber  would  quite  suddenly 
take  it  into  his  head  to  be  a  sailor  or  a  constable,  and  "all  the  king's 
horses  and  all  the  king's  men"  couldn't  hold  him  to  his  economic 
predestination. 

When  all  has  been  said,  I  cannot  escape  the  conviction  that  the 
real  significance  even  of  Germany  is  not  in  what  the  state  has  done 
for  the  workman  but  what  the  German  workman  has  succeeded  in 
doing  for  himself,  in  spite  of  the  state. 

This  brings  us  back  to  the  first  postulate  of  Anglo-Saxon  indi- 
vidualism :  the  basis  of  social  co-operation  is  ?elf-help. 


I30  CURRENT  ECONOMIC  PROBLEMS 

F.     THE  EXTENSION  OF  INDUSTRIALISM 
59.     The  Competitive  Victory  of  Western  Culture^* 

BY  JAMES  BRYCE 

What  is  it  that  the  traveler  sees  today  in  India,  in  Africa,  in  the 
two  Americas,  in  Australia,  in  the  isles  of  the  Pacific?  He  sees  the 
smaller,  weaker,  and  more  backward  races  changing  or  vanishing 
under  the  impact  of  civilized  man;  their  languages  disappearing; 
their  religious  beliefs  withering;  their  tribal  organizations  dissol- 
ving ;  their  customs  fading  slowly  away. 

From  the  bleeding  of  others  with  immigrants  streaming  in,  a 
hybrid  race  is  growing  up  in  which  the  stronger  and  more  civilized 
element  seems  fated  to  predominate.  In  other  cases  people  too 
large  and  powerful  to  lose  their  individuality  are  nevertheless  begin- 
ning to  be  so  affected  by  European  influences  as  to  find  themselves 
passing  into  a  new  circle  of  ideas  and  a  new  set  of  institutions. 
Change  is  everywhere,  and  the  process  of  change  is  so  rapid  that 
the  past  will  soon  be  forgotten.  It  is  a  past  the  like  of  which  can 
never  recur. 

There  is  one  other  aspect  of  the  present  age  of  the  world  that 
has  a  profound  and  novel  meaning  for  the  historian.  The  world  is 
becoming  one  in  an  altogether  new  sense.  More  than  four  centuries 
ago  the  discovery  of  America  marked  the  first  step  in  the  process 
by  which  the  European  races  have  now  gained  dominion  over  nearly 
the  whole  of  the  earth.  The  last  great  step  was  the  partition  of 
Africa  a  little  more  than  twenty  years  ago. 

Now  almost  every  part  of  the  earth's  surface,  except  the  terri- 
tories of  China  and  Japan,  is  either  owned  or  controlled  by  five  or 
six  European  races.  Eight  Great  Powers  sway  the  political  destinies 
of  the  globe  and  there  are  only  two  other  countries  that  can  be 
thought  of  as  likely  to  enter  after  a  while  into  the  rank  of  the  Great 
Powers.  Similarly  a  few  European  tongues  have  overspread  all  the 
continents  except  Asia,  and  there  it  seems  probable  that  those  Euro- 
pean tongues  will  before  long  be  learned  and  used  by  the  educated 
classes  in  such  wise  as  to  bring  those  classes  into  touch  with  Euro- 
pean ideas.  It  is  likely  that  by  2000  A.D.  more  than  nine-tenths 
of  the  human  race  will  be  speaking  less  than  twenty  languages. 

Already  there  are  practically  only  four  great  religions  in  the 
world.  Within  a  century  the  minor  religions  may  be  gone;  and 
possibly  only  three  great  faiths  will  remain.  Those  things  which 
are  already  strong  are  growing  stronger;  those  already  weak  are 
growing  weaker  and  are  ready  to  vanish  away.    Thus,  as  the  earth 

1*  Adapted  from  address  delivered  before  the  International  Congress  of 
Historical  Studies,  London,  May,  1913- 


THE  INDUSTRIAL  REVOLUTION  131 

has  been  narrowed  through  the  new  forces  science  has  placed  at 
her  disposal,  and  as  the  larger  human  groups  absorb  and  assimilate 
the  smaller,  the  movements  of  politics,  of  economics,  and  of  thought 
in  each  of  its  regions  become  more  closely  interwoven  with  those 
of  every  other.  Finance,  even  more  than  politics,  has  now  made 
the  world  one  community,  and  finance  is  more  closely  interwoven 
with  politics  than  ever  before. 

World  history  is  tending  to  become  one  history,  the  history  no 
longer  of  many  different  races  of  mankind  occasionally  affecting 
one  another's  fortunes,  but  the  history  of  mankind  as  a  whole,  the 
fortunes  of  each  branch  henceforth  bound  up  with  those  of  the 
others. 

60.     The  Economic  Conflict  of  Western  and  Primitive  Culture 

BY  FRIEDA  S.  MILLER 

Notonce,  since  the  Turks  captured  Constantinople,  has  European 
civilization  been  threatened  by  an  external  force.  Yet,  since  that 
time,  and  by  its  own  volition,  it  has  been  in  constant  contact  with 
non-European  peoples  in  their  own  countries.  Clearly  the  West  was 
not  summoned  by  China  to  establish  an  open-door  policy,  and  the 
American  Indians  invited  no  discovery. 

The  motive  to  European  expansion  may  afford  some  clue  to  its 
possible  effect.  Religious  persecution,  political  differences,  scientific 
curiosity,  all  these  have  played  their  part ;  but  the  persistent  aim  has 
always  been  economic  gain.  The  lure  of  the  guinea  alike  led  Spain 
to  America,  Portugal  around  the  African  cape,  England  to  India 
and  South  Africa,  and  Russia  across  the  snows  to  the  walls  of  China. 
Pecuniary  profit  has  been  the  lodestar  that  has  led  the  West  to  the 
East.  This  motive  is  the  open  sesame  to  an  understanding  of  the 
business  of  the  Occident  in  the  Orient.  It  means,  above  all,  that 
the  "new"  countries,  possessed  of  their  tremendous  resources,  which 
can  be  unlocked  only  by  the  white  man's  magic  key  of  the  machine 
process,  are  to  be  used  for  the  white  man's  profit.  In  its  extreme 
form,  before  civilization  softened  the  formalities,  it  meant  for  the 
natives  slavery  and  transportation  to  distant  lands.  But  such  prac- 
tices have  been  succeeded  by  a  strict  legal  and  moral  code  which 
regulates  the  contact  of  white  man  and  native.  The  white  man  may 
content  himself  that  his  ritual  has  proved  itself  in  the  Western  world, 
and  even  flatter  himself  that  it  is  the  best  he  has  to  offer  the  native. 
His  long  personal  use  should  enable  him  to  guarantee  its  efficacy. 
Now  what  the  white  man  wants  first  of  all  is  land.  This  he  sets 
about  obtaining  legally.  He  proffers  the  native  beads  or  a  knife  in 
exchange  for  his  title.    When  the  native  chief  accepts,  as  he  is  likely 


132  CURRENT  ECONOMIC  PROBLEMS 

to  do,  by  this  act  which  marks  an  exercise  of  his  own  free  will  and 
judgment,  he  has  contracted  away  the  lands  of  his  tribe.  No  one 
has  been  injured ;  since  the  act  was  voluntary,  the  agreement  extended 
to  both  parties,  and  compensation  in  full  was  rendered.  The  parties, 
therefore,  being  legally  bound,  must  be  held  to  the  performance  of 
their  obligations  under  the  law  of  contracts. 

Having  gained  control  of  the  soil,  which  may  mean  railroad  and 
mining  concessions  in  China,  gold  mines  in  South  Africa,  or  sugar 
plantations  in  Hawaii,  and  having  thus  in  his  hands  the  possibilities 
of  pecuniary  gain,  the  white  man's  next  problem  is  to  find  means  of 
developing  this  potential  wealth.  Again  the  conventions  of  the 
Western  world  are  required  to  prove  their  efficacy.  Either  dignity 
of  labor  or  freedom  of  contract  can  be  made  to  fit  the  case.  On  the 
one  hand  there  is  work  in  railroad  building,  mining,  herding  cattle, 
or  what  not,  that  requires  the  doing.  On  the  other  hand  there  are 
hordes  of  able-bodied  natives  who  are  not  productively  employed. 
Proper  consideration  for  the  dignity  of  toil,  therefore,  leaves  the 
white  man  no  alternative  but  to  devise  a  system  for  securing  the 
labor  of  the  savage.  A  head  tax  may  be  levied  which  must  be  paid 
in  money.  Or  a  tax  may  be  placed  on  the  native  which  he  can  dis- 
charge in  work.  More  easily,  again  using  the  magic  wand  of  con- 
tract, the  savage  may  be  gotten  in  debt;  and  surely  he  must  be  held 
responsible  for  obligations  voluntarily  assumed.  The  result  is  the 
permanent  establishment  of  the  wages  system. 

The  nature  and  consequences  of  such  overlordship  can  be  easily 
appreciated.  Economically  the  native  is  regarded  as  a  convenient 
instrument  for  causing  success  to  attend  the  white  man's  venture. 
The  noneconomic  effects  are  also  interesting  and  far-reaching.  The 
coming  of  the  white  man  not  only  makes  a  wage  slave  of  the  native, 
but  demoralizes  him  socially  and  spiritually.  Tribal  life  is  broken  up 
when  sufficient  lands  for  hunting  or  communal  agriculture  are  no 
longer  available.  With  it  comes  the  end  of  the  power  of  chiefs  and 
priests,  the  latter  still  further  undermined  by  the  assiduous  efforts 
of  ChrFstian  missionaries  to  convince  the  "heathen"  of  the  wickedness 
of  their  leaders.  Moreover,  the  native's  observation  of  the  white 
man's  mode  of  life,  with  its  impunity  from  tribal  taboos  and  dis- 
regard of  tribal  sanctions,  destroys  their  validity  for  him.  Finally 
the  whole  primitive  system  of  control  under  which  he  has  lived 
suffers  shipwreck.^' 

15  Compare  the  plaint  of  the  natives  in  Rhodesia,  as  voiced  by  Sir  Richard 
Martin,  in  his  official  report.  "The  natives  practically  said,  'Our  country  is 
gone  and  our  cattle;  we  have  nothing  to  live  for.  Our  women  are  deserting 
us ;  the  white  man  does  as  he  likes  with  them.  We  are  the  slaves  of  the 
white  man ;  we  are  nobody  and  have  no  rights  or  laws  of  any  kind' "  (Hobson, 
Imperialism;  A  Study,  281,  note). 


TEE  INDUSTRIAL  REVOLUTION  133 

All  this  but  makes  the  native  a  more  pliant  instrument,  since  he 
cannot  reconstruct  a  new  system  of  values  to  fit  the  new  situation. 
He  does  not  understand  the  white  man's  object,  or  see  to  what  place 
this  foreign  system  assigns  him.  His  mental  attitude  is  quite  external 
to  the  real  nature  of  the  system  which  is  closing  in  about  him. 
Therefore  he  has  not  the  recourse  against  it  possessed  by  the  wage- 
workers  of  Western  countries,  who,  whatever  their  weakness,  still 
sense  the  drift  of  events  that  is  involving  them.  This  inferior  posi- 
tion is  made  permanent  and  definite  by  the  fact  that  most  of  the 
native  races  which  Western  civilization  has  encountered  cannot  be 
assimilated.  It  is  not  the  purpose  of  Europeans,  even  were  it  possible, 
to  educate  primitive  races  to  a  point  where  they  could  reap  the  profit 
of  the  development  which  their  countries  are  undergoing. 

But  the  results  of  such  a  policy,  naturally  enough,  are  not  limited 
to  the  countries  affected.  To  assure  the  pecuniary  success  which  is 
the  object  of  colonial  expansion,  trade  is  necessary.  Ha  colony  is 
cut  off  from  communication  with  the  Western  World,  rapid  pecuniary 
gains  cannot  be  made.  The  settlers  must  supply  their  own  needs, 
thus  establishing  a  self-sufficient  economic  system.  But  it  is  only 
as  a  part  of  a  much  larger  industrial  entity  that  the  potential  re- 
sources of  the  colony  may  be  most  advantageously  utilized.  A  dis- 
position of  the  surplus  abroad  gives  vast  differential  gains.  The 
promoters,  therefore,  will  strive  to  make  the  colony  a  part  of  the 
existing  industrial  ^system.  In  course  of  time  the  industrial  aris- 
tocracy will  live  under  a  social  system  and  possess  a  civilization  like 
that  of  the  Western  World.  The  natives,  too,  will  live  under  such  a 
system,  but  as  a  permanent  proletariat.  Thus  the  West  with  its  cul- 
ture is  reaching  out  to  grasp  lands  held  by  primitive  peoples,  and  to 
reduce  its  complex  and  different  scheme  of  life  to  its  own  system  of 
values. 

But  the  process  must  inevitably  react  upon  the  structure  of 
Western  society.  The  spirit  of  colonial  life  must  influence  the 
mother-country.  Colonial  pecuniary  interests  must  find  their  part 
in  Western  politics.  The  easier  life  of  the  tropics  must  have  its 
telling  effect  on  character,  and  hence  affect  the  morals  of  the  home 
people.  The  sense  of  empire,  too,  exercises  a  peculiar  psychological 
influence  which  cannot  be  analyzed.  It,  also,  threatens  the  home 
wageworker  with  competition  of  cheap  foreign  labor.  Such  are 
the  results  of  the  competition  of  Western  and  primitive  culture, 
when  the  contest  is  fought  on  the  territory  of  the  latter,  and  the 
weapons  are  all  of  Western  fashioning. 


134  CURRENT  ECONOMIC  PROBLEMS 

61.     Industrial  Penetration^^ 

BY   HENRI    HAUSER 

What  strikes  us  in  the  evolution  of  German  industry  is  the  actual 
greatness  of  the  phenomenon.  There  is  something  impressive  in  the 
spectacle  of  this  people  which  forty  years  ago  scarcely  counted  at 
all  in  economic  geography,  and  yet  had  become  on  the  eve  of  the 
war  one  of  the  gerat  forces  of  the  world.  With  her  ninety  to  one 
thousand  millions  of  foreign  commerce  Germany  stood  in  the  second 
rank  of  mercantile  nations  after  England. 

The  evolution  of  Germany  has  borne  a  startling  and  almost 
catastrophic  character.  From  the  complex  of  agricultural  states, 
which  constituted  the  Zollverein  in  1870,  the  industrial  empire  has 
sprung  up  in  a  few  years  by  a  sort  of  historical  "right-about-face," 
without  any  of  that  slow  and  secular  preparation  which  marked  the 
rise  of  the  English  power. 

This  has  had  serious  consequences  for  the  character  and  distribu- 
tion of  the  population  of  Germany.  The  two  most  notable  results 
have  been  the  disappearance  of  the  rural  population  and  the  abrupt 
cessation  of  emigration.  It  is  repeatedly  stated  that  the  Germans 
were  forced  into  a  policy  of  expansion  and  conquest  by  the  increase 
of  their  population.  A  pitiless  Malthusian  law  had  compelled  them 
to  find  for  themselves  "a  place  in  the  sun."  There  can  be  no  idea 
more  false  than  this  of  Germany  as  an  overpopulated  country.  It  is 
true  that  the  excess  of  births  over  deaths  in  Germany  has  been 
800,000  a  year.  But  this  increase  is  far  from  excessive,  for  every 
year  700,000  slave  laborers  come  in  to  work  on  the  great  estates  of 
the  East,  not  to  mention  the  Italian,  Croatian,  and  Polish  labor  em- 
ployed in  towns,  mines,  and  works.  As  for  German  emigration  it  is 
no  longer  more  than  a  memory. 

Out  of  67,000,000  Germans  scarcely  17,000,000  live  on  agricul- 
ture. Every  year  an  enormous  number  of  peasants  quit  the  land  and 
rush  into  colossal  factories.  Germany  has  definitely  passed  from 
the  type  of  the  agricultural  state  to  that  of  the  industrial  state,  from 
the  Agrarstaat  to  the  Industriestaat.  The  equilibrium  between  the 
land  and  the  workshop  has  been  upset. 

The  industrial  state  has  very  imperious  needs  and  requirements 
which  are  not  shared  by  the  agricultural  state ;  the  agricultural  state 
lives  on  itself  and  for  itself  and  can  live  within  its  own  limits.  The 
industrial  state  is  a  "tentacular"  state. 

To  begin  with,  it  has  need  of  supplies  of  food.  It  is  calculated 
that  more  than  one-third  of  the  German  people  depend  for  their 

^^  Adapted  from  Economic  Germany,  a  lecture  given  on  April  10,  IQIS- 
Printed  by  Thomas  Nelson  and  Sons,  1915. 


THE  INDUSTRIAL  REVOLUTION  135 

maintenance  on  foreign  harvests  and  foreign  cattle — a  dangerous 
position,  since  it  compels  Germany  to  secure  for  herself  at  all  times 
not  only  free  passage  over  her  land  frontiers,  but,  above  all,  freedom 
of  communication  by  sea.  We  know  what  it  costs  Germany  today 
to  be  cut  off  from  receiving  the  wheat  of  Russia,  America,  and 
Argentine, 

The  industrial  state  is  in  pressing  need  of  both  capital  and  raw 
material.  Germany,  when  she  entered  the  lists,  was  regarded  as 
rich  in  coal  and  iron.  She  has  remained  rich  in  coal,  but  by  working 
her  iron  mines  intensely  she  can  no  longer  extract  from  them  the 
amount  of  ore  required  for  her  metallurgical  works.  Krupp  is  more 
and  more  dependent  upon  Sweden,  Spain,  North  Africa,  and  France. 
The  spinning  and  weaving  factories  of  Saxony  are  dependent  on 
Texas  and  Louisiana.  Raw  cotton  bulks  larger  than  any  other 
article  imported  into  Germany.  Two-thirds  of  the  raw  cotton  con- 
sumed by  the  world  is  produced  in  the  United  States. 

Customers  are  necessary  to  Germany  even  more  than  capital.  In 
spite  of  their  power  of  increase,  in  spite  of  their  rapid  advance  in 
wealth,  in  spite  of  their  appetite  for  enjoyment,  the  German  people 
cannot  by  themselves  alone  absorb  the  enormous  output  of  the  Ger- 
man factories.  They  are  turning  more  and  more  to  the  outside  world 
and  are  becoming  an  exporting  nation. 

All  causes,  then,  combine  to  make  Germany  a  tentacular  state 
spreading  out  in  every  direction  all  over  the  world.  The  general  staff 
of  the  industrial  world  needs  a  "world-policy"  to  find  interest  for 
its  capital  and  to  pay  the  wages  of  its  workmen.  The  proletariat  has 
need  of  it  to  give  him  a  full  day's  work  and  save  him  from  starvation. 

Thus  we  see  the  industrial  state  condemned  to  world-policy.  Its 
first  business  is  to  find  means  to  develop  its  policy  of  exports.  The 
first  means  adopted  is  the  system  of  bounties.  As  German  industry 
is  working  less  for  the  home  market  than  for  foreign  markets  it  is 
logical  to  sell  cheap  and  sometimes  to  sell  at  a  loss.  Thanks  to  the 
system  by  which  the  chief  economic  forces  are  grouped  in  cartels, 
the  process  is  easy  enough.  Next  to  the  system  of  bounties  comes 
that  of  treaties  of  commerce,  which  favor  the  importation  of  provi- 
sions and  of  laborers. 

To  meet  the  want  of  iron  Germany  had  to  find  new  supplies  of 
ore — peaceful  conquest  to  begin  with.  The  application  of  the 
Thomas  process  in  1878  converted  the  Briey  Basin  into  the  most 
important  iron  field  at  present  being  worked  in  the  world.  With 
the  iron  of  Lorraine  and  Normandy  and  the  coal  of  Westphalia, 
Germany  would  be  mistress  of  the  world.  To  make  sure  of  this 
supremacy  it  was  of  importance  to  remove  all  competition  and  to 
establish  German  industry  in  the  very  heart  of  the  country  of  her 


136  CURRENT  ECONOMIC  PROBLEMS 

rivals.  German  manufacturers  acquired  control  over  French  works 
producing  chemicals  and  electricity.  The  Badisce  Sodafabric,  under 
a  French  name,  provided  the  madder  dye  for  the  red  trousers  of  the 
French  army.  Similar  conquests  were  won  at  Seville,  Granada, 
Buenos  Aires,  Montevideo,  Mendoza,  Santiago,  and  Valparaiso,  by 
the  General  Electric  Company  of  Germany.  Like  concessions  were 
won  in  Turkey,  Russia,  and  Italy. 

To  back  up  this  policy  of  economic  conquest  the  prestige  and  the 
strength  of  the  empire  must  be  put  at  the  service  of  the  manufac- 
turers, to  make  the  state  the  instrument  of  German  expansion — this 
is  the  meaning  of  what  the  Germans  have  well  named  the  policy  of 
"business  and  power"  (Handels  und  Machtpolitik).  The  fusion  of 
Weltpolltik  and  business  policy  was  peculiarly  dangerous  to  the  peace 
of  the  world.  If  imperialism,  if  the  tentacular  state,  puts  its  strength 
at  the  disposal  of  manufacturing  interests,  the  temptation  is  strong 
and  constant  to  use  this  strength  to  break  down  any  resistance  which 
stands  in  the  way  of  a  triumph  of  these  interests.  "Be  my  customer 
or  I  kill  you"  seems  to  be  the  motto  of  this  industrial  system  con- 
tinually evolving  in  its  diabolical  circle ;  always  producing  more  to 
sell  more  in  order  to  meet  the  necessities  of  a  production  always 
growing  more  intensive. 

Russia  is  for  Germany  both  a  reservoir  of  labor  and  a  market. 
France  is  for  Germany  a  bank  and  a  purveyor  of  minerals.  What  a 
temptation  to  dig  deep  into  the  jealously  guarded  stocking  and  fill 
both  hands !  As  for  England,  the  direct  competitor  of  Germany  in 
all  the  markets  of  the  world  and  manufacturing  the  same  goods,  she 
is  the  enemy  to  be  crushed.  Has  she  not  acquired  the  habit,  and  has 
she  not  taught  it  to  France,  of  refusing  to  lend  money  to  poor  states 
except  in  return  for  good  orders?  What  is  to  become  of  Essen,  and 
all  that  immense  industrial  city  of  which  Westphalia  consists,  if 
Roumanians,  Greeks,  Serbians  order  their  guns  and  their  ironclads, 
their  rails,  or  their  locomotives  at  Glasgow  or  Le  Creusot?  Ger- 
many thought  war  preferable  to  this  economic  loss,  and  the  velvet 
glove  gave  place  to  the  mailed  gauntlet.  Little  by  little  the  idea  of 
war  as  necessary,  of  war  as  almost  a  thing  to  wish  for,  laid  hold 
on  the  industrial  classes.  The  overrapid  industrialization  of  Ger- 
many has  led  by  a  mechanical  and  fatal  process,  to  the  war.  If  any 
doubt  were  felt  on  the  part  played  by  economic  causes  in  this  war,  it 
would  be  enough  to  look  at  the  picture  of  German  victory  as  imagined 
by  the  Germans.  It  is  an  industrial  victory,  a  forced  marriage  be- 
tween German  coal  and  foreign  iron,  the  reduction  of  nations  into 
vassals  who  are  to  play  the  part  of  perpetual  customers  of  the  Ger- 
man workshops. 


THE  INDUSTRIAL  REVOLUTION  137 

62.     Concessions  and  the  War" 

BY  ALVIN  JOHNSON 

Let  US  look  somewhat  closely  upon  the  structure  of  capital  as  an 
economic  force.  We  shall  find  that  it  embraces  two  elements  differ- 
ing widely  in  character.  The  one,  which  we  may  denominate  capital 
proper,  is  characterized  by  cautious  calculation,  but  a  preference  for 
sure,  if  small,  gains  to  dazzling  winnings.  The  other,  which  we  may 
call  speculative  enterprise,  is  characterized  by  a  readiness  to  take 
risks,  a  thirst  for  brilliant  gains. 

Capital  thrives  best  in  a  settled  order  of  society,  where  the  risks 
of  loss  are  at  a  minimum.  It  accepts  favors  from  government,  to  be 
sure,  but  politics  is  no  part  of  its  game ;  peace  and  freedom  from 
disturbing  innovations  are  its  great  desiderata.  Speculative  enter- 
prise, on  the  other  hand,  thrives  best  in  the  midst  of  disorder.  Its 
favorite  field  of  operations  is  the  fringe  of  change,  economic  or 
political.  It  delights  in  the  realm  where  laws  ought  to  be,  but  have 
not  yet  made  their  appearance.  To  control  the  course  of  legal  evolu- 
tion, to  retard  or  divert  it,  are  its  favorite  devices  for  prolonging  the 
period  of  rich  gains.  Politics,  therefore,  is  an  essential  part  of  the 
game  of  speculative  enterprise. 

At  the  outset  of  the  modern  era,  speculative  enterprise  quite 
overshadowed  capital  proper.  Colonial  trade,  government  contracts, 
domestic  monopolies  were  the  chief  sources  of  middle-class  fortunes. 
But  with  the  progress  of  industry,  slow,  plodding  capital  has  been 
able  steadily  to  encroach  upon  the  field  of  enterprise.  In  our  own 
society  the  promoter  of  railways  and  public  utilities,  the  exploiter  of 
public  lands,  the  trust  organizer,  are  as  prominent  relatively  as  in  any 
modern  nation.  Quantatively,  however,  their  interests  are  greatly 
inferior  to  those  of  the  trader,  manufacturer,  banker,  small  investor, 
and  the  farmer,  to  whom  a  10  per  cent  return  is  a  golden  dream  and 
a  20  per  cent  one  a  temptation  of  the  Evil  One. 

In  the  new  country  of  vast  natural  resources  there  is  sufficient 
scope  for  both  speculative  enterprise  and  capital  proper.  The  United 
States  has  been  such  a  country.  There  was  easy  money  enough  for 
all  men  of  shrewdness  and  resolution  possessed  of  the  necessary 
initial  stake — public  forests  to  be  leveled,  railways  to  be  built  or 
wrecked,  trusts  to  be  organized,  cities  to  be  provided  with  public 
utilities.  But,  in  view  of  our  changing  attitude,  this  easy  money 
appears  to  be  in  danger  of  being  locked  up.  Already  we  are  beginning 
to  hear  murmurs  that,  in  view  of  the  popular  hostility  to  wealth, 
it  will  be  necessary  for  American  capital  to  look  for  foreign  invest- 
ments.   Not  foreign  investments  in  England,  France,  and  Germany, 

1^  Adapted  from  "The  War — By  an  Economist,"  Unpopular  Review.  II, 
420-28.    Copyright,  1914. 


138  CURRENT  ECONOMIC  PROBLEMS 

where  government  is  efficient  and  capital  proper  prevails,  but  foreign 
investments  in  the  undeveloped  countries,  in  a  Land  of  the  Morning, 
"east  of  Suez." 

The  progress  of  modern  industrial  society,  with  its  parallel  devel- 
opment of  the  art  of  government,  tends  to  the  exclusion  of  specula- 
tive capital,  and  its  concentration  in  the  tropical  and  subtropical 
belts.  In  the  older  societies  this  process  has  been  in  operation  for  a 
considerable  time.  For  generations  British  citizens  have  been  taught 
to  look  to  Asia,  Africa,  and  America  for  sudden  wealth.  Although 
Germany  had  a  slower  start,  the  efficiency  of  government  has  rec- 
ommended new  countries  to  those  looking  for  brilliant  gains.  In  a 
generation  much  of  our  speculative  capital  will  be  employed  in 
colonial  exploitation. 

Capital,  it  is  often  said,  knows  no  such  thing  as  patriotism.  This 
may  be  true  of  the  cautious,  colorless  capital  of  industry  and  finance. 
But  an  immense  patriotism  is  avowed  by  J.  J.  Hill,  by  the  DuPonts,  by 
the  Guggenheims.  Most  intense  of  all  is  the  patriotism  of  the  capi- 
talist whose  interest  lies  in  the  twilight  zone  of  the  barbaric  belt. 
Purer  expressions  of  concern  for  America's  future  than  those  now 
issuing  from  the  lips  of  concessionaries  in  Mexico  you  never  hear. 
We  are  all  moved  by  the  grandiose  African  dream  of  Cecil  Rhodes : 
"all  red" — i.e.,  British — a  British  heart  within  every  black  skin  from 
the  Cape  to  Cairo.  The  case  is  typical  of  the  capitalist  speculator 
abroad.  By  interest  the  concessionary  capitalist  is  a  patriot.  He 
needs  his  country  in  his  business.  But  this  is  no  impeachment  of  his 
patriotism.  His  type  is  reckless  and  therefore  idealistic.  His  private 
interests  become  submerged  in  his  imperialistic  ambition.  Patriot- 
ism has  always  burned  more  brightly  in  border  provinces  than  in 
the  heart  of  the  national  territory.  It  is  natural,  then,  that  patriotism 
should  be  still  more  intense  in  those  extensions  of  the  national 
domain  represented  by  permanent  investments  abroad. 

Now  patriotism  compounded  with  financial  interests  usually  pro- 
duces detestation  for  the  corresponding  alien  compound.  Speculators 
in  South  America  and  the  Orient  meet  their  rivals  from  other 
nations  and  hate  them  heartily.  Those  speculators  are  the  nerve- 
ends  of  modern  industrial  nationalism,  and  they  are  specialized  to 
the  work  of  carrying  sensations  of  hate.  For  the  present  we  have 
few  nerves  of  this  kind.  They  have  conveyed  to  us  only  a  vague 
impression  of  the  uneasiness  felt  by  England  and  France  over  the 
German  advance  in  the  colonial  field.  German  speculators,  thwarted 
in  their  designs  by  the  English  and  French,  have  contributed  to  the 
popular  feeling  that  Germany  must  fight  for  what  she  gets. 

The  capitalist  speculator,  even  at  home,  enjoys  a  power  over  the 
popular  imagination  and  a  political  influence  quite  incommensurate 


THE  INDUSTRIAL  REVOLUTION  139 

with  the  extent  of  his  interests.  When  the  seat  of  his  operations  is 
a  foreign  territory,  whence  flow  back  reports  of  his  great  achieve- 
ments— achievements  that  cost  us  nothing,  and  that  bring  home  for- 
tunes to  be  taxed  and  spent  among  us — his  social  and  poHtical  influ- 
ence attains  even  more  exaggerated  proportions.  This  is  the  more 
significant  since  his  relations  with  government  are  concentrated  upon 
the  most  sensitive  of  government  organs,  the  foreign  office. 

When  diplomatic  questions  concerning  the  non-industrial  belt 
arise,  and  most  diplomatic  questions  concern  this  belt,  the  voice  of 
the  concessionaries  is  heard  in  the  council  of  state.  The  voice  is 
the  most  convincing  because  of  the  patriotism  that  colors  its  expres- 
sion of  interest.  More  important,  the  ordinary  conduct  of  exploita- 
tive business  in  an  undeveloped  state  keeps  the  concessionary  in  con- 
stant relation  with  the  consular  and  diplomatic  officers  established 
there.  In  a  sense  such  officers  are  the  concessionary's  agents,  yet 
their  communications  to  the  home  office  are  the  material  out  of  which 
diplomatic  situations  are  created. 

■  It  is  accordingly  idle  to  suppose  that  exploitative  capital  in  for- 
eign investments  weighs  in  foreign  policy  only  as  an  equal  amount  of 
capital  at  home.  In  view  of  the  conditions  mentioned,  a  small  in- 
vestment may  prove  a  great  menace  to  the  peace  of  nations.  For 
years  Germany,  Russia,  England,  and  France  have  been  brought  to 
the  belief  that  something  very  vital  turns  upon  the  control  of  the 
Land  of  the  Morning.  Indeed,  the  whole  civilized  world  has  been 
seduced  into  accepting  this  belief.  Yes,  something  very  vital  for  ex- 
ploitative capital.    Out  of  such  delusions  spring  wars. 

It  is  the  interest  of  exploitative  capital  that  makes  the  Morning 
Land,  Mexico,  China,  and  Africa  rotten  stones  in  the  arch  of  civiliza- 
tion. But  for  exploitative  capital,  these  regions  might  remain  back- 
ward, socially  and  politically :  this  would  not  greatly  concern  any 
industrial  nation,  except  so  far  as  it  responded  to  a  missionary  im- 
pulse. The  backward  states,  however,  afford  possibilities  of  sudden 
wealth ;  and,  since  this  is  the  case,  they  must  attract  exploiters,  who 
must  seek  and  obtain  the  backing  of  their  home  governments,  with 
resultant  international  rivalry,  hostility,  war. 

In  a  short  time  there  will  be  one  new  element  in  the  situation, 
new,  at  any  rate,  to  us.  In  a  generation  our  strong  men  of  specula- 
tive finance  will  be  established  in  the  undeveloped  countries ;  conces- 
sions will  figure  conspicuously  among  the  items  of  our  national 
wealth.  The  foreign  contingent  of  our  capital  will  join  in  the  battle 
for  exploitative  advantages.  And  who  shall  say  that  our  country 
may  not  be  a  protagonist  of  the  next  great  war?  One-half  of  i  per 
cent  of  our  capital  just  failed  of  forcing  us  to  subjugate  Mexico. 


I40  CURRENT  ECONOMIC  PROBLEMS 

If  we  could  confidently  predict  the  industrialization  of  the  back- 
ward countries,  we  should  be  able  to  foresee  an  end  of  this  one  most 
fruitful  of  all  sources  of  international  strife.  But  China  will  not 
be  industrialized  for  a  generation  at  least;  and  many  generations 
must  elapse  before  the  tropics  are  concession-proof.  Accordingly 
the  one  hope  for  universal  peace  would  appear  to  lie  in  the  possibility 
of  divorcing,  in  the  popular  consciousness,  the  concessionary  interest 
from  the  national  interest. 

The  concession  and  the  closed  trade  are  the  fault  lines  in  the 
crust  of  civilization.  Solve  the  problem  of  the  concession  and  the 
closed  trade,  the  earth  hunger  will  have  lost  its  strongest  stimulus, 
and  peace,  when  restored,  may  abide  throughout  the  world. 


IV 

THE    PECUNIARY    BASIS    OF    ECONOMIC 
ORGANIZATION 

"The  industrial  system  in  which  we  live  is  without  order,  plan,  and  sys- 
tem; its  name  is  Chaos,"  asserts  our  socialist  friend.  In  a  lecture  on  "The 
Relation  of  Political  Economy  to  Natural  Theology,"  an  English  divine  says 
in  substance:  "The  almost  perfect  way  in  which,  without  conscious  inter- 
vention, our  multifarious  industrial  activities  are  co-ordinated  into  a  system 
that  satisfies  our  needs  bears  evidence  of  the  mysterious  way  in  which  God 
moves  'his  wonders  to  perform.'"  These  antagonistic  opinions  raise  some 
of  the  most  pertinent  questions  connected  with  the  organization  of  society. 
Is  our  economic  world  one  of  order?  Can  industrial  organization  maintain 
itself  without  authoritative  interference?  Is  the  "automatic"  organization  of 
society  the  most  economical?  Can  it  be  supplemented,  controlled,  or  super- 
ceded? Does  it  serve,  or  can  it  be  made  to  serve,  the  requisite  ethical 
ends?  In  this  division  attention  is  given  only  to  the  more  immediate  aspects 
of  these  general  problems.  A  consideration  of  the  factors  of  a  developing 
society  which  complicates  them  must  be  reserved  to  the  next  division. 

The  first  question  can  be  given  a  definite  affirmative  answer :  our  system 
is  possessed  of  order.  The  nicety  with  which  men  and  "jobs,"  capital  and 
opportunities  for  investment,  and  supply  of  and  demand  for  goods  are  brought 
together  attests  this.  An  e.xamination  reveals  in  our  scheme  of  prices  an 
adrnirable  mechanism  for  preserving  this  organization.  Rising  prices  attract 
capital,  labor,  or  goods;  falling  prices  repel  them.  Back  of  this  we  find  an 
active  organizing  agency  in  pecuniary  competition.  Further  examination  shows 
that  our  system  is  admirably  adapted  to  manipulation  through  price  changes. 
Labor,  capital,  and  goods  are  mobile;  the  industrial  technique  is  plastic;  and 
our  scheme  of  values  has  translated  itself  very  largely  into  pecuniary  terms. 
We  have  also  devised  several  special  contrivances  which  tend  to  eliminate 
personal  factors  and  make  easier  the  exercise  of  the  motivating  power  of 
price.  Of  these  the  corporation  is  typical.  It  reduces  economic  judgments  to 
the  cold  calculus  of  dollars.  It  has  split  up  business  opportunities  into  bits 
small  enough  to  fit  the  pocketbook  of  the  most  insignificant  investor;  it  has 
distributed  the  risks  of  industry  in  accordance  with  the  whims  of  difiFerent 
classes  of  capitalists;  and  it  has  served  to  place  capital  under  the  control  of 
the  pecuniarily  ablest  managements.  It  has,  perchance,  more  than  once  freed 
the  pecuniarily  unfit  from  the  burden  of  his  possessions. 

The  second  question  can  definitely  be  answered  in  the  negative.  The 
system  cannot  maintain  itself  without  authoritative  interference.  The  state 
must  preserve,  "law  and  order,"  maintain  the  integrity  of  basic  institutions, 
provide  an  efficient  monetary  system,  keep  free  the  channels  of  trade,  and  act 
as  arbiter  in  industrial  disputes.  The  various  trades  must  have  their  bodies  of 
developing  custom.  The  constraints  of  social  usage  must  give  at  least  a 
modicum  of  order  to  the  wants  of  consumers.  Yet  the  important  role  of 
authority  in  industrial  organization  is  often  lost  sight  of  and  competition  itself 
is  denounced  as  "ruthless."  This  judgment  springs  from  a  confusion  of 
competition  and  laissez  faire;  of  the  process  of  organization  and  the  funda- 
mental in.stitutions  which  condition  it.  The  "plane"  of  competition  can  be 
authoritatively  determined,  even  though  competition  be  left  "free."  Accord- 
ingly the  ethical  character  of  the  result  depends,  not  on  the  fact  of  competition, 
but  on  "the  rules  of  the  game." 

141 


142  CURRENT  ECONOMIC  PROBLEMS 

The  third  question  cannot,  at  least  at  this  stage  of  our  study,  be  answered 
definitely.  More  than  one  industrial  activity  has  been  pronounced  uneconomical 
and  its  personnel  parasites.  It  requires  little  eflfort  to  think  of  many  trades 
or  vocations  which  for  a  time  have  enabled  their  devotees  to  reap  without 
sowing.  Such  methods  of  acquiring  "easy  money"  necessarily  involve  "eco- 
nomic waste,"  and  should  be  forbidden.  Frequently  "middlemen"  and  "specu- 
lators" are  consigned  to  this  class  of  unproductive  and  unprofitable  servants. 
Analysis  shows  that  both  perform  very  necessary  functions  in  the  organization 
of  the  market.  But  this  does  not  dispose  of  the  question  of  economy  in  or- 
ganization. It  may  well  be  that  there  are  too  many  "middle-men" ;  that  there 
is  a  waste  of  our  limited  social  resources  at  this  point.  And  it  is  doubtless 
true  that  speculation  frequently  degenerates  into  gambling.  If  so,  two  prob- 
lems are  presented :  Can  the  waste  of  resources  in  mercantile  pursuits  be 
checked  without  interfering  with  efficiency  in  service?  Can  speculation  be 
stripped  of  gambling  without  interfering  with  the  performance  of  its  organiz- 
ing functions?  Almost  as  often  the  economy  of  the  system  as  a  whole  is 
called  into  question.  Our  attention  is  directed  to  the  "wastes  of  competition" ; 
and  it  is  urged  that  these  wastes  can  be  eliminated  either  by  a  policy  of  "regu- 
lated monopoly"  or  by  "the  socialization  of  industry."  A  consideration  of 
these  delicate  problems  of  economic  organization  will  have  to  be  postponed 
until  later  in  our  study. 

The  fourth  question  involves  several  questions  which  cannot  be  answered 
in  a  single  statement.  The  evidence  seems  to  be  against  society's  being  able 
arbitrarily  to  fix  prices  that  are  greatly  at  variance  with  "natural"  prices.  The 
wholesale  prescription  of  a  scheme  of  prices  is  a  very  complex  question;  it 
practically  involves  a  socialization  of  industry;  economists  generally  would 
pronounce  against  it.  However,  it  seems  evident  that  prices  can  be  indirectly 
changed  by  means  of  controlling  demand  or  supply.  This  indirect  attempt  to 
interfere  with  prices  is  characteristic  of  monopoly,  of  trades-unionism,  and  of 
such  proposals  as,  say,  a  minimum  wage  coupled  with  a  control  of  immigra- 
tion. It  will  reappear  in  connection  with  each  of  these  problems.  Finally, 
as  we  have  already  seen,  society  can  exercise  an  influence  over  the  institu- 
tional situation  within  which  price-fixing  occurs. 

The  fifth  question  we  must  pass  by.  We  cannot  pronounce  an  ethical 
judgment  upon  the  organization  of  the  present  system  until  we  have  had  a 
chance  to  study  both  the  problems  referred  to  in  this  section  and  many  others. 
It  may  perchance  be  that  even  then  we  will  hesitate  to  pronounce  a  judgment. 

A.     PRICE  AS  AN  ORGANIZING  FORCE 
63.     The  Social  Order^ 

BY  EDWIN   CANNAN 

Some  would  have  us  beHeve  that  at  present  there  is  in  society 
no  organization  at  all.  They  use  hard  words,  such  as  "scramble  for 
wealth,"  "suicidal  competition,"  "exploitation,"  "profit-hunting,"  and 
say  that  the  present  state  of  things  is  "chaotic."  Now,  whatever  our 
present  state  may  be,  however  unsatisfactory  it  is,  it  is  certainly  not 
chaotic.  If  it  were  really  chaotic,  everyone  who  goes  to  his  daily 
work  tomorrow  must  be  a  fool,  since  he  would  be  just  as  likely  to 
get  his  daily  bread  if  he  stayed  at  home.  The  very  fact  that  we  all 
know  as  well  as  we  do  that  certain  results  will  almost  inevitably  fol- 

^Adapted  from  Wealth:  A  Brief  Explanation  of  the  Causes  of  Economic 
Welfare,  pp.  72-75.    Copyright  by  P.  S.  King  &  Co.,  1914. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      143 

low  upon  a  certain  course  of  action  shows  that  we  are  not  Hving  in 
chaos.  Our  system  may  be  a  bad  system,  but  it  is  a  system  of  some 
sort;  it  is  not  chaos.  If  a  man  holds  a  book  too  close  to  his  nose 
he  cannot  read  it,  and  so  it  is  with  the  world  of  industry.  If  we  look 
at  it  from  too  close  a  standpoint  we  can  only  see  a  blur. 

Let  us  imagine  a  committee  of  the  Economics  Section  of  the 
Association  for  the  Advancement  of  Science  of  the  planet  Saturn 
reporting  on  what  they  had  been  able  to  see  of  affairs  on  our  planet 
through  a  gigantic  telescope  big  enough  for  them  to  see  human  beings 
moving  on  its  face.  Would  they  be  able  to  report  that  poor  Mundus 
seemed  quite  chaotic?  Would  they  report  that  everyone  was 
scrambling  for  himself  to  the  disadvantage  of  everyone  else  in  such 
a  way  that  the  general  good  seemed  entirely  neglected  ?  Would  they 
say  that  all  the  land  in  the  most  convenient  situation  was  lying  idle, 
that  nobody  had  a  roof  over  his  head,  and  that  everyone  was  running 
about  aimlessly  or  sitting  idle  in  imminent  danger  of  starvation? 
They  might  report  something  of  the  kind  if  they  could  carry  on  con- 
versations with  certain  people  here  and  if  they  believed  all  they  were 
told,  but  certainly  not  if  they  judged  by  their  own  observation. 

They  would  be  more  likely  to  report  that  they  had  seen  a  very 
orderly  people  co-operating  on  the  whole  with  a  wonderful  absence 
of  friction — that  they  had  seen  them  come  out  of  their  homes  in  the 
morning  in  successive  batches  and  wend  their  way  by  all  sorts  of 
means  of  locomotion  to  innumerable  different  kinds  of  work,  all  of 
which  seemed  somehow  to  fit  into  each  other  so  that  as  a  whole  the 
vast  population  seemed  to  get  fed,  and  clothed,  and  sheltered.  They 
would  not,  of  course,  vouch  for  the  perfection  of  the  arrangements. 
They  would  see  that  there  were  occasional  irregularities  and  hitches. 
They  might  see  now  and  then  too  many  vehicles  in  one  street,  too 
many  passengers  trying  to  travel  by  one  train  or  tramcar.  They 
might  even  see  along  the  country  roads  the  melancholy  spectacle  of 
men  tramping  in  both  directions  in  search  of  the  same  kind  of  work. 
They  might  be  able  to  see  that  some  had  too  much — more  than  they 
seemed  to  know  how  to  dispose  of  without  hurting  themselves  and 
others — while  some  evidently  had  too  little  for  healthy  and  happy 
existence.  But  in  spite  of  these  defects  they  would  report,  I  think, 
that  on  the  whole  the  machinery,  whatever  its  exact  nature,  seemed  to 
do  its  work  fairly  effectively. 

If  we  can  imagine  them  able  to  go  back  five  hundred  or  a  thou- 
sand years,  we  can  feel  tolerably  sure  that  they  would  report  still 
more  favorably,  since  they  would  then  see  the  enormous  improve- 
ment which  had  taken  place  and  would  discover  no  appearance  of  any 
change  which  would  suggest  that  the  existing  system  is  not  the  out- 
come of  an  orderly  development  of  the  institutions  of  the  past. 


144  CURRENT  ECONOMIC  PROBLEMS 

I  insist  so  strongly  on  the  fact  that  our  existing  machinery  does 
work,  not  with  any  idea  of  contending  that  all  is  for  the  best  in  the 
best  of  all  possible  worlds,  but  because  to  understand  economics  it  is 
necessary  to  begin  by  considering,  not  the  defects  in  the  machinery, 
6ut  the  main  principles  involved  in  its  construction  and  working. 
We  are  likely  to  begin  with  the  defects  because  it  is  they  which  strike 
our  eye  and  excite  our  sympathy.  Seven  per  cent  of  unemployed  are 
much  more  likely  to  make  us  start  thinking  than  93  per  cent  who  are 
in  employment.  The  emaciated  corpse  of  a  single  person  starved  to 
death  naturally  makes  more  impression  on  our  minds  than  the  com- 
fortable bodies  of  a  hundred  thousand  sufficiently  fed  citizens.  But 
if  we  want  to  understand  the  reason  why  work  and  food  do  not  quite 
"go  round,"  we  should  begin  by  endeavoring  to  discover  what,  after 
all,  certainly  does  not  explain  itself — why  they  go  as  far  round  as 
they  do. 

64.     Competition  and  Industrial  Co-operation^ 

BY  RICHARD  WHATELY 

"Bees,"  said  Cicero,  "do  not  congregate  for  the  purpose  of  con- 
structing a  honeycomb ;  but,  being  by  nature  gregarious  animals,  com- 
bine their  labors  in  making  the  comb.  And  man,  even  more  so,  is 
formed  by  nature  for  society,  and,  subsequently,  as  a  member  of 
society,  promotes  the  common  good  in  conjunction  with  his  fellow- 
creatures."  Most  useful  to  society,  and  much  to  be  honored,  are 
those  who  possess  the  rare  moral  and  intellectual  endowment  of  an 
enlightened  public  spirit ;  but,  if  none  did  service  to  the  public  except 
in  proportion  as  they  possessed  this,  society,  I  fear,  would  fare  but 
ill.  As  it  is,  many  of  the  most  important  objects  are  accomplished 
by  the  joint  agency  of  those  who  never  think  of  them,  nor  have  any 
idea  of  acting  in  concert;  and  that  with  a  certainty,  completeness, 
and  regularity  which  probably  the  most  diligent  benevolence,  under 
the  guidance  of  the  greatest  human  wisdom,  could  never  have 
obtained. 

For  instance,  let  anyone  propose  to  himself  the  problem  of  sup- 
plying with  daily  provisions  of  all  kinds  a  city  containing  above  a 
million  of  inhabitants.  Let  him  imagine  himself  intrusted  with  the 
office  of  furnishing  to  this  enormous  host  their  daily  rations.  Any 
considerable  failure  in  the  supply,  even  for  a  single  day,  might  pro- 
duce the  most  frightful  distress.  Some  of  the  articles  consumed 
admit  of  being  reserved  ;  but  many,  including  most  articles  of  animal 
food,  and  many  of  vegetable,  are  of  the  most  perishable  nature.  A 
redundancy  of  supply  would  produce  great  waste. 

^Adapted  irom  Introductory  Lectures  on  Political  Economy  (aded. ;  1832) 
pp.  90-98. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      145 

Moreover,  in  a  district  of  such  vast  extent,  it  is  essential  that  the 
supplies  should  be  so  distributed  among  the  different  quarters  as  to 
be  brought  almost  to  the  doors  of  the  inhabitants.  Moreover,  whereas 
the  supply  of  provisions  for  an  army  is  comparatively  uniform  in 
kind,  here  the  greatest  possible  variety  is  required,  suitable  to  the 
wants  of  various  classes  of  consumers.  Again,  this  immense  popula- 
tion is  extremely  fluctuating  in  numbers ;  and  the  increase  or  diminu- 
tion depends  upon  causes  which  cannot  be  distinctly  foreseen. 

Lastly,  and  above  all,  the  daily  supplies  of  each  article  must  be 
so  nicely  adjusted  to  the  stock  from  which  it  is  drawn — to  the  scanty, 
or  more  or  less  abundant  harvest,  or  other  source  of  supply — to  the 
interval  which  is  to  elapse  before  a  fresh  stock  be  furnished,  and 
to  the  probable  abundance  of  the  new  supply,  that  as  little  distress  as 
possible  may  be  undergone ;  that  upon  the  one  hand  the  population 
may  not  unnecessarily  be  put  upon  short  allowance,  and  that  on  the 
other  hand  they  may  be  preserved  from  the  more  dreadful  risk  of 
famine,  which  would  ensue  from  their  continuing  a  free  consumption 
when  the  store  was  insufficient  to  hold  out. 

Now  let  anyone  consider  this  problem  in  all  its  bearings,  reflect- 
ing upon  the  enormous  and  fluctuating  number  of  persons  to  be  fed ; 
the  immense  quantity  and  the  variety  of  the  provisions  to  be  fur- 
nished ;  the  importance  of  a  convenient  distribution  of  them,  and  the 
necessity  of  husbanding  them  discreetly ;  and  then  let  him  reflect  upon 
the  anxious  toil  which  such  a  task  would  impose  on  a  board  of  the 
most  experienced  and  intelligent  commissaries ;  who  after  all  would 
be  able  to  discharge  their  office  but  very  inadequately. 

Yet  this  object  is  accomplished  far  better  than  it  could  be  by  any 
effort  of  human  wisdom,  through  the  agency  of  men,  who  think  each 
of  nothing  beyond  his  immediate  interest — and  combine  unconsciously 
to  employ  the  wisest  means  for  effecting  an  object,  the  vastness  of 
which  it  would  bewilder  them  even  to  contemplate. 

Early  and  long  familiarity  is  apt  to  generate  a  stupid  indifference 
to  many  objects,  which,  if  new  to  us,  would  excite  great  admiration ; 
and  many  are  inclined  to  hold  cheap  a  stranger  who  expresses  won- 
der at  what  seems  to  us  very  natural  and  simple,  merely  because  we 
have  been  used  to  it.  A  New  Zealander  who  was  brought  to  Eng- 
land was  struck  with  especial  wonder,  in  his  visit  to  London,  at  the 
mystery  of  how  such  an  immense  population  could  be  fed,  as  he  saw 
neither  cattle  nor  crops.  Many  Londoners,  who  laughed  at  the  sav- 
age's admiration,  would  probably  have  been  found  never  to  have 
thought  of  the  mechanism  which  is  here  at  work. 

It  is  really  wonderful  to  consider  with  what  ease  and  regularity 
this  important  end  is  accomplished,  day  after  day,  and  year  after 
year,  through  the  sagacity  and  vigilance  of  private  interest  operating 


146  CURRENT  ECONOMIC  PROBLEMS 

on  the  numerous  class  of  wholesale  and  retail  dealers.  Each  of  these 
watches  attentively  the  demands  of  his  neighborhood,  or  of  the  mar- 
ket he  frequents,  for  such  commodities  as  he  deals  in.  The  appre- 
hension, on  the  one  hand,  of  not  realizing  all  the  profit  he  might, 
and,  on  the  other,  of  having  his  goods  left  on  his  hands,  either  by 
his  laying  in  too  large  a  stock,  or  by  his  rivals'  underselling  him — 
these,  acting  like  antagonistic  muscles,  regulate  the  extent  of  his 
dealings,  and  the  prices  at  which  he  buys  and  sells.  An  abundant 
supply  causes  him  to  lower  his  price,  and  thus  enables  the  public  to 
enjoy  that  abundance;  while  he  is  guided  only  by  the  apprehension 
of  being  undersold  ;  and,  on  the  other  hand,  an  actual  or  apprehended 
scarcity  causes  him  to  demand  a  higher  price. 

For  doing  this,  corn-dealers  in  particular  are  often  exposed  to 
odium,  as  if  they  were  the  cause  of  the  scarcity ;  while  in  reality  they 
are  performing  the  important  service  of  husbanding  the  supply  in 
proportion  to  its  deficiency.  But  the  dealers  deserve  neither  censure 
for  the  scarcity  which  they  are  ignorantly  supposed  to  produce,  nor 
credit  for  the  important  public  service  which  they  in  reality  perform. 
They  are  merely  occupied  in  gaining  a  fair  livelihood.  In  the  pursuit 
of  this  object,  without  any  comprehensive  wisdom,  or  any  need  of  it, 
they  co-operate,  unknowingly,  in  conducting  a  system  which,  we  may 
safely  say,  no  human  wisdom  directed  to  that  end  could  have  con- 
ducted so  well. 

B.     THE  ORGANIZATION  OF  PRICES 

65.     The  Nature  of  the  Price-System^ 

Every  one  of  us  is  dependent,  not  only  for  the  fulness  of  life,  but 
for  existence  itself,  upon  maintaining  a  connection  with  the  industrial 
system.  Doubtless  we  may  still  hypothecate  an  isolated  individual, 
thanks  to  the  gifts  of  nature  about  him,  sufficient  unto  himself  for  all 
the  means  of  an  empty  and  precarious  existence.  We  may  perhaps 
visualize  communities  with  economic  arrangements  far  simpler  than 
ours,  communities  in  which  men  take  directly  from  soil,  forest,  and 
stream  the  materials  upon  which  their  welfare  depends.  In  such 
communities  the  formulas  of  well-being  run  in  terms  of  health, 
strength,  and  exertion ;  of  the  soil,  the  sun,  and  the  rain.  But  under 
industrialism  the  simplicity  is  gone  and  the  old  formulas  will  not  do. 
Under  its  ritual  a  man  performs  a  highly  specialized  productive  act 
or  service,  not  for  himself  primarily,  but  for  a  multitude  of  others. 
Likewise  the  objects  and  services  essential  to  his  numerous  desires 
comes  to  him  from  a  vast  and  complex  industrial  system,  which  uses 

3An  editorial  (1917)- 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      147 

all  sorts  of  men  and  equipment  and  ramifies  unto  the  utmost  corners 
of  the  earth.  A  connection  of  the  individual  with  this  great  world- 
machine  is  necessary  to  his  very  life. 

This  making  of  a  living  by  many  men  for  many  men  has  usually 
been  called  the  division  of  labor.  Its  maintenance  requires  the  con- 
tinuous organization  into  a  single  coherent  whole  of  a  wide  variety  of 
services,  materials,  and  forces.  If  every  member  of  society  is  to 
have  a  part  in  this,  if  each  is  to  give  and  to  get,  if  the  potential  re- 
sources are  properly  to  be  used,  if  the  products  are  to  correspond  to 
the  demands  for  them,  the  task  of  organization  becomes  a  delicate 
one.  Everywhere  there  must  be  careful  measurement,  nice  adjust- 
ment, careful  fitting.  This  delicate  articulation  of  parts  has  been 
made  possible  by  the  rise  of  the  institution  of  pecuniary  calculation, 
which  assigns  to  the  satisfaction  of  each  desire,  to  the  use  of  each 
raw  material,  to  each  service,  to  each  good,  its  definite  price.  Its  pre- 
cision makes  possible  the  maintenance  of  a  highly  exact  and  articulate 
organization  of  unlike  and  diverse  elements  in  an  undustrial  order. 

The  prices  of  all  things  in  the  economic  world  about  us  con- 
stitute a  definite  scheme,  an  ordered  system,  not  a  mere  aggregation 
of  unrelated  items.  Were  they  isolated  units,  one  might  deal  with 
them  as  he  wished,  changing  some  and  leaving  the  others  undis- 
turbed;  but  because  of  their  intimate  connection  an  abrupt  disturb- 
ance of  one  sends  lines  of  influence  radiating  in  all  directions.  To 
visualize  the  system  one  must  first  picture  the  vast  and  interlocking 
technique  of  industry  of  which  this  system  is  but  the  pecuniary 
counterpart.  Beginning  with  the  single  article,  it  is  evident  that  its 
price  must  be  approximately  identical  with  the  sum  of  the  prices  of 
the  goods  and  services  which  have  gone  into  it.  If  it  is  itself  a  raw 
material  of  a  more  finished  good,  it  is  obvious  that  the  price  of  the 
latter  is  made  up  by  an  addition  to  its  price  of  the  prices  of  its  other 
constituent  elements.  Thus  if  the  line  of  production  be  observed 
from  the  most  elementary  of  raw  materials  to  the  most  advanced  of 
finished  products  it  is  apparent  that  the  series  of  prices  paralleling 
these  processes  will  be  highly  articulate.  If  raw  materials  were  con- 
sistently used  in  the  production  of  separate  goods,  each  productive 
process  would  have  its  complement  in  a  price-series,  but  the  various 
price-series  would  be  independent  one  of  another. 

But  even  a  cursory  view  of  the  technical  system  shows  that  these 
price-series  tend  to  gather  themselves  into  an  organic  system.  A  raw 
material,  for  example,  is  likely  to  be  used  in  the  production  of  a 
hundred  separate  products ;  yet,  despite  its  varied  uses,  its  units 
must  command  a  single  price.  A  finished  product  uses,  not  one,  but 
many  elementary  materials.  Each  of  these  is  produced,  not  from 
one,  but  from  many  still  more  elementary  materials.    In  one  direction 


148  CURRENT  ECONOMIC  PROBLEMS 

the  line  stretches  fanlike  back  to  the  most  elementary  of  raw  mater- 
ials, in  the  other  to  a  numerous  array  of  the  most  finished  of  finished 
products.  The  same  material  may  enter  a  productive  sequence  at 
very  different  stages ;  it  may  enter  different  sequences  at  stages  more 
or  less  removed  from  the  ultimate  products.  The  same  goods  may 
be  used  either  as  a  finished  product  or  as  a  raw  material.  There  are 
many  cases  in  which  products  which  emerge  far  along  the  productive 
sequence  are  used  in  the  initial  stages  of  their  own  production.  In 
view  of  these  qualifications  the  straight  lines  of  the  productive 
sequences  of  the  preceding  paragraph  are  lost  in  a  wilderness  of 
interesting  linto,  adorned  here  and  there  with  circles  and  other  mor^ 
complex  figures.  In  terms  of  a  graph,  if  the  movements  of  goods 
in  the  productive  system  are  represented  by  lines,  the  totahty  of  tech- 
nical relationships  can  best  be  represented  by  means  of  a  vast  and 
tangled  network.  The  same  figure  will  represent,  at  least  for  the 
moment,  the  interrelations  and  ramifications  which  constitute  the 
price-system. 

Even  this  complicated  device,  however,  fails  to  represent  the 
system  adequately,  for  it  transcends  the  current  limitations  of  the 
technical  system.  Within  it  appear  prices  which  represent  goods 
which  have  not  as  yet  been  brought  to  any  market  and  some  of 
which  have  only  a  hypothetical  existence.  Prices  there  are,  too, 
which  are  the  pecuniary  symbols  of  goods  which  long  ago  passed 
beyond  human  control.  Thus  the  price-system,  which  in  its  concrete 
detail  has  but  a  momentary  existence,  embraces  prices  of  past  and 
future  as  well  as  present  goods.  In  view  of  this  a  graphic  illustration 
is  impossible ;  it  is  an  attempt  to  represent  in  two  dimensions  a  thing 
which  transcends  dimensions. 

Of  this  system  one  of  the  most  important  characteristics  is  the 
temporary  character  of  its  concrete  reality.  The  momentary  scheme 
sums  up  the  constraints  upon  economic  activity  existing  in  a  com- 
plicated economic  order,  including  even  many  running  back  into  the 
far  distant  past  and  others  stretching  away  into  the  future.  The 
detailed  scheme  passes,  the  system  remains  intact.  Everywhere 
within  the  scheme  changes  in  prices  are  occuring  which  tend  to  give 
a  new  reality  to  the  whole. 

At  one  extreme,  for  any  one  of  a  number  of  reasons  which  the 
reader  can  easily  supply,  the  demand  for  finished  products  changes. 
Immediately  their  prices  undergo  change,  and  straightway  there 
appears  a  lack  of  harmony  between  them  and  the  prices  of  the  goods 
out  of  which  they  are  made.  This  leaves  someone  in  possession  of 
an  unexpected  profit  or  an  uninvited  deficit,  affecting  his  judgments 
and  actions  and  leading  eventually  to  new  prices  for  some  or  all  of 
the  elements  of  the  finished  goods  and  to  a  renewal  of  harmony. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      149 

This  induced  agreement  in  turn  leads  to  a  lack  of  correspondence  be- 
tween the  prices  of  these  elements  and  their  constituents.  Again,  in 
like  manner,  and  for  the  same  reason,  the  same  event  is  achieved.  In 
this  way  the  disturbance  works  its  way  down  to  the  prices  of  the 
primary  elements  of  production  and  in  this  way  harmony  tends  to 
be  established  throughout  the  whole  structure.  At  the  other  extreme, 
for  reasons  good  and  sufficient,  the  supplies  of  the  primary  elements 
of  production  may  be  changed,  entailing  changes  in  their  prices, 
lack  of  harmony  between  them  and  the  prices  of  the  goods  into  which 
they  enter,  and  eventually  to  a  re-establishment  of  harmony  through- 
out the  whole  structure  by  a  similar  process.  Again,  a  disturbance 
may  appear  anywhere  within  the  price-scheme,  sending  out  its  in- 
fluences of  discord  and  harmony  in  all  directions. 

The  price-system  is  thus  in  constant  subjection  to  two  sets  of 
forces.  The  first  is  the  tendency  toward  disarrangement  entailed 
by  the  constant  appearance  of  price-disturbing  elements  at  many 
points.  The  second  is  the  tendency  toward  renewed  coherence  at- 
tending the  attempts  of  those  affected  to  appropriate  surpluses  and 
to  escape  deficits.  Since  both  tendencies  are  ever  operative,  the 
system  as  a  whole  may  be  said  to  be  at  any  moment  in  a  state  of 
arrested  harmony.  Thus  the  perfect  coherence  of  the  scheme  is 
always  threatening  but  never  arrives. 

The  persistence  of  a  scheme  of  prices  is  all  the  more  fitful  be- 
cause the  pecuniary  unit  of  value,  necessary  to  the  coherence  of  the 
scheme,  is  itself  a  capricious  standard  of  measurement.  It  is  subject 
to  constant  change  of  value;  this  change  may  within  a  short  period 
of  time  be  quite  radical.  Such  changes  must  obviously  be  followed 
by  changes  in  the  whole  "level  of  prices,"  changes  which  require  time. 
These  are  all  the  more  disturbing  because  prices  of  goods  and  serv- 
ices respond  with  quite  different  degrees  of  readiness  to  changes  in 
the  value  of  the  pecuniary  unit. 

Within  the  price-system  not  all  values  are  in  the  same  degree 
responsive  to  these  constant  disturbances.  Because  the  scheme  is 
never  in  complete  harmony  the  disturbing  influences  effect  their 
greatest  changes  near  the  points  where  they  first  enter  the  system. 
As  they  take  their  tortuous  ways  through  the  maze  of  interlocked 
prices,  their  force  is  gradually  spent.  Moreover,  some  prices  can 
more  easily  withstand  disturbance  than  others.  The  prices  of  goods 
and  services  limited  in  quantity  and  confined  to  a  few  uses  may  easily 
give  way  before  an  upward  or  downward  pressure  easily  resisted  by 
the  prices  of  staple  goods  and  of  services  in  universal  demand.  The 
former,  standing  alone,  must  succumb  to  the  shock ;  the  latter,  sim- 
ilarly impinged  upon,  are  protected  by  the  sheer  w^eight  of  the  mass 
to  which  they  belong,  the  units  of  which  must  enjoy  like  prices.    But, 


150         CURRENT  ECONOMIC  PROBLEMS 

even  apart  from  their  relative  quantities,  the  prices  of  some  goods 
are  much  more  fickle  than  others.  Thus  even  in  our  competitive 
system  custom,  fixes  the  price  of  many  articles,  and  the  established 
price  is  not  lightly  set  aside.  Other  prices  are  consciously  hedged 
about  with  various  devices  which  keep  them  more  or  less  from  the 
vicissitudes  of  change.  Monopoly,  to  cite  a  single  example,  con- 
sists of  devices  of  this  kind.  When  the  wave  of  disturbance  strikes 
a  price  protected  in  this  way  it  is  likely  to  pass  by  and  spend  itself 
upon  others  offering  less  resistance.  As  with  other  elements  of  dis- 
turbance, the  waves  of  price-change  take  always  the  lines  of  least 
resistance. 

Within  this  scheme  of  prices  which  takes  its  origin  from  far-off 
and  mysterious  sources,  which  is  always  in  process  of  being  remade, 
and  which  is  composed  of  items  differing  widely  in  their  ability  to 
weather  disturbance,  the  members  of  all  the  pecuniary  groups  which 
make  up  society  are  forced  to  order  their  lives.  It  is  a  succession  of 
links  binding  them,  one  by  one,  to  an  industrial  system  apart  from 
which  their  lives  and  activities  would  be  alike  meaningless  and  im- 
possible. 

66.     The  Constraints  of  the  Price-System* 

BY  WALTON  H.  HAMILTON 

To  the  individual  the  price-system  manifests  itself  most  inti- 
mately in  the  immediate  prices  by  which  his  wonted  activities  are 
hedged  about.  These  include,  on  the  one  hand,  the  prices  of  his 
personal  services  and  of  the  uses  of  his  property,  and,  on  the  other, 
the  prices  of  the  goods  and  services  which  his  plane  of  living  or  the 
requirements  of  his  business  demand.  So  far  as  the  price-system 
affects  his  thought  and  conduct  it  is  through  its  influence  upon  these 
immediate  prices.  It  may  be  insisted  that  this  influence,  at  least  for 
the  large  number  whose  primary  concern  is  with  the  immaterial 
satisfactions  of  life,  is  negligible,  for  the  things  of  the  spirit  cannot 
be  purchased.  But,  as  life  is  organized,  the  means  to  the  attainment 
of  these  things  is  frequently  pecuniary,  and  they  cannot  be  enjoyed 
unless  material  goods  keep  life  within  the  body.  Accordingly  there 
are  no  cases  of  absolute  indifference  to  pecuniary  income.  At  the 
other  extreme  it  is  said  that  the  desire  or  money  is  in  itself  the  real 
incentive  to  all  economic  activity.  The  habitual  example  is  the 
business  man  who  amasses  wealth  for  which  he  has  no  need.  With 
him,  however,  dollars  are  not  the  motive,  they  are  mere  counters 
indicative  of  the  success  which  he  has  won  in  the  business  game. 
Their  importance  lies  rather  in  furnishing  a  common  denominator  of 

^Adapted  from  "The  Price-System  and  Social  Policy,"  Journal  of  Political 
Economy,  XXVI,  41-51.     Copyright  by  the  University  of  Chicago,  1918. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      151 

enjoyment,  activity,  and  opportunity,  a  means  by  which  human 
motives  can  be  reduced  to  intelligible  and  measurable  terms.  It  is 
reasonable  that  motives  which  can  thus  be  reduced  to  precise  state- 
ment and  compared  are  of  more  weight  than  those  whose  promises 
are  vague  and  distant. 

So  long  as  men  are  unlike  creatures,  so  long  will  they  respond 
in  varied  ways  to  the  complex  of  motives  which  a  pecuniary  for- 
mula holds.  There  is,  for  example,  the  man  who  insists  that,  because 
the  price-system  is  not  of  his  making,  it  is  not  to  his  liking.  He 
would  dispense  with  it  if  he  could ;  but  he  finds  that  impossible,  so 
he  grudgingly  puts  up  with  just  so  much  of  it  as  he  must.  He  must 
conform  to  the  extent  of  earning  a  living  or  accepting  an  income 
from  property,  the  ownership  of  which  he  does  not  disavow.  Under 
modern  conditions  the  "living"  is  likely  to  include  means  for  the  at- 
tainment of  other  ends  than  mere  existence.  If  his  income  is  from 
property,  its  size  is  the  measure  of  his  freedom  from  pecuniary 
thraldom..  If  he  pleases,  he  may,  at  least  for  a  time,  disregard  this 
limit  and  live  in  defiance  of  the  mandates  of  the  price-system.  But 
if  he  persists,  his  property  flits  to  another  who  is  readier  to  obey 
the  li^s  under  which  he  lives.  A  protestant  is  shorn  of  his  economic 
power,  and  with  it  lapses  his  active  concern  with  most  of  the  things 
of  this  world.  The  class  which  defies  is  small  and  its  members  hold 
a  very  precarious  lease  upon  economic  life. 

A  second  group  consists  of  those  who  continue  to  thrive  seem- 
ingly in  defiance  of  the  injunction  to  make  money.  But  wilful 
disregard  is  here  merely  a  mask  that  hides  a  careful  prudence.  If 
one  is  protected  by  a  monopoly,  if  he  has  invented  an  inviting  trade- 
mark, if  he  is  heir  to  a  large  amount  of  "good  will,"  if  in  any  one 
of  a  number  of  ways  he  has  intrenched  his  income  against  the  vicis- 
situdes of  price  changes,  he  has  a  reasonable  degree  of  immunity. 
He  may  engage  in  doubtful  experiments  in  welfare  work,  surrender 
hours  of  toil  to  the  leisure  of  his  workers,  make  contributions  to 
charity,  or  engage  in  other  practices  which  are  at  variance  with  the 
dictates  of  the  economic  man  within  him.  But  if  it  is  to  endure, 
such  freedom  has  to  be  carefully  conserved ;  it  is  possible  only  within 
the  limits  of  the  prices  about  him. 

It  is  therefore  within  the  capacious  confines  of  the  class  which 
obeys  quite  regularly  the  demands  of  the  price-system  that  most 
of  the  members  of  society  are  to  be  found.  In  common  they  find 
their  incomes  smaller  than  they  like ;  in  common  they  would  free 
them  from  the  caprice  which  they  serve.  Each  must  steer  his  way- 
ward course  with  one  eye  upon  the  prices  of  the  goods  which  he 
buys  and  the  other  upon  his  income  from  services  or  goods  sold. 


152  CURRENT  ECONOMIC  PROBLEMS 

By  all  means  the  first  must  be  kept  down ;  by  all  means  the  second 
must  be  exalted.  In  view  of  the  uncertainty  of  the  future,  to  fail 
to  claim  a  pecuniary  advantage  today  is  to  disregard  the  dictates  of 
wisdom.  It  may  result  in  a  failure  to  secure  a  bigger  one  tomorrow, 
or  it  may  render  that  morrow  insecure. 

The  commands,  prohibitions,  and  restrictions  which  the  price- 
system  lays  upon  individual  conduct  are  immediate  and  real,  im- 
posing restraint  both  upon  the  spending  of  income  and  the  making 
of  it.  In  the  first  case  one  goes  to  market  and  exchanges  income  for 
means  to  the  pleasures,  activities,  and  attainments  which  he  regards 
as  most  worth  while.  If  he  has  no  income,  obviously  he  gets  no 
goods.  Since  existence  depends  upon  the  wherewithal  to  be  fed  and 
clothed,  his  right  to  live  becomes  a  matter  of  public  or  private  grace. 
If  his  income  is  small  he  can  gain  the  means  to  a  limited  range  of 
desired  activities ;  as  its  size  increases  he  is  allowed  both  more  goods 
and  greater  discretion  in  choice.  If  he  desires  a  new  pair  of  shoes, 
a  ticket  to  the  opera,  a  picture  for  the  study,  a  trip  to  California,  a 
new  automobile,  an  apartment  at  the  Ritz-Carlton,  or  a  public  library 
to  herald  his  name,  the  matter  has  to  be  referred  to  the  dictates  of 
the  price-system.  As  prices  go  their  capricious  ways  respondfig  to 
the  vicissitude  of  change,  he  is  forced  to  change  his  purchase,  his 
activities,  and  even  his  personal  habits.  They  may  compel  him  to 
eat  rice  when  his  taste  inclines  to  potatoes ;  they  may  require  him 
to  have  his  shoes  mended  when  he  prefers  a  new  pair ;  they  may  for 
the  season  force  him  upon  the  highway  in  an  old  car,  the  shabbiness 
of  which  is  beyond  dispute.  A  prohibitive  price  of  domestic  labor 
may  compel  him  to  renounce  his  home  and  take  his  meals  at  a  restaur- 
ant. To  accommodate  himself  once  and  for  all  to  a  scheme  of  prices 
which  drives  him  in  many  directions  is  not  the  whole  of  submission. 
Their  unexpected  and  arbitrary  changes  force  from  him  an  ever  new 
allegiance  and  a  constant  reshaping  of  his  actions. 

Great  as  is  its  authority  over  the  spending  of  income,  the  com- 
pulsion of  the  price-system  is  even  greater  in  the  making  of  it. 
Perhaps  a  careful  calculus  which  makes  purchasers  attend  upon  a 
detailed  comparison  of  the  values  and  the  costs  of  what  they  buy 
may  be  a  source  of  added  enjoyments.  Yet,  as  wants  and  goods  be- 
come standardized,  this  importance  shrinks,  and  to  the  great  mass  of 
men  and  women  it  appears  mere  penny  economy.  The  desire  of 
many  men  for  more  goods,  more  opportunities,  more  means  of  at- 
tainment, are  much  more  likely  to  take  the  form  of  desires  for  larger 
incomes.  It  is  therefore  over  money-making  that  the  price-system 
exercises  its  strongest  tyranny,  and  for  this  reason  it  is  necessary 
to  study  quite  particularly  this  influence. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      153 

Let  us  begin  with  the  group  charged  with  the  management  of 
independent  business  ventures.  To  them  success  or  failure  is  written 
in  the  balance  sheet.  They  find  their  activities  hemmed  in  between 
the  prices  of  the  goods  and  services  which  they  buy  and  those  of  the 
articles  which  they  sell.  By  grace  of  high  prices  or  low  costs  the 
business  adventurer  derives  from  his  concern  a  surplus ;  by  dint  of 
low  prices  or  high  costs  he  has  a  deficit  thrust  upon  him.  Unless  a 
surplus  appears,  at  least  for  its  owner,  the  enterprise  ceases  to  be. 
If  it  is  small,  his  position  is  precarious ;  as  it  increases,  there  appears 
room  for  discretion,  for  personal  judgment,  for  individual  whim. 
If  one  would  increase  output,  manufacture  a  new  product,  introduce 
a  new  technique,  change  the  organization  of  labor,  place  his  goods 
in  new  markets,  build  a  new  plant,  or  engage  in  a  gigantic  advertising 
venture,  experts  familiar  with  the  matters  in  question  are  consulted 
They  are  asked,  however,  not  for  decision,  but  for  advice.  Their 
opinions  are  pertinent  to,  rather  than  sufficient  for,  judgment.  They 
have  to  be  translated  into  terms  of  dollars  and  cents,  and  final  choice 
is  reserved  to  those  who  know  far  more  of  the  mysteries  of  the 
pecuniary  calculus  than  of  the  intricacies  of  the  productive  process. 
If  restraint  came  only  from  immediate  prices  the  enterpriser  might 
break  them  down  and  find  economic  freedom  for  himself.  But  the 
costs  of  many  goods  which  he  uses  are  but  local  manifestations  of 
prices  of  goods  used  in  the  production  of  a  thousand  products.  Over 
selling  prices  his  control  seems  somewhat  greater,  but  here  there  are 
also  many  restraints.  If  he  has  competitors,  he  dare  not  go  much 
higher  than  they  lest  he  be  left  without  a  market.  If  he  has  none, 
the  double  possibility  of  substitutes  and  of  potential  competition 
makes  high  prices  less  inviting.  If  his  good  be  other  than  a  prime 
necessity,  there  is  a  chance  of  his  market  being  swept  away  by  the 
preference  of  the  consumer  for  the  satisfaction  of  some  want  other 
than  that  to  which  his  product  ministers.  If  he  sells  to  other  pro- 
ducers the  upper  limit  of  price  is  quite  a  rigid  one.  Hemmed  in  thus 
he  may  seek  to  escape  by  increasing  the  amount  of  his  sales.  But 
price-lowering  or  extensive  advertising,  essential  to  this  result,  are 
alike  expensive.  They  can  succeed  only  within  definite  limits,  for 
he  has  to  compete  against  the  allurements  of  other  sellers.  At  best 
only  the  exceptional  concern  can  expect  an  extraordinary  share  of 
the  trade. 

To  this  fitful  tyranny  of  the  price-system  over  the  enterpriser 
many  conditions  peculiar  to  the  industrial  system  contribute.  The 
wide  variety  of  the  goods  offered  on  the  market  presents  to  the 
consumer  an  endless  choice.  The  result  is  that  an  increasing  part  of 
the  industrial  system  is  engaged  in  producing  goods  which  satisfy 


154  CURRENT  ECONOMIC  PROBLEMS 

a  capricious  demand.  Since  establishments  are  built  and  stocked 
with  equipment  to  turn  out  a  predetermined  volume  of  goods  at  the 
lowest  cost  per  unit,  costs  do  not  decrease  in  proportion  to  diminished 
sales.  While  it  is  important  to  keep  sales  uniformly  large,  in  few 
cases  is  this  possible,  for  the  fixed  establishment  is  sadly  at  variance 
with  the  rhythm  of  activity  in  the  business  system.  When  trade  is 
at  a  low  ebb,  small  sales,  attended  by  meager  receipts,  demand  the 
utmost  attention  to  the  dictates  of  price.  When  the  flood  time  of  the 
cycle  is  on,  there  is  no  surcease,  for  the  manager  sees  the  double 
danger  lurking  in  rapidly  rising  costs  and  in  the  inevitable  depression 
whose  seed  prosperity  is  sowing. 

An  even  more  immediate  incentive  to  obedience  proceeds  from 
the  corporate  character  of  business  organization.  The  impersonal 
nature  of  the  corporation,  the  theoretical  separation  of  ownership 
and  management,  and  the  extreme  liquidity  of  securities  combine 
to  make  responsible  managers  particularly  sensitive  to  immediate 
price-motives.  The  securities  are  usually  owned  by  the  members  of 
a  body  more  numerous  than  the  management,  living  broadcast 
throughout  the  country.  Few  of  them  have  any  personal  knowledge 
of  the  concern,  its  organization,  its  personnel,  its  technical  processes, 
or  the  living  and  working  conditions  of  its  laborers.  The  summary 
of  the  economic,  social,  and  moral  condition  of  the  business  is  usually 
presented  to  them  in  the  double  form  of  the  value  of  securities  and 
the  rate  of  dividends.  If,  by  grace  of  management,  a  generous 
dividend  is  forthcoming,  inquisitive  owners  are  not  likely  to  probe 
far  into  the  how  and  why,  and  those  in  control  are  assured  a  gen- 
erous extension  of  power.  If  it  fails,  those  who  have  purchased  in 
securities  merely  impersonal  pecuniary  incomes  are  not  likely  to 
tolerate  excuses  about  managerial  concern  for  social  good.  Their 
interest  in  charity  is  too  personal  and  too  precious  to  be  delegated 
to  men  who  draw  salaries  for  posing  as  business  celestials.  If  by 
some  mischance  a  management  is  elected  which  proves  incurably 
altruistic,  the  stock  market  offers  an  easy  egress  to  the  analytically 
minded  who  do  not  wish  to  mix  uplift  with  investments.  If,  as  is 
more  probable,  particular  stockholders  object  on  moral  grounds  to 
the  policy  of  the  management,  they  may  transfer  their  ownership 
to  industries  more  to  their  liking.  The  change  will  soothe  the 
individual  conscience  without  interfering  with  the  practices  of  the 
concerns  involved.  If  managers  succeed  beyond  their  expectations, 
their  very  success  evokes  the  law  of  capitalization  and  leads  to  an 
increase  in  the  value  of  the  investments  upon  which  in  future  they 
are  expected  to  pay  dividends.  Thus  success,  instead  of  bringing 
relief,  merely  renews  the  slavery.    Because  well-connected  businesses 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION       155 

pay  dividends  regularly,  the  management  is  constantly  under  the 
temptation  to  subordinate  to  the  amenities  of  the  present  projects 
which  promise  much  in  future  to  themselves,  to  the  concern,  and 
to  the  community.  The  constant  opportunities  of  managers  to  specu- 
late in  the  stocks  of  their  own  concerns  do  not  diminish  this  temp- 
tation. 

The  response  of  enterprisers  to  the  immediate  pressure  of  prices 
involves  more  than  the  temporary  well-being  of  the  enterprises  they 
manage.  If  the  ultimate  interests  of  the  managers,  the  business 
ventures  themselves,  the  laborers  they  employ,  and  the  communities 
they  supply  are  in  accord  with  the  demands  of  immediate  money- 
making,  they  are  likely  to  be  served.  If  the  lack  of  harmony  is 
inconsiderable,  the  more  immediate  may  be  sacrificed  to  the  less 
immediate  value,  provided  business  management  and  ownership  are 
relatively  stable.  If  they  are  out  of  harmony,  the  less  immediate 
interests  of  group  and  community  are  likely  to  be  sacrificed.  No 
matter  how  promising  a  change  in  working  conditions,  no  matter 
what  the  possibility  of  a  proposed  law,  if  it  threatens  serious  inter- 
ference with  immediate  gain  it  is  damned.  Impinged  upon  by  con- 
ditions which  they  cannot  control,  business  men  have  no  alternative 
but  to  attempt  to  increase  current  dividends  by  similarly  impinging 
upon  prices  not  strong  enough  to  resist  their  impact.  To  each  the 
flood  time  of  the  cycle  represents  normal  conditions ;  each  can  be 
depended  upon  to  favor  policies  promising  wider  markets,  further 
exploitation  of  natural  resources,  and  an  acceleration  in  the  rate  of 
industrial  expansion.  These  are  the  essential  demands  of  the  group 
as  they  have  found  expression  in  social  development.  It  is  significant 
that  they  arise,  not  in  the  desires  of  business  men,  but  in  the  insti- 
tutions to  which  they  must  conform,  that  their  end  is  not  to  advance 
consciously  appreciated  group-interests  but  to  conserve  and  increase 
current  incomes. 

An  extended  argument  seems  unnecessary  to  show  the  response 
of  professional  and  laboring  men  to  similar  demands  for  immediate 
income.  If  with  the  former  it  seems  somewhat  less  whole-hearted, 
it  is  because  the  lurking  traditions  of  the  craft  period  and  the  better- 
formulated  codes  of  professional  ethics  more  rigidly  confine  the 
motive.  But  the  establishment  of  bounds  rather  determines  the 
nature  than  takes  away  the  intensity  of  competition.  Only  where 
incomes  are  fixed  and  personal  effort  and  direct  pecuniary  reward 
are  divorced  do  we  find  a  profound  disregard  to  immediate  pecuniary 
values.  Professional  men  and  laborers  alike  have  a  perishable  com- 
modity to  sell  and  are  compelled  to  sell  it  in  an  irregular  and  capri- 
cious market.    The  skilled  laborer  shares  with  the  professional  man 


156  CURRENT  ECONOMIC  PROBLEMS 

the  further  disadvantage  of  having  to  dispose  of  a  highly  specialized 
product.  The  nature  of  service  and  the  character  of  the  market  beget 
a  careful  regard  for  current  values.  To  the  laborer  especially  income 
is  a  regular  flow ;  his  outgo  has  usually  been  arranged  in  strict  con- 
formity with  that  fact.  Many  times  provision  can  be  made  for  a 
bare  month  ahead ;  in  no  inconsiderable  number  of  cases  the  span  of 
economic  calculation  runs  from  Saturday  night  to  Saturday  night. 
The  failure  of  an  appearance  of  the  pay  envelope  leaves  him  without 
the  means  of  support  and  may  threaten  his  future  security.  The  op- 
portunity of  his  children  for  development,  for  health,  even  for  life 
itself,  depend  upon  uninterrupted  income.  We  may  therefore  ex- 
pect the  laborer  and  in  lesser  degree  the  professional  man  to  take 
much  conscious  thought  about  current  income. 

It  is  apparent,  therefore,  that  the  class  which  lives  under  the 
continued  and  fitful  sway  of  the  price-system  contains  the  great 
mass  of  mankind.  To  realize  their  ideals,  to  carry  through  their 
schemes,  to  thrive  economically,  even  to  continue  to  exist,  they  must 
be  responsive  to  the  dictates  of  money-making.  It  matters  not  how 
unselfish  the  individual,  how  unmercenary  his  motives,  how  great  his 
concern  for  literature,  philosophy,  or  philanthropy,  he  must  live  in 
a  pecuniary  society  ;  he  must  attain  his  ends  by  selling  and  purchasing 
goods  and  services.  Before  he  can  write  poetry,  establish  schools 
to  teach  art,  or  send  forth  missionaries  to  make  converts  to  the  aboli- 
tion of  the  price-system,  he  must  obey  its  commands.  His  aspirations 
may  all  be  spiritual,  he  may  rebel  at  the  existence  of  the  institution, 
but  in  the  end  no  choice  is  left  save  obedience.  This  is  not  because 
he  is  money-mad,  nor  because  money  motivates  his  activities,  but 
because  he  lives  in  a  society  so  organized  that  pecuniary  income  is  a 
definite  and  exact  summary  of  his  varied  and  complex  assortment  of 
motives.  The  constraint  to  subordinate  welfare  to  wealth  proceeds 
neither  from  an  instinct  nor  a  morbid  desire,  but  from  the  nature  of 
the  social  organization. 

C.     PECUNIARY  COMPETITION 
67.     Economic  Activity  as  a  Struggle  for  Existence'' 

BY  ARTHUR   FAIRBANKS 

The  conditions  of  struggle  are  all  but  universal  in  society.  Even 
writers  who  regard  society  as  an  organism  point  out  a  degree  of 
competition  between  different  functions  and  organs  in  the  animal 
organism,  and  profess  no  surprise  that  with  the  less  rigid  structure 
ot  society,  this  competition  becomes  a  far  more  important  phase  of 
all  activity. 

^  Adapted  from  hitroduclion  to  Sociology,  pp.  239-54.  Published  by 
Charles  Scribner's  Sons.  1896. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      157 

It  needs  no  second  glance  to  satisfy  one  that  the  economic  activ- 
ity of  society  may  fittingly  be  called  a  struggle.  Follow  some  indus- 
trial product  from  the  factory  up  to  the  time  when  it  is  consumed. 
The  manufacturer  of  cotton  goods  chooses  between  competing  places 
for  his  factory;  the  makers  of  his  machinery  are  struggling  with 
each  other  to  produce  most  economically  engines,  looms,  etc.,  that 
are  best  adapted  to  his  work ;  raw  products  he  buys  from  sellers 
competing  in  the  open  market ;  labor  he  hires  from  among  men 
who  bid  against  each  other  for  his  work ;  transportation  companies 
compete  with  one  another  in  cheaply  transferring  his  goods  to  mar- 
ket; and,  in  the  market,  seller  is  struggling  with  seller  for  the  priv- 
ilege of  a  sale  with  profit ;  buyer  and  seller  bargain  together  to  agree 
on  a  price.  The  present  century  has  seen  barrier  after  barrier  swept 
away,  till  the  whole  world  enters  more  or  less  freely  into  the  one 
struggle ;  family  and  social  distinctions  are  being  obliterated  in  the 
industrial  world ;  customs  and  laws  in  restraint  of  trade  have  been 
set  aside. 

The  result  of  this  sudden  expansion  of  the  industrial  struggle 
is  to  force  more  clearly  on  thinkers  the  fact  that  civilization  moves, 
not  away  from  struggle,  but  to  new  forms  of  struggle.  And  the 
efforts  to  deal  with  the  many  difficulties  which  have  arisen  from  this 
sudden  change  make  it  clear  that  it  is  not  by  seeking  to  prevent 
struggle,  but  by  modifying  its  forms,  that  progress  will  be  made. 
Laborers  who  suffered  in  an  unequal  struggle  have  won  their  rights 
by  combining  and  entering  the  struggle  as  a  larger  unit.  Groups 
of  co-operative  buyers  have  united  to  do  away  with  the  petty  compe- 
tition of  the  retail  store,  by  elevating  competition  to  a  more  reason- 
able plane.  Nor  are  the  greatest  monopolies  of  the  day  altogether 
free  from  the  higher  forms  of  pressure  in  the  economic  struggle, 
uncontrolled  as  they  may  seem  for  a  time. 

The  change  in  the  form  of  the  struggle  modifies  the  competing 
units.  More  in  evidence  just  now  is  the  struggle  between  groups 
determined  by  class  lines  than  groups  determined  by  territorial  lines. 
With  the  passing  of  the  dominance  of  individualism,  the  struggle, 
apparently,  is  between  larger  groups.  The  truth  is  that  a  simple 
struggle  is  being  succeeded  by  a  complex  struggle  between  different 
kinds  of  units.  The  individual  is  freed  from  numerous  restrictions 
that  used  to  hamper  him,  but  the  competition  in  which  he  engages 
is  limited  in  a  new  way.  Not  only  does  increasing  differentiation 
effectively  limit  the  number  with  whom  he  competes,  but  much  of  the 
burden  of  the  struggle  is  shifted  from  the  shoulders  of  the  isolated 
individual  to  the  group  of  which  he  is  a  member.  Group  competes 
with  group,  and  the  individual  competes  only  with  the  other  members 
of  the  group.    The  town  removes  many  phases  of  the  struggle  for 


158  CURRENT  ECONOMIC  PROBLEMS 

existence  from  each  individual,  the  state  removes  many  others ;  but 
within  each  poHtical  unit  other  ends  call  out  the  energy  of  the  in- 
dividual citizen.  The  manufacturer,  in  competing  with  other  manu- 
facturing groups,  removes  from  his  workmen  much  of  the  stress  of 
economic  struggle,  but,  within  definite  lines,  the  workman  has  only 
the  more  bitter  a  battle  to  fight. 

But  no  group  organization  has  or  can  eliminate  personal  competi- 
tion between  the  members  of  a  group.  The  actual  outcome  of  the 
social  process  in  which  the  fit  tend  to  survive  and  multiply  depends 
largely  upon  the  organization  of  a  given  society.  With  the  removal 
of  rigid  barriers  there  has  developed  a  more  or  less  definite  appara- 
tus for  weeding  out  the  unfit,  and  advancing  those  who  are  fit  for 
better  things.  In  the  contest  for  industrial  position,  the  laborer  who 
can  most  economically  perform  a  given  task  is  the  only  one  to  whom 
an  employer  can  afford  to  give  the  task.  Each  industrial  crisis  con- 
stitutes a  severe  test  for  everyone  in  the  industrial  world;  the  less 
fit  are  thrown  out  of  their  place  in  the  industrial  world,  wherever 
it  may  be.  The  so-called  "out-of-work"  class  simply  consists  of 
those  whose  work  cannot  be  utilized.  During  periods  of  industrial 
expansion,  the  man  of  wisdom,  skill,  and  vigor  expects  advance- 
ment, because  new  positions  are  being  created  for  which  these  are 
the  only  recommendation.  Always,  everywhere,  this  contest  for 
individual  position  is  going  on. 

68.     Competition  and  Organization® 

BY   CHARLES   H.   COOLEY 

It  seems  to  me  that  the  fundamental  point  always  touched  upon 
in  questions  of  competition  is  the  meaning  of  competition  in  rela- 
tion to  organization.  What  is  the  meaning  of  competition  in  this 
regard?  I  take  it  to  be  simply  an  organizing  process.  The  world 
is  full  of  various  agents.  These  agents  in  one  way  or  another  are 
continually  getting  displaced  in  the  social  structure,  by  the  death  of 
individuals,  the  decay  of  groups  and  systems,  etc.  Some  method 
must  be  found  of  constantly  building  up  the  organization.  If  there 
is  any  other  method  of  doing  this  than  competition  in  the  broad 
sense  I  do  not  know  what  it  is.  There  must  be  some  means  of  com- 
paring and  selecting  the  agents  and  adapting  them  to  their  work. 

Competition  is  not  merely  a  cause  of  organization;  it  is  also  an 
effect.  As  everywhere  else  in  the  interdependent  social  system,  we 
find  all  influences  interacting,  each  a  cause  of  change  in  the  other. 
Organization  is  a  cause  in  that  it  furnishes  motives  and  standards 

^Adapted  from  an  article  in  the  American  Journal  of  Sociology,  XIII 
(1907),  655-58. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      159 

and  methods  of  competition.  These  things  are  determined  by  cus- 
tom, by  law,  by  pubhc  opinion,  by  the  inherited  ideas  of  men. 

Taking  these  points  for  granted,  we  come  to  the  question,  What 
is  the  matter  with  existing  competition?  I  should  say  the  matter  is 
simply  that  existing  competition  shares  in  the  prevailing  disintegra- 
tion of  social  structures.  We  are  all  familiar  with  this  disintegra- 
tion. It  is  chiefly,  though  not  entirely,  economic  in  its  origin.  The 
result  is  that  the  standards,  the  methods  of  competition,  today,  are 
very  far  from  being  what  the  most  enlightened  human  nature  would 
desire  to  have  them.  They  are  what  is  sometimes  called  "individual- 
istic" in  the  bad  sense  of  the  word. 

Perhaps  I  can  best  indicate  this  by  taking  an  example.  Let  us 
suppose  that  there  is  a  ship  sailing  on  the  seas,  properly  manned 
with  officers  and  crew.  Here  is  an  organization.  It  may  not  be 
apparent  at  first  that  competition  is  going  on  in  this  little  society ; 
but  it  is.  If  a  mate  does  well,  he  may  very  likely  get  appointed  cap- 
tain on  the  next  cruise,  or  his  wages  may  be  raised.  Or  again  the 
ship  may  be  competing  with  another  ship  across  the  ocean  and  vari- 
ous advantages  may  accrue  if  it  succeeds.  Here  is  a  well-ordered  com- 
petition in  which  merit  succeeds.  That  is  to  say,  the  test  of  success  is 
something  for  the  good  of  society,  namely,  the  welfare  of  the  ship 
and  of  commerce.  But  suppose  that  the  ship  quite  unexpectedly  in 
the  dark  runs  upon  an  iceberg.  The  captain  and  the  crew  are 
thrown  into  the  water.  The  society  immediately  and  entirely  dis- 
appears. The  individuals  are  all  struggling  in  the  water,  and  a  new 
kind  of  competition  takes  place.  From  the  good  of  the  ship  and 
society,  it  falls  back  on  the  animal  instinct  for  self-preservation. 
Man  becomes  a  mere  brute  under  these  circumstances.  The  customs 
and  modes  of  thought  that  keep  society  on  a  proper  level  are  de- 
stroyed. 

Something  analogous  to  this  is  widely  prevalent  in  present  society. 
To  pass  on  to  the  question  as  to  how  competition  may  become 
better :  It  is  by  building  up  the  social  organization  through  competi- 
tion itself  and  raising  the  level  of  that  competition  by  the  ordinary 
methods  of  human  endeavor. 

69.     The  Ethics  of  Competition 

a)     The  Beneficence  of  Competition'' 

BY    CHARLES    KINGSLEY 

Sweet  competition !  Heavenly  maid ! — Now-a-days  hymned  alike 
by  penny-a-liners  and  philosophers  as  the  ground  of  all  society — 

''From  "Cheap  Clothes  and  Nasty,"  in  Alton  Lake  (1850),  pp.  Ixviii-lxix. 


i6o         CURRENT  ECONOMIC  PROBLEMS 

the  only  real  preserver  of  the  earth!  Why  not  of  Heaven,  too? 
Perhaps  there  is  competition  among  the  angels,  and  Gabriel  and 
Raphael  have  won  their  ranks  by  doing  the  maximum  of  worship 
on  the  minimum  of  grace?  We  shall  know  some  day.  In  the  mean- 
time, "these  are  thy  works,  thou  parent  of  all  good !"  Man  eating 
man,  eaten  by  man,  in  every  variety  of  degree  and  method!  Why 
does  not  some  enthusiastic  political  economist  write  an  epic  on  "The 
Consecration  of  Cannibalism"  ? 

b)   The  Selfishness  of  Competition^ 

BY  S.   J.   CHAPMAN 

I  must  reiterate,  in  order  that  there  may  be  no  mistake,  that 
modern  analytical  economics  neither  assumes  nor  advocates  selfish- 
ness. But  without  relegating  sentiment  to  Saturn,  we  may  hold 
that  the  affections  do  not  directly  enter  into  most  business  transac- 
tions. "Oh  'tis  love,  'tis  love,  that  makes  the  world  go  round," 
asserted  the  duchess  in  Alice  in  Wonderland.  "Somebody  whis- 
pered," said  Alice,  "that  it's  done  by  everybody  minding  his  own 
business."  However,  among  the  impulses  which  are  the  motive 
power  of  business  activities,  the  affections  may  play  a  large  part 
indirectly.  A  man  may  work  his  best  to  make  as  much  as  possible 
in  the  interests  of  his  family  or  friends,  or  even  for  philanthropic 
purposes.  Finally  it  must  not  be  imagined  that,  in  the  absence  of 
altruistic  motives,  a  man  who  works  his  hardest  for  success  must 
be  sordid.  The  passion  of  great  business  leaders  is  commonly  quite 
other  than  that  of  the  miser.  Because  money  provides  the  counters 
which  measure  commercial  triumphs,  we  are  apt  to  go  astray  in 
our  analysis.  They  who  play  cards  for  cowries  are  not  mastered 
by  a  passion  for  cowries. 

cJThe  Utility  of  Competition^ 

To  sell  an  equity  in  a  business  which  does  not  satisfy  one's  morals 
seems  a  relic  of  antiquated  individualisiji,  yet  any  one  of  us  would 
do  it.  We  object  to  renting  property  for  saloon  purposes,  to  owning 
stock  in  patent-medicine  concerns,  to  enjoying  dividends  made  pos- 
sible by  child  labor,  overwork  of  employes,  or  forcing  the  incidence 
of  industrial  risk  upon  them.  Regarding  the  issue  as  one  of  personal 
morality,  we  wash  our  hands  by  selling  our  holdings  to  others  whose 

8  From  Outlines  of  Political  Economy,  pp.  17-18.  Copyright  by  Longmans, 
Green  &  Co.,  191 1. 

"  From  "The  Price-System  and  Social  Policy,"  Journal  of  Political 
Economy,  XXVI,  48,  note  (1018). 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      i6i 

particular  scruples  do  not  apply  to  the  objectionable  practices.  Yet 
such  sales  merely  salve  individual  conscience  ;  they  contribute  nothing 
to  an  elimination  of  the  objectionable  practices.  In  fact  the  invest- 
ment market  has  been  organized  in  such  a  way  as  to  permit  an  easy 
gravitation  of  equities  in  property  toward  those  whose  consciences 
are  best  fitted  for  their  ownership.  One  endowed  with  a  gift  of  narra- 
tive might  write  a  satirical  story  about  a  group  of  very  virtuous  in- 
dividuals, each  of  whom  happened  to  be  left  with  a  minority  interest 
in  a  concern  that  engaged  in  practices  which  he  disapproved.  Each 
would  set  about  ridding  himself  of  his  investment.  Such  a  redistribu- 
tion of  equities  would  be  eflfected  that  each  would  come  into  pos- 
session of  a  property  whose  uses  met  his  scruples.  Thus  the  con- 
sciences of  all  would  be  freed  from  their  burdens  and  the  objection- 
able practices  would  be  left  intact. 

70.     The  Plane  of  Competition'" 

BY  HENRY  C.  ADAMS 

What  is  meant  by  saying  that  unguarded  competition  tends  to 
lower  the  moral  sense  of  a  business  community?  Wherever  the 
personal  element  of  a  service  comes  prominently  into  view,  and  the 
character  of  the  agent  rather  than  the  quality  of  goods  is  forced 
into  prominence,  probity  has  its  market  value  and  honesty  may  be 
the  best  policy.  But  in  the  commercial  world  as  at  present  organ- 
ized, where  the  producer  and  the  consumer  seldom  come  into  per- 
sonal contact,  the  moral  arrangements  followed  in  the  process  of 
production  are  not  permitted  a  moment's  thought.  All  that  is  con- 
sidered by  the  purchaser  is  the  quality  and  the  price  of  the  goods. 
Those  that  are  cheap  he  will  buy,  those  that  are  dear  he  will  reject ; 
and  in  this  manner  he  encourages  those  methods  of  production  that 
lead  to  cheapness. 

There  are  of  course  exceptions  to  this  rule.  But  these  exceptions 
do  not  vitiate  it.  There  must  be  substantial  uniformity  in  the  methods 
of  all  producers  who  continue  in  competition  with  each  other.  Each 
man  in  the  business  must  adopt  those  rules  of  management  which 
lead  to  low  prices,  or  he  will  be  compelled  to  quit  the  business.  And 
if  this  cheapness,  the  essential  requisite  of  business  success,  be  the 
result  of  harsh  and  inhuman  measures,  or  if  it  lead  to  misrepresenta- 
tion and  dishonesty  on  the  part  of  salesmen  or  manufacturers,  the 
inevitable  result  must  be  that  harshness  and  inhumanity  will  become 
the  essential  condition  of  success,  and  business  men  will  be  obliged 
to  live  a  dual  existence. 

1"  Adapted  from  The  Relation  ^f  the  State  to  Industrial  Activity  (1887), 
PP-  39-47- 


i62  CURRENT  ECONOMIC  PROBLEMS 

The  fact  upon  which  we  insist  at  this  point  is  that  an  isolated 
man  is  powerless  to  stem  the  tide  of  prevalent  custom,  and  that  in 
many  lines  of  business  those  men  whose  moral  sensibilities  are  the 
most  blunted  exercise  an  influence  in  determining  prevalent  cus- 
tom altogether  out  of  proportion  to  their  importance  as  industrial 
agents.  Suppose  that  of  ten  manufacturers  nine  have  a  keen  appre- 
ciation of  the  evils  that  flow  from  protracted  labor  on  the  part  of 
women  and  children ;  and,  were  it  in  their  power,  would  gladly  pro- 
duce cottons  without  destroying  family  life,  and  without  setting  in 
motion  those  forces  that  must  ultimately  result  in  race-deterioration. 
But  the  tenth  man  has  no  such  apprehensions.  The  claims  of  family 
life,  the  rights  of  childhood,  and  the  maintenance  of  social  well-be- 
ing, are  but  words  to  him.  He  measures  success  wholly  by  the  rate 
of  profit.  If  now  the  state  stand  as  an  unconcerned  spectator,  the 
nine  men  will  be  forced  to  conform  to  the  methods  adopted  by  the 
one.  Their  goods  come  into  competition  with  his  goods,  and  we 
who  purchase  do  not  inquire  under  what  conditions  they  were  man- 
ufactured. In  this  manner  it  is  that  men  of  the  lowest  character 
have  it  in  their  power  to  give  the  moral  tone  to  the  entire  business 
community.  One  of  the  most  common  complaints  of  business  men 
is  that  they  are  obliged  to  conform  to  rules  of  conduct  which  they 
despise.  It  is  a  necessary  result  of  a  competitive  society  that  the 
plane  of  business  morals  is  lower  than  the  moral  character  of  a  great 
majority  of  men  who  compose  it. 

But  what,  it  may  be  asked,  can  the  state  do  in  the  premises? 
The  state  has  done  much  and  can  do  more.  That  code  of  enact- 
ments known  as  "factory  legislation"  is  addressed  to  just  this  evil 
of  competitive  society,  and  it  only  remains  for  us  to  formulate  for 
this  code  an  economic  defense.  The  general  rule  laid  down  for  the 
guidance  of  state  interference  in  industries  was  that  society  should 
be  secured  in  the  benefits  while  secured  against  the  evils  of  competi- 
tive action.  When  the  large  body  of  competitors  agree  respecting 
some  given  method  of  procedure,  but  are  powerless  to  follow  it 
because  a  few  men  engaged  in  the  same  line  of  business  refuse  to 
conform  to  the  proposed  regulations,  it  becomes  the  province  of  the 
state  to  incorporate  the  wish  of  the  majority  in  some  practical  law. 
In  this  manner  there  is  established  a  legal  plane  of  competition 
higher  than  that  which  could  be  maintained  in  the  absence  of  legal 
enactment.  This  is  no  curtailment  of  competitive  action,  but  a  de- 
termination of  the  manner  in  which  it  shall  take  place.  If  the  law 
says  that  no  child  shall  be  employed  in  factories,  the  plane  of  com- 
petition is  raised  to  the  grade  of  adult  labor.  If  married  women 
are  refused  employment,  the  nature  of  competition  is  again  changed. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      163 

but  competition  is  not  restricted.  As  the  result  of  such  legislation 
some  of  the  evils  of  the  present  system  would  disappear,  while  all 
the  benefits  of  individual  action  would  yet  be  conserved  to  society. 

This,  then,  is  one  defense  of  interference  on  the  part  of  the  state. 
It  lies  within  its  proper  functions  to  determine  the  character  of 
such  competitive  action  as  shall  take  place.  There  must  be  con- 
formity of  action  between  competitors,  and  the  only  question  is 
whether  the  best  or  the  worst  men  shall  set  the  fashion.  One  can- 
not be  neutral  with  regard  to  this  question.  No  vote  at  all  is  a 
negative  vote ;  and  a  vote  in  the  negative  is  as  positive  in  its  results 
as  one  in  the  affirmative.  Should  the  state  insist  on  following  the 
rule  of  non-interference,  society  cannot  hope  to  adjust  its  productive 
processes  to  the  best  possible  form  of  organization. 

We  have  all  of  us,  doubtless,  heard  the  claim  that  the  state  is  a 
moral  agency ;  that  it  is  imposed  with  moral  duties.  For  a  number 
of  years  after  this  phrase  came  to  my  notice,  it  presented  to  my 
mind  no  distinct  meaning.  It  seemed  to  me  to  cover  the  philan- 
thropic purpose  of  shallow  intellects,  and  to  be  most  frequently 
used  by  men  who  knew  not  the  way  of  guile  nor  anything  else  for 
certain.  But  properly  understood  this  phrase  contains  a  deep  truth 
of  social  philosophy.  It  does  not  mean  that  the  law  is  a  schoolmaster 
coercing  men  to  be  good,  nor  that  it  is  the  depository  of  a  social 
ideal  to  be  admired ;  but,  on  the  contrary,  it  means  that  the  law  is  an 
agency  for  the  realization  of  the  higher  ideals  of  men  by  guarding 
them  from  that  competition  which  would  otherwise  force  them  to  a 
lower  plane  of  action,  or  else  force  them  out  of  business.  In  per- 
forming such  a  duty  the  state  performs  a  moral  function,  for  it  reg- 
ulates competition  to  the  demands  of  the  social  conscience.  Under 
the  individual  may  be  made  to  coincide,  in  some  degree,  with  the 
fundamental  interests  of  society,  and  thus,  by  disregarding  the  dogma 
the  guiding  influence  of  such  a  thought  the  immediate  interests  of 
of  laissez  faire,  the  fundamental  purpose  of  those  formulating  the 
doctrine  is  in  part  realized. 

D.     PRICE-FIXING  BY  AUTHORITY 

71.     The  Statute  of  Laborers^  ^ 

Edward  to  the  Reverend  Father  in  Christ,  William,  Archbishop 
of  Canterbury,  Primate  of  all  England,  greeting.  Because  a  great 
part  of  the  people,  and  especially  of  workmen  and  servants,  have 
lately  died  in  the  pestilence,  many  seeing  the  necessities  of  masters 

11  Adapted  from  Statutes  of  the  Realm  (about  1349),  PP-  307-8. 


i64  CURRENT  ECONOMIC  PROBLEMS 

and  great  scarcity  of  servants,  will  not  serve  unless  they  may  re- 
ceive excessive  wages,  and  others  prefering  to  beg  in  idleness  rather 
than  by  labor  to  get  their  living;  we,  considering  the  grievous  in- 
commodities  which  of  the  lack  especially  of  ploughmen  and  such 
laborers  may  hereafter  come,  have  upon  deliberation  with  the  pre- 
lates and  the  nobles  and  learned  men  assisting  us,  with  their  unani- 
mous counsel  ordained : 

That  every  man  and  woman  of  our  realm  of  England,  of  what 
condition  he  be,  free  or  bond,  able  in  body,  and  within  the  age  of 
sixty  years,  not  living  in  merchandising,  nor  exercising  any  craft, 
nor  having  his  own  whereof  he  may  live,  nor  land  of  his  own 
about  whose  tillage  he  may  occupy  himself,  and  not  serving  any 
other;  if  he  be  required  to  serve  in  suitable  service,  his  estate  con- 
sidered, he  shall  be  required  to  serve  him  which  shall  so  require  him ; 
and  take  only  the  wages,  livery,  meed,  or  salary  which  were  accus- 
tomed to  be  given  in  the  places  where  he  oweth  to  serve,  the  twen- 
tieth year  of  our  reign  of  England.  Provided  always  that  the  lords 
be  preferred  before  others  so  in  their  service  to  be  retained ;  so  that, 
nevertheless  the  said  lords  shall  retain  no  more  than  necessary  for 
them.  And  if  any  man  or  woman  being  so  required  to  serve  will  not 
do  the  same,  and  that  be  proved,  he  shall  immediately  be  taken  to 
the  next  goal,  there  to  remain  under  straight  keeping,  till  he  find 
surety  to  serve. 

If  any  reaper,  mower,  other  workman  or  servant,  retained  in 
any  man's  service,  do  depart  from  the  said  service  without  reason- 
able cause  or  license,  before  the  term  agreed,  he  shall  have  pain  of 
imprisonment;  and  no  one,  under  the  same  penalty,  shall  presume 
to  receive  or  retain  such  a  one. 

No  one,  moreover,  shall  pay  or  promise  to  pay  to  anyone  more 
wages  than  was  accustomed ;  nor  shall  anyone  in  any  other  manner 
demand  or  receive  them,  upon  pain  of  doubling  of  that  which  shall 
have  been  so  paid  to  him  who  thereof  shall  feel  himself  aggrieved; 
and  if  none  such  shall  sue,  then  the  same  shall  be  applied  to  any 
one  of  the  people  that  will  sue.  And  if  lords  presume  in  any  point 
to  come  against  this  present  ordinance,  then  suit  shall  be  made 
against  them.  And  if  any  one  before  this  present  ordinance  has 
covenanted  with  any  so  to  serve  for  more  wages,  he  shall  not  be 
bound  to  pay  more  than  was  wont ;  nor,  under  the  same  penalty,  shall 
he  presume  to  pay  more. 

Also,  saddlers,  skinners,  white  tawyers,  cordwainers,  tailors, 
smiths,  carpenters,  masons,  tilers,  shipwrights,  carters,  and  all  other 
artificers  and  workmen,  shall  not  take  for  their  labor  and  workman- 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION       165 

ship  above  the  same  that  was  wont  to  be  paid  to  such  persons  the 
said  twentieth  year. 

Also,  that  butchers,  fishmongers,  innkeepers,  brewers,  bakerS, 
poulterers,  and  all  other  sellers  of  all  manner  of  victuals  be  bound  to 
sell  the  same  victuals  for  a  reasonable  price,  having  respect  to  the 
price  that  such  victuals  are  sold  at  in  the  places  adjoining,  so  that 
the  said  sellers  shall  have  moderate  gains ;  and  if  any  sell  the  said 
victuals  in  any  other  manner,  and  thereof  be  convicted,  he  shall  pay 
the  double  of  the  same  that  he  so  received  to  the  party  injured. 

And  because  that  many  strong  beggars,  as  long  as  they  may  live 
by  begging,  do  refuse  to  labor,  giving  themselves  to  idleness  and 
vice,  and  sometimes  to  theft  and  other  abominations ;  none  upon  the 
said  plan  of  imprisonment  shall,  under  the  color  of  pity  or  alms,  give 
anything  to  such,  so  that  thereby  they  may  be  compelled  to  labor  for 
their  necessary  living. 

72.     The  Futility  of  Price-Fixing'^ 

BY  JOHN   WITHERSPOON 

If  you  make  a  law  that  I  shall  be  obliged  to  sell  my  grain,  my 
cattl^e,  or  any  commodity,  at  a  certain  price,  you  not  only  do  what 
is  unjust  and  impolitic,  but  with  all  respect  be  it  said,  you  speak  non- 
sense ;  for  I  do  not  sell  them  at  all :  you  take  them  from  me.  You 
are  both  buyer  and  seller  and  I  am  the  sufferer  only. 

I  cannot  help  observing  that  laws  of  this  kind  have  an  inherent 
weakness  in  themselves ;  they  are  not  only  unjust  and  unwise,  but  for 
the  most  part  impracticable.  They  are  an  attempt  to  apply  authority 
to  that  which  is  not  its  proper  object,  and  to  extend  it  beyond  its 
natural  bounds ;  in  both  which  we  shall  be  sure  to  fail.  The  produc- 
tion of  commodities  must  be  the  effect  of  industry,  inclination,  hope, 
and  interest.  „The  first  of  these  is  very  imperfectly  reached  by  au- 
thority, and  the  other  three  cannot  be  reached  by  it  at  all.  Accord- 
ingly we  found  in  this  country,  and  every  other  society  which  ever 
tried  such  measures  found,  that  they  produced  an  effect  directly 
contrary  to  what  was  expected  from  them.  Instead  of  producing 
moderation  and  plenty,  they  uniformly  produced  dearness  and 
scarcity.  It  is  worth  while  to  observe  that  some  of  our  legislatures 
saw  so  far  into  the  matter  as  to  perceive  that  they  could  not  regulate 
the  price  of  commodities,  without  regulating  the  price  of  the  industry 
that  produced  them.  Therefore  they  regulated  the  price  of  day 
laborers.  This,  however,  though  but  one  species  of  industry,  was 
found  to  be  wholly  out  of  their  power. 

12  Adapted  from  "An  Essay  on  Money,"  in  The  Works  of  the  Rev.  John 
Witherspoon  (2d  ed. ;  1802),  IV,  224-26. 


1 66  CURRENT  ECONOMIC  PROBLEMS 

There  are  some  instances  mentioned  at  the  time  when  these 
measures  went  into  vogue,  which  superficial  reasoners  supposed  to 
be  examples  of  regulating  laws  attended  with  good  effects.  These 
were  the  regulation  of  the  prices  of  chairs,  hackney-coaches,  and 
ticket-porters  in  cities,  public  ferries,  and  some  others.  But  this  was 
quite  mistaking  the  nature  of  the  thing.  These  instances  have  not 
the  least  connection  with  laws  regulating  prices  in  voluntary  com- 
merce. In  all  these  cases  the  persons  who  are  employed  solicit  the 
privilege,  obtain  a  license,  and  come  under  voluntary  engagements 
to  ask  no  higher  price ;  so  that  there  is  as  complete  a  free  contract  as 
in  buying  and  selling  in  open  shops.  I  am  so  fully  convinced  of  the 
truth  and  justice  of  the  above  principles  that  I  think,  were  it  proper 
at  this  time,  I  could  show  that  even  in  the  most  enlightened  nations 
of  Europe  there  are  still  some  laws  subsisting  which  work  in  direct 
opposition  to  the  intention  of  the  makers.  Of  this  kind  in  general 
are  the  laws  against  forestalling  and  regrating.  They  are  now  in- 
deed most  of  them  asleep ;  but  so  far  as  they  are  executed,  they  have 
the  most  powerful  tendency  to  prevent,  instead  of  promoting  full 
and  reasonable  markets.  As  an  example  of  our  own  skill  in  this 
branch  a  law  was  passed  in  Pennsylvania  in  time  of  the  war  pre- 
cisely upon  this  principle.  It  ordained  that  in  all  imported  articles 
there  should  be  but  one  step  between  the  importer  and  consumer,  and 
that  therefore  none  of  those  who  bought  from  the  ship  should  be 
allowed  to  sell  again.  The  makers  of  it  considered  that  every  hand 
through  which  a  commodity  passed  must  have  a  profit  upon  it,  which 
would  therefore  greatly  augment  the  cost  to  the  consumer  at  last. 
But  could  anything  in  the  world  be  more  absurd?  How  could  a 
family  at  one  hundred  miles  distance  from  the  seaboard  be  supplied 
with  what  they  wanted?  In  opposition  to  this  principle  it  may  be 
safely  affirmed  that  the  more  merchants  the  cheaper  goods,  and  that 
no  carriage  is  so  cheap,  nor  any  distribution  so  equal  or  so  plentiful 
as  that  which  is  made  by  those  who  have  an  interest  in  it  and  expect 
a  profit  from  it. 

73.     The  Problem  of  Controlling  Prices^^ 

BY   J.    MAURICE    CLARK 

The  subject  of  price  levels  and  their  movements  is  a  particularly 
fruitful  field  for  economic  fallacies,  because  it  is  so  easy  to  think  of 
the  problem  in  terms  of  prices  alone,  whereas  the  fundamental  facts 
are  the  volume  of  production  of  commodities  and  the  sharing  of 

^^  Adapted  from  "Prices  and  Price  Control,"  in  Clark.  Hamilton,  and 
Moulton,  Readings  in  the  Economics  of  War,  pp.  439-41.  Copyright  by  the 
University  of  Chicago,  1918. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      167 

these  commodities  among  the  people.  Prices  are  only  an  instrument 
in  bringing  this  about.  A  shortage  of  production  cannot  be  turned 
into  prosperity  for  producers  in  general  by  freedom  to  raise  prices, 
and,  on  the  other  hand,  the  consumer  cannot  be  saved  the  eflfects 
of  a  shortage  by  keeping  prices  down.  A  revolution  in  prices  does 
mean  increasing  the  cost  of  the  war.  It  also  makes  necessary  a 
general  raising  of  wages,  and  this  means  friction,  strikes,  and  stop- 
page of  work. 

It  is  becoming  the  fashion  to  say  that  in  controlling  prices  the 
government  is  "repealing  the  law  of  demand  and  supply" — this  state- 
ment being  most  often  made  by  persons  who  would  have  some  trouble 
in  stating  accurately  just  what  the  law  is.  It  is  true  that  prices  are 
fixed  at  different  levels  from  those  which  would  have  resulted  in  leav- 
ing supply  and  demand  uncontrolled  by  anything  save  the  prices  that 
free  bargaining  would  fix,  but  it  is  not  true  that  prices  can  be  fixed 
without  any  reference  to  the  necessity  of  making  demand  and  supply 
equal.  If  prices  are  to  be  kept  down,  it  can  only  be  by  furnishing 
some  other  method  than  that  furnished  by  high  prices  for  stimulating 
supply  and  for  appropriating  the  shortage.  The  attempts  of  govern- 
ments to  influence  prices  act  within  limits,  and  these  limits  are  set 
by  their  ability  to  stimulate  production  and  cut  down  consumption  in 
other  ways  than  by  raising  prices.  In  time  of  war  patriotism  has 
great  power  for  both  purposes.  The  Food  Administration  has  en- 
listed both  producers  and  consumers  as  members.  However,  the  con- 
trol of  the  consumer  can  be  made  more  drastic  and  certain  by  work- 
ing through  the  producer,  and  our  typical  policy  seems  to  be  to  put 
the  producer  on  rations,  so  to  speak,  and  let  him  satisfy  his  customers 
as  best  he  may.  If  his  prices  are  kept  down,  he  will  have  to  face  an 
excess  of  demand  over  supply,  and  he  must  handle  it  as  best  he  can. 

There  are  almost  as  many  kinds  of  price-fixing  as  there  are  com- 
modities. The  mere  letting  of  government  contracts  controls  prices, 
and  the  concentrated  buying  for  our  Allies  controls  them  more  power- 
fully. There  is  control  by  agreement,  as  in  the  case  of  metal,  con- 
trol by  legislation,  as  in  the  case  of  wheat,  control  by  executive  order, 
as  in  the  case  of  coal,  control  by  arbitration,  as  in  the  case  of  milk, 
and  there  is  control  of  prices  through  control  of  profits,  as  in  the  case 
of  meat-packers,  flour-millers,  and  dealers  in  general.  There  are 
guaranteed  minimum  prices  to  stimulate  production,  and  maximum 
prices  to  protect  consumers.  Control  of  profits  takes  as  its  standard 
a  margin  of  so  much  per  barrel  for  flour,  a  percentage  return  on  capi- 
tal or  on  sales  for  meat-packers,  or  the  pre-war  level  for  dealers  in 
many  essential  commodities.  Each  of  these  policies  is  diflferent  from 
the  others  in  its  possible  effects.    If  one  price  is  fixed,  it  must  be  high 


1 68  CURRENT  ECONOMIC  PROBLEMS 

enough  to  pay  the  marginal  producer,  and  thus  yield  high  prices  to 
those  who  have  advantage  of  one  sort  or  another.  But  in  the  case  of 
coal  the  favored  producers  are  forced  to  share  their  gains  with  the 
consumer,  even  though  this  means  selling  better  coal  at  a  lower  price 
in  the  same  market.  Similarly,  dealers  in  foodstuffs  who  had  bought 
at  low  prices  have  been  forced  to  sell  cheaper  than  their  competitors 
who  had  bought  the  same  commodity  at  a  different  time  and  at  a 
higher  price.  This  policy  is  possible  because  the  demand  is  strong 
enough  to  take  the  whole  supply  at  the  higher  prices — so  that  the 
consumers  who  get  lower  prices  are  favored,  as  they  would  not  be  in 
an  open  market,  by  being  presented  with  a  share  of  "producer's  sur- 
plus." 

Many  knotty  questions  are  raised.  What  is  a  farmer's  investment 
in  his  land,  and  what  is  a  fair  return  on  it?  If  the  land  is  taken  at 
the  present  market  value,  should  the  farmer  get  5  per  cent  on  that 
value,  if  the  farming  class  has  for  years  bought  land  at  prices  as  high 
as  thirty  times  the  worth  of  the  net  income  from  it?  This  seems 
obviously  fair  to  many  people,  but  it  would  lead  to  an  endless  spiral 
of  rising  prices.  If  a  piece  of  land  yields  $1,000  and  is  worth  $30,000, 
its  owner  could  demand  an  increase  in  prices  that  would  net  him 
$1,500.  After  he  has  got  this  increase  his  land  would  sell  for  $45,000, 
or  for  a  price  that  would  net  him  $2,250,  after  which  the  price 
of  his  land  would  rise  again,  and  so  on.  Other  problems  arise  in 
calculating  investment  and  profits  and  in  standardizing  products.  The 
rules  on  these  matters  which  the  war  has  given  are  but  faint  fore- 
shadowings  of  what  would  be  necessary  if  price  control  were  to  be 
general  and  permanent.  In  taking  the  producer's  books  as  they  stand 
there  is  injustice,  because  accounting  practice  differs  from  one  pro- 
ducer to  another,  and  a  uniform  accounting  system  must  be  prescribed 
if  this  sort  of  unfairness  is  to  be  prevented. 

In  general  the  control  of  prices  in  war  differs  radically  from  the 
price  control  of  peace  times,  particularly  in  America,  and  methods 
have  been  used  which  would  seem  like  intolerable  rough-and-ready 
makeshifts  to  one  trained  in  the  circumspect  procedure  of  the  courts 
and  commissions.  For  one  thing  war-time  control  of  temporary  com- 
petitive gains  due  to  shortage  does  not  attempt  to  cut  margins  of 
profit  nearly  so  fine  as  peace-time  control  of  the  more  permanent  and 
relatively  safe  gains  due  to  a  natural  monopoly.  The  willingness  of 
producers  to  co-operate  has  possibly  enabled  the  government  to  get 
results  by  methods  that  could  not  be  used  permanently.  But  on  the 
other  hand  it  is  also  possible  that  something  of  the  freedom  and  "get- 
there"  quality  of  war-time  regulation  may  remain  to  color  the  policies 
of  the  future.    The  ultimate  outcome  will  doubtless  be  determined, 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      169 

as  the  war  policy  has  been,  by  experimenting  and  by  meeting  the  prob- 
lems of  the  future  as  they  arise. 


E.  THE  FUNCTION  OF  THE  MIDDLEMEN 

74.     A  Condemnation  of  Forestallers^* 

Especially  be  it  commanded  on  the  part  of  our  lord  the  king,  that 
no  forestaller  be  suffered  to  dwell  in  any  town — a  man  who  is  openly 
an  oppressor  of  the  poor,  and  the  public  enemy  of  the  whole  com- 
munity and  country  ;  a  man  who,  seeking  his  own  evil  gain,  oppressing 
the  poor  and  deceiving  the  rich,  goes  to  meet  corn,  fish,  herrings,  or 
other  articles  for  sale  as  they  are  being  brought  by  land  or  water,  car- 
ries them  off,  and  contrives  that  they  should  be  sold  at  a  dearer  rate. 
He  deceives  merchant  strangers  bringing  merchandise  by  offering  to 
sell  their  wares  for  them,  and  telling  them  that  they  might  be  dearer 
sold  than  the  merchants  expected ;  and  so  by  craft  and  subtlety  he 
deceives  his  town  and  his  country.  He  that  is  convict  thereof,  the 
first  time  shall  be  amerced  and  lose  the  things  so  bought,  and  that 
according  to  the  custom  and  ordinance  of  the  town  ;  he  that  is  convict 
the  second  time  shall  have  judgment  of  the  pillory ;  at  the  third  time 
he  shall  be  imprisoned  and  make  fine  ;  the  fourth  time  he  shall  abjure 
the  town.  And  this  judgment  shall  be  given  upon  all  manner  of  fore- 
stallers,  and  likewise  upon  those  that  have  given  them  counsel,  help, 
or  favor. 

75.     If  Forestallers  Had  Their  Deserts^-' 

BY    GEORGE   WASHINGTON 

It  gives  me  great  pleasure  to  find  that  there  is  likely  to  be  a 
coalition  of  the  Whigs  in  your  State,  and  that  the  Assembly  of  it 
are  so  well  disposed  to  second  your  endeavors  in  bringing  those  mur- 
derers of  our  cause,  the  monopolizers,  forestallers,  and  engrossers,  to 
condign  punishment.  It  is  much  to  be  lamented  that  each  State  long 
ere  this  has  not  hunted  them  down  as  the  pests  of  society,  and  the 
greatest  enemies  we  have  to  the  happiness  of  America.  I  would  to 
God,  that  one  of  the  most  atrocious  in  each  State  was  hung  in  gibbets 
upon  a  gallows  five  times  as  high  as  the  one  prepared  by  Haman.  No 
punishment,  in  my  opinion,  is  too  great  for  the  man  who  can  build  his 
greatness  upon  the  country's  ruin. 

^*Adapted  from  Statutes  of  the  Realm  (about  1269),  I,  202. 

1^  From  a  letter  to  Joseph  Reed,  dated  December  12,  1778,  in  The  Writings 
of  George  Washington,  VII,  282.     Edited  by  Worthington  Chauncey  Ford. 


170  CURRJSNT  ECONOMIC  PROBLEMS 

76.     The  Function  of  the  Middleman^" 

BY    HARTLEY    WITHERS 

Anything  that  has  been  grown  or  made  usually  has  to  go  a  long 
way  and  pass  through  many  hands  before  it  comes  into  the  possession 
of  the  man  who  finally  eats  it  or  wears  it  or  otherwise  consumes  it. 
Every  pair  of  hands  through  which  it  passes  takes  toll  of  it,  that  is 
to  say,  adds  something  to  the  price  that  the  final  consumer  pays,  or 
takes  something  off  the  profit  that  goes  to  the  shareholders  in  the 
producing  company,  or  off  the  wages  that  can  be  paid  to  the  workers 
who  made  it. 

Most  of  these  intermediaries  are  necessary.  It  is  easy  to  talk  of 
doing  away  with  the  middleman,  but  when  he  is  done  away  with  he. 
usually  comes  to  life  again  in  another  form  or  under  another  name. 
The  most  clearly  necessary  intermediary  is  the  transporter.  There 
is  also  at  least  one  merchant,  a  broker  or  two,  and  the  shopkeeper 
who  finally  makes  the  retail  sale  to  the  consumer.  Furthermore, 
there  is  another  chain  of  people  who  are  just  as  essential  as  the 
transporters — namely,  the  bankers,  financiers,  and  bill-brokers,  who 
find  the  credit  and  provide  the  currency  to  finance  the  movement  of 
the  stuff  from  place  to  place,  and  see  to  the  consequent  transfers  of 
cash  or  credit. 

Now  we  begin  to  see  the  reason  for  the  difference,  so  startling  at 
first  sight,  between,  for  example,  the  coal  that  is  sold  at  the  pit- 
mouth  for  los.  to  I2S.  a  ton,  and  costs  us  in  London  anything  up  to 
30.y.  It  occurs  at  once  to  all  amateur  economists  that  it  would  be  an 
enormous  saving  if  we  could  do  away  with  all  these  middlemen  and 
divide  their  gains  between  the  producer,  his  workers,  and  the  con- 
sumer. Why  should  not  the  consumer  buy  his  coal  at  the  pit-mouth  ? 
So  he  could  if  he  were  there  to  arrange  for  its  carriage,  and,  further, 
if  he  were  prepared  to  buy  a  good  round  mouth-filling  amount,  not 
homeopathic  doses  of  a  ton  or  two  at  a  time.  Also  he  would  only 
buy  on  the  alluring  cheap  terms  one  sees  quoted  in  the  papers  if 
he  contracted  to  take  large  quantities  at  regularly  recurring  intervals, 
so  that  the  colliery  company  could  be  sure  of  disposing  of  its  output. 
Further,  he  would  have  to  pay  for  the  carriage  of  the  coal,  and  by 
the  time  he  had  done  so  he  would  find  that  there  was  a  very  big  hole 
in  the  saving  he  thought  he  was  going  to  effect  by  dealing  direct  with 
the  producer. 

As  the  ordinary  cohsumer  could  not  possibly  buy  on  the  scale 
required  unless  he  had  a  large  amount  of  capital  to  sink  in  coal  and 

i^Adapted  from  Poverty  and  Waste,  pp.  115-18.  Published  by  E.  P.  Button 
&  Co.,  1914. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      171 

a  large  area  of  space  in  which  to  store  it,  and  as  he  would  also  have 
to  run  the  risk  of  its  deterioration  before  he  could  use  it,  he  would  at 
once  have  brought  home  to  him  three  services  which  are  performed 
for  him  by  middlemen,  and  would  have  to  be  performed  by  him  or 
somebody,  as  soon  as  he  did  away  with  the  middleman.  These  ser- 
vices are:  (i)  wholesale  purchase  and  retail  selling — the  fact  that 
the  merchant  is  prepared  to  take  away  the  coal  in  big  blocks  and  store 
it  and  sell  it  piecemeal  to  suit  our  convenience;  (2)  the  provision  of 
capital  to  bridge  the  gap  in  time  between  purchase  and  sale;  (3)  the 
taking  of  the  risks  of  deterioration  in  quality  if  the  coal  is  not  sold 
fast  enough,  and  of  a  spell  of  warm  weather  which  may  knock  a 
shilling  or  two  off  the  price  before  it  is  sold. 

These  services  would  have  to  be  paid  for  even  if  we  reorganized 
society  on  a  socialistic  basis. 

77.     Middlemen  in  the  Produce  Trade" 

BY  EDWIN  G.  NOURSE 

It  is  quite  the  fashion  to  impute  to  "middlemen"  sole  responsi- 
bility for  the  increases  in  prices  which  have  recently  occurred,  and 
which  together  constitute  what  is  usually  referred  to  as  "^the  high 
cost  of  living."  In  the  words  of  the  Massachusetts  Commission  on 
the  Cost  of  Living:  "A  long  line  of  commission  men,  produce  mer- 
chants, jobbers,  hucksters,  retailers,  and  what-nots,  simply  passing 
goods  from  hand  to  hand  like  a  bucket  brigade  at  a  fire,  is  not  only 
inefficient  and  wasteful,  but  very  costly.  In  these  days  a  hydrant  and 
a  line  of  hose  are  wanted." 

This  is  undoubtedly  a  vivid  statement  of  the  case,  but  like  most 
figures  of  speech,  leaves  something  to  be  desired  in  the  way  of  ac- 
curate analysis.  It  is  certainly  not  more  than  a  half-truth  to  speak 
of  middlemen  as  "simply  passing  goods  from  hand  to  hand."  The 
middleman  performs  four  distinct  functions,  whose  value  to  both 
producers  and  consumers  should  not  be  overlooked. 

In  the  first  place,  the  middleman  provides  a  market.  He  organ- 
izes the  demand  for  all  the  various  sorts  of  produce  and  brings  it 
into  effective  touch  with  the  producer,  who  is  commonly  in  no  posi- 
tion to  find  it  for  himself.  The  latter's  farm  or  orchard  is  located 
with  reference  to  advantages  for  production,  and  therefore  far  away 
from  the  markets  in  which  he  must  sell  his  product.  His  abilities 
are  too  specialized  in  the  direction  of  agricultural  proficiency  to  give 
him  the  necessary  commercial  expertness.  The  time  of  harvesting  the 
little  time  to  devote  to  the  intricate  details  of  marketing  his  product. 

"  lOiS. 


172  CURRENT  ECONOMIC  PROBLEMS 

crop  is  generally  the  busiest  season  of  the  year,  leaving  the  grower 
Finally,  there  are  comparatively  few  producers  who  have  a  sufficient 
volume  of  goods  to  enable  them  to  ship  in  carload  units,  and  yet  they 
must  move  in  such  quantities,  if  they  are  to  get  to  market  at  all. 

A  kindred  function  is  that  of  "equalization."  Supplies,  on  the 
one  hand,  are  more  or  less  unreliable,  fluctuating  in  quantity  and 
quality  according  to  the  caprice  of  weather,  pests,  floods,  and  human 
nature ;  and  demand,  on  the  other  hand,  is  no  less  arbitrary,  spas- 
modic, and  wayward.  But  if  some  central  agency  gathers  these  sup- 
plies together,  classifies  them  into  lots  of  appropriate  size,  and  directs 
them  into  channels  where  demand  is  at  the  moment  most  keen,  all 
parties  are  benefited.  A  large  part  of  consumers'  wants  cannot  be 
put  in  the  form  of  definite  orders  some  time  ahead  and  only  a  small 
portion  of  supplies  can  be  definitely  promised  in  advance.  Accord- 
ingly a  clearing-house  is  needed,  where  current  supplies  can  be  offset 
against  the  day's  demand. 

This  consideration  looks  over  into  the  second  division,  namely, 
the  middleman's  service  to  the  consumer.  To  only  a  small  extent 
is  the  modern  consumer  able  to  connect  himself  directly  with  sources 
of  supply.  He  possesses  neither  the  facilities  nor  the  knowledge. 
His  elaborate  market  basket  is  filled  from  all  over  the  world,  from 
places  he  wots  not  of,  and  yet  is  replenished  daily  from  stocks  which 
have  been  brought  within  his  daily  reach.  Commercial  agencies  of 
supply  are  scouring  the  world  for  better  goods  and  constantly  seek- 
ing better  means  of  bringing  them  to  the  place  of  use  and  keeping 
them  in  the  best  condition  until  the  time  of  use. 

Alongside  of  these  commercial  activities  of  the  produce  dealer  is 
a  third  class  of  service  which  may  be  called  "technical" — the  actual 
handling  of  the  goods,  storage,  repacking  and  regrading,  culling, 
sorting,  and  fitting  to  meet  needs  or  whims  of  the  buying  public.  It 
is  the  oft-repeated  comment  of  the  dealers  that  most  people  buy,  not 
according  to  reason,  but  according  to  their  prejudices ;  not  to  get 
nourishment,  or  flavor,  or  real  excellence,  but  to  please  the  eye.  The 
extra  labor  and  material  thus  necessarily  piles  up  extra  costs. 

Storage  is  partly  a  technical  service,  but  it  is  charged  for  on  a 
time  basis  and  so  comes  also  under  the  head  of  financing  services. 
This  fourth  class  of  the  middleman's  services  is  of  great  importance 
and  yet  is  entirely  overlooked  by  those  who  regard  him  as  engaged 
in  merely  passing  goods  from  hand  to  hand.  When  the  householder 
buys  his  apples  or  potatoes  only  as  he  needs  them,  and  pays  for  them 
only  at  the  end  of  the  month,  after  they  have  been  consumed,  he 
should  not  forget  that  someone  has  financed  that  portion  of  his 
living  expenses.     But  the  dealer  goes  farther  back  and  finances  the 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      173 

transportation  and  perhaps  the  growing  of  the  crop.  This  service 
doubly  benefits  the  producer,  because  without  it  producers  would  be 
crippled,  supplies  curtailed,  and  prices  advanced.  This  is  not  to  say 
that  producers  may  not  in  time  arrange  to  finance  their  own  opera- 
tions, but  so  long  as  the  middleman  is  called  upon  to  do  it,  he  is 
undoubtedly  performing  a  service,  which  should  not  be  overlooked 
when  we  are  balancing  his  account  with  the  public. 

F.     SPECULATION 

78.  The  Gamble  of  Life^« 

BY  JOHN   W.   GATES 

Life  if  a  gamble.  Everything  is  a  gamble.  When  the  farmer 
plants  hio  corn  he  is  gambling.  He  bets  that  the  weather  conditions 
will  enable  him  to  raise  a  good  crop.  Sometimes  he  loses,  sometimes 
he  wins.  Every  man  who  goes  into  business  gambles.  Of  course  the 
element  of  judgment  enters  in,  but  the  element  of  chance  cannot  be 
ruled  out.  Whenever  a  man  starts  on  a  railroad  journey,  it's  a 
gamble  whether  he  ever  reaches  his  destination.  All  life  is  a  gamble, 
you  see. 

79.  The  Twilight  Zone^^ 

BY   HARRY  J.   HOWLAND 

The  Stock  exchange  provides  facilities  which  are  used  for  three 
kinds  of  transactions — investment,  speculation,  and  gambling.  If 
the  transactions  on  the  floor  belonged  wholly  to  the  first  class,  the 
exchange  would  be  unqualifiedly  good.  If  they  belonged  wholly  to 
the  last  class,  it  would  be  unqualifiedly  bad.  It  is  the  middle  term  of 
this  trio  which  falls  on  debatable  ground.  Investment  needs  no  de- 
fense ;  no  defense  will  save  gambling  from  condemnation.  But  specu- 
lation is  in  a  very  different  case  from  either.  Speculation  is  a  dog 
with  a  bad  name.  It  is  possible  to  gibbet  it  along  with  gambling  and 
loose  living. 

But  is  the  verdict  just?  Is  speculation  an  unsocial  practice?  Is 
the  speculator,  like  the  gambler,  an  enemy  of  society,  a  drone  in  the 
hive,  contributing  nothing  to  the  general  welfare?  It  is  a  convincing 
answer  to  this  question  that  we  seek. 

The  three  processes  which  go  on  upon  the  floor  of  the  stock 
exchange — investment,  speculation,  and  gambling — are  often  inex- 
tricably m.ixed.  It  is  often  practically  impossible  to  assign  any  par- 
ticular operation  without  question  to  one  of  these  three  classes. 

18  Quoted  in  Current  Literature,  LXI  (1910?),  266. 

lOAdapted  from  "Speculation  and  Gambling,"  in  the  Independent,  LXXVI, 
15-17.    Copyright,  1913. 


174  CURRENT  ECONOMIC  PROBLEMS 

Investment,  for  instance,  is  sometimes  semi-speculative  in  char- 
acter. Here  is  a  man  who  has  saved  a  thousand  dollars  and  wishes 
to  lay  it  aside  against  a  future  need.  There  are  many  ways  in  v/hich 
he  may  invest  it  on  the  stock  exchange.  He  may  buy  government 
bonds  with  it.  But  in  this  case  there  is  no  chance  that  his  principal 
will  be  increased  to  any  degree  when  he  comes  to  sell  his  bonds. 
This  is  pure  investment. 

Or  he  may  purchase  a  stock  which,  while  it  pays  a  good  rate  of 
dividend  with  regularity,  is  subject  to  fluctuations  in  price.  Here  he 
has  a  paying  investment  with  the  possibility  of  an  increase  in  prin- 
cipal when  he  sells  out.  The  stock  may  turn  out,  not  only  a  good 
investment,  but  a  good  speculation. 

Or  he  may  buy  a  stock  which  at  present  is  paying  no  dividend  at 
all,  but  which  is  selling  at  an  extraordinarily  low  price.  The  value 
of  the  stock  is  all  potential.  The  element  of  investment  is  totally 
absent  from  such  a  purchase.  So  investment  and  speculation  are 
inextricably  mixed  in  all  kinds  of  operations  on  the  stock  exchange. 
In  some,  investment  predominates;  in  some,  speculation.  In  many 
the  mixture  is  of  nearly  equal  parts. 

Again,  the  hne  between  speculation  and  gambling  on  the  stock 
exchange  is  hazy  and  indistinct.  There  the  twilight  zone  is  broad 
and  clouded.  This  is  not  because  any  of  the  operations  on  the  ex- 
change are  in  form  or  in  essence  gambling  operations,  as  betting  on 
a  horse  race  or  playing  poker.  The  truth  is  that  stock  exchange  specu- 
lation is  not  gambling,  but  it  leads  to  many  of  the  same  evils  to  which 
gambling  leads.  This  statement  opens  up  highly  debatable  ground, 
Probably  the  most  common  view  is  that  stock  speculation  might  more 
properly  be  called  stock  gambling,  that  speculating  on  the  price 
fluctuations  of  stocks  is  no  different  from  gambling  on  the  fall  of 
cards  or  the  gyrations  of  the  roulette  ball.  But  there  are  two  essential 
differences,  while  at  the  same  time  there  is  one  essential  likeness. 

Speculation  differs  from  gambling  in  process.  In  a  gambling 
transaction  if  one  party  wins,  the  other  party  must  lose.  In  specula- 
tive transactions  it  is  no  more  necessary  for  one  party  to  lose  if  the 
other  party  wins  than  it  is  in  speculative  purchase  of  land  or  potatoes 
or  eggs.  The  transactions  of  the  stock  exchange  are  sales  and  pur- 
chases, bona  fide,  actual,  complete.  In  each  transaction  each  party 
to  it  gives  what  he  wants  less  for  what  he  wants  more.  The  judgment 
of  either  or  both  may  be  bad.  But  it  is  no  less  a  real  bargain,  in 
which  each  side  gets  value  received  for  what  he  gives.  Gambling,  on 
the  contrary,  does  not  involve  an  exchange  of  values.  It  is  a  con- 
tribution of  values  to  a  central  fund,  the  ultimate  ownership  of  the 
fund  to  be  determined  by  chance.    True,  in  gambling  each  contributor 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      175 

receives  a  chance  of  receiving  all  the  contributions ;  but  he  also  runs 
a  risk  of  losing  his  whole  contribution.  Thus  the  speculator  receives 
a  value  in  return  for  his  stake,  while  the  gambler  does  not.  For  the 
former  it  may  not  be  the  value  that  he  thinks  he  is  getting,  and  the 
value  actually  received  may  decline.  But  that  is  true  of  everybody 
who  buys  a  commodity  with  a  view  to  its  increase  in  value,  from 
raspberries  to  skyscrapers.  The  fact  that  a  man's  judgment  as  to 
future  values  may  prove  unsound  does  not  throw  him  into  the  class 
of  gamblers. 

Nor  does  the  fact  that  speculation  on  the  stock  exchange  is  largely 
carried  on  through  tradings  on  margins  and  short-selling  make  it 
gambling.  Both  processes  are  common  under  other  names  through- 
out the  commercial  world.  Trading  on  margin  is  buying  stock,  and 
making  only  a  small  cash  payment  at  the  time  of  purchase.  It  differs 
in  no  essential  particular  from  buying  furniture  on  the  instalment 
plan,  from  buying  land  on  mortgage,  and  from  buying  books  by  sub- 
scription. It  merely  involves  the  use  of  personal  credit  backed  by 
security. 

Short-selling  is  selling  securities  which  one  does  not  possess  at 
the  moment  in  the  expectation  and  belief  that  they  will  go  down  in 
price.  This  action  is  no  more  gambling  than  that  of  an  automobile 
manufacturer  in  contracting  to  sell  an  automobile  before  he  has  in 
his  possession  any  of  the  materials  out  of  which  it  is  to  be  made  is 
gambling. 

Speculation  and  gambling,  again,  differ  widely  in  the  service 
which  they  render  to  the  community.  Gambling  renders  none.  The 
gambler  is  a  drone  in  an  economic  hive,  a  parasite  in  the  industrial 
organism.  Speculation  renders  a  real,  a  valuable,  and  indeed  an 
indispensable  service.  Th*e  stock  exchange  brings  the  investor  and 
the  enterprise  together.  It  directs  capital  into  channels  of  invest- 
ment which  the  owners  of  the  capital  would  never  have  been  able 
to  find  for  themselves.  The  speculator  performs  an  important  func- 
tion for  the  investor  by  forecasting  the  future.  Speculation  is  the 
struggle  of  intelligence,  armed  with  a  knowledge  of  the  ascertainable 
conditions,  against  the  blind  workings  of  chance. 

The  essential  likeness  between  gambling  and  speculation  lies  in 
the  fact  that  both  are  attractive  to  those  who  have  no  business  to 
indulge  in  them.  Men  will  gamble  who  cannot  afford  to  gamble,  who 
have  no  skill  at  the  game  they  seek  to  play.  So,  too,  men  will  enter 
into  speculation  lacking  adequate  resources,  adequate  knowledge,  and 
adequate  judgment.  For  just  as  gambling  is  attractive  because  it  holds 
out  glittering  hopes  of  making  money  without  labor,  so  speculation 


176  CURRENT  ECONOMIC  PROBLEMS 

is  attractive  because  the  prizes  for  the  successful  are  out  of  all  pro- 
portion to  the  effort  expended  or  to  the  stake  put  up. 

The  main  evil  which  accompanies  speculation  lies  in  this  par- 
ticipation in  it  of  the  unfit.  It  is  not  speculation  in  itself  that  is  an 
evil,  but  the  improper  and  unwise  use  of  the  speculative  faculties  by 
the  ignorant  and  the  unskilled,  the  insufficiently  provided,  the  weak 
in  judgment. 

80.     The  Ethics  of  Speculation-^' 

What  is  speculation?  How  does  it  differ  from  legitimate  busi- 
ness ?  A  miller  knows  in  the  fall  that  next  summer  he  will  need  a 
million  bushels  of  wheat.  He  studies  the  wheat  conditions  through- 
out the  world,  forms  the  best  judgment  he  can  as  to  the  probable 
supply  and  demand,  and  the  prospective  market  price,  then  sends 
out  an  agent  to  contract  with  the  farmers  to  give  him  next  summer 
the  wheat  he  will  need  at  the  price  he  is  willing  to  pay.  This  is  a 
legitimate  business  transaction,  advantageous  to  both  miller  and 
farmer.  The  fact  that  the  miller  may  miscalculate,  and  as  a  result 
make  an  unexpected  profit  or  suffer  an  unexpected  loss  does  not  make 
the  transaction  a  speculation. 

A  broker,  who  has  no  mill  and  has  no  use  for  any  wheat,  makes  a 
similar  calculation ;  he  sends  out  his  agent,  buys  in  the  fall  of  the 
farmers  at  an  agreed  price  to  be  paid  on  delivery  the  next  summer, 
expecting  to  sell  the  wheat  in  turn  to  the  millers.  This  may  be  a 
legitimate  business  transaction.  It  is  advantageous  to  farmer  and 
miller.  And  in  modern  complicated  business  the  service  of  the  broker 
is  often  indispensable. 

A  speculator  makes  a  somewhat  similar  investigation  of  probable 
demand  and  supply.  He  knows  what  the  average  crop  for  the  last 
five  years  has  been.  He  knows  that  there  is  an  increasing  demand 
for  wheat  as  a  food  product  all  over  the  world.  He  gets  together 
some  cash  and  more  credit,  and  plans  to  buy  up  the  whole  wheat 
supply  in  the  United  States ;  if  necessary,  the  whole  wheat  supply  of 
America.  If  he  can  succeed  in  doing  this,  he  will  have  a  monopoly, 
and  can  indefinitely  increase  the  price.  This  is  not  quite  so  impos- 
sible as  it  may  seem  at  first  sight.  He  does  not  have  to  buy  all  the 
wheat;  if  he  owns  most  of  it,  he  can  trust  the  owners  of  the  rest  not 
greatly  to  undersell  him,  and  thus  can  largely  determine  the  market 
price.  He  does  not  have  to  maintain  the  highest  price  for  any  great 
length  of  time;  he  has  only  to  keep  up  his  price  until  the  date  at 
which  he  has  agreed  to  sell,  and  can  often  sell  part  before  that  time 

2oAdapted  from  an  editorial  in  the  Outlook,  XCII,  14-16.    Copyright,  1909. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      177 

at  a  price  sufficient  to  guard  himself  against  loss.  He  does  not  have 
to  pay  cash  for  his  wheat.  He  has  only  to  contract  to  pay  at  a  future 
day,  and  meantime,  to  raise  money  enough,  called  a  margin,  to  save 
from  loss  the  man  of  whom  he  is  buying  it,  in  case  the  price  declines 
below  the  amount  which  he  has  agreed  to  pay  for  it. 

But  the  speculator  is  not  alone.  Others  are  associated  with  him 
in  his  endeavor  to  obtain  control  (A  the  wheat  in  the  United  States. 
There  are  also  speculators  who  believe  that  this  attempt  will  fail ; 
and  who  are  leagued  together  to  make  it  fail.  The  former,  in  the 
jargon  of  the  market,  are  called  bulls ;  the  latter  are  called  bears. 
The  bears  agree  to  sell  wheat  on  the  first  of  May  at  a  fixed  price ; 
the  bulls  agree  to  buy  the  wheat  at  that  price.  The  bulls  attempt  to 
make  the  market  price  on  the  first  of  May  as  high  as  possible ;  the 
bears  attempt  to  make  it  as  low  as  possible.  But  the  bears  have  no 
wheat  to  sell  and  do  not  expect  to  have  any ;  and  the  bulls  do  not 
want  any  wheat  and  do  not  expect  to  buy  any. 

What  actually  happens  is  this :  Mr.  Bear  agrees  to  sell,  and  Mr. 
Bull  agres  to  buy,  a  thousand  bushels  of  wheat  on  the  first  of  May 
at  one  dollar  per  bushel.  But  on  the  first  of  May  the  market  price 
of  wheat  is  $1.10  a  bushel.  Mr.  Bear,  therefore,  would  have  to  spend 
$1,100  to  buy  the  thousand  bushels  of  wheat  which  he  had  agreed  to 
sell  to  Mr.  Bull  for  $1,000.  Instead  of  doing  so,  he  pays  Mr.  Bull 
$100.  If,  on  the  other  hand,  the  price  of  wheat  has  fallen  to  ninety 
cents  per  bushel,  Mr.  Bear  can  buy  for  $900  the  wheat  for  which  Mr. 
Bull  has  agreed  to  pay  him  $1,000.  In  that  case  Mr.  Bull  pays  Mr. 
Bear  $100. 

No  wheat  is  actually  bought  and  sold ;  no  wheat  passes  from  one 
to  the  other.  Under  guise  of  the  contract  to  buy  and  sell,  these  two 
men,  Mr.  Bull  and  Mr.  Bear,  have  simply  made  a  bet  as  to  the  price 
of  wheat  on  the  first  of  May.  The  amount  of  the  bet  to  be  paid 
depends  upon  the  diflference  between  the  actual  market  price  on  the 
first  of  May  and  the  stipulated  dollar  a  bushel. 

If  the  reader  asks.  How  can  a  bet  between  two  dealers  aflfect  the 
price  of  wheat?  The  answer  is,  It  cannot.  But  when  hundreds  of 
men  are  excitedly  offering  to  buy  wheat  and  other  hundreds  to  sell 
wheat,  and  these  offers  to  buy  and  sell  include  millions  of  bushels 
that  have  no  existence,  and  the  bets  upon  the  price  of  wheat  reach 
millions  of  dollars,  the  result  is  to  create  an  artificial  demand  and  an 
equally  artificial  supply,  which  determine  the  market  price  of  such 
wheat  as  is  stored  in  the  warehouses. 

The  transaction  is  of  no  benefit  to  anyone  except  the  successful 
gambler.  It  does  not  benefit  the  farmers ;  for  they  are  interested  in 
having  a  steady  price  for  their  wheat,  not  a  fluctuating  price,  which 


178  CURRENT  ECONOMIC  PROBLEMS 

promises  a  great  gain  today  and  a  serious  loss  tomorrow,  and  com- 
pels them  to  study  the  gambler's  market  if  they  would  get  a  benetit 
of  the  prices,  a  study  for  which  they  have  neither  the  time  nor  the 
facility.  It  does  not  benefit  the  millers,  who  might  judge  what  the 
prices  of  next  season's  wheat  will  be,  if  it  were  dependent  on  supply 
and  demand  as  regulated  by  natural  causes,  but  cannot  judge  if  it  is 
made  dependent  on  the  tricks  and  chances  of  a  great  gambling  opera- 
tion. 

Gambling  with  breadstuffs  is  a  great  deal  worse  than  gambling 
with  cards  or  dice  ;  the  gambling  carried  on  on  the  produce  exchange, 
than  that  carried  on  in  the  gambling  hells  of  New  York  City  or  in  the 
Casino  at  Monte  Carlo.  Private  gambling  injures  only  the  gamblers 
and  those  immediately  connected  with  them,  and  it  demoralizes  the 
few  hundreds  of  occasional  onlookers.  The  private  gambler  gets  the 
money  of  his  fellow-gambler  for  nothing,  and,  if  the  game  is  honestly 
played,  gives  his  fellow-gamblers  in  return  a  chance  to  get  his  own 
money  for  nothing.  But  the  public  gamblers  play  their  game  with 
the  property  of  their  wholly  innocent  fellow-citizens.  They  gamble 
with  the  wheat  fields  of  the  farmer,  the  flour  barrels  of  the  miller,  the 
bread  loaves  of  the  baker  and  the  housekeeper.  There  is  not  a  reader 
of  these  lines  in  America  but  may  have  suffered  some  injury  from 
the  gamblers  in  the  Chicago  wheat  market ;  and  the  whole  country 
looks  on  at  the  gigantic  game,  and  hundreds  of  thousands  of  fascinated 
spectators  are  demoralized  by  the  spectacle.  These  gamblers  are  not 
robbers,  for  they  are  not  taking  our  property  by  violence,  but  they 
are  taking  it  without  our  consent  and  without  giving  us  any  return 
for  it. 

81.     Hedging  on  the  Wheat  Market^^ 

BY  ALBERT   C.   STEPHENS 

A  Glasgow  miller,  in  February,  desires  to  purchase  100,000  bush- 
els of  California  wheat  to  grind  into  flour.  The  price  has  been  tend- 
ing upward.  He  purchases  this  wheat,  engages  freight  room,  and 
arranges  to  have  it  shipped  to  Glasgow.  The  price  and  freight  will 
make  the  wheat  cost  him  in  Glasgow  about  $1.07  per  bushel.  But 
the  wheat  will  not  arrive  until  September  or  October,  five  months 
away.  By  that  time,  following  the  Atlantic  coast  harvests,  and  with 
the  then  probable  renewal  of  arrivals  of  Russian  and  Indian  wheat, 
the  Glasgow  price  might  or  might  not  be  lower  than  $1.07.  In  order 
to  insure  himself  against  loss,  the  Glasgow  miller  sells  100,000  bush- 
els of  wheat  for  October  delivery  at  New  York.     The  California 

2iAdapted  from  "Futures  in  the  Wheat  Market,"  Quarterly  Journal  of 
Economics,  II,  47-51.     Copyright,  1887. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      179 

wheat  arrives  at  Glasgow,  but  the  price  of  wheat  the  world  over  has 
declined,  and  the  miller  finds  that  it  has  cost  him  two  or  three  cents 
a  bushel  more  than  the  then  ruling  price.  Under  strictly  old-fash- 
ioned methods,  had  he  not  sold  100,000  bushels  of  wheat  at  New 
York,  he  would  find  himself  at  a  decided  disadvantage  in  competi- 
tion with  millers  who  had  not  anticipated  their  wants  as  he  had. 
But  he  is  not  so  placed.  When  he  found  the  market  a  few  cents 
lower,  he  cabled  an  order  to  New  York  to  buy  100,000  bushels  for 
October  delivery.  At  the  maturity  of  his  New  York  speculative  con- 
tracts, he  finds  a  profit  about  equal  to  the  loss  on  his  California 
transaction.  Thus,  owing  to  his  protective  future  contract,  he  stands 
no  loss,  despite  the  drop  in  the  price  of  wheat.  Had  he  found  a 
profit  on  his  California  wheat  when  it  arrived — that  is,  had  the  price 
advanced  after  the  grain  left  San  Francisco — he  would  have  covered 
his  New  York  sale  at  a  corresponding  loss,  thus  leaving  him  situated 
as  before.  In  this  way,  English  millers  and  importers  of  wheat,  buy- 
ing in  the  United  States,  Russia,  or  elsewhere,  habitually  protect  such 
purchases  from  fluctuations  in  prices,  while  in  transit,  by  selling 
futures  against  them  at  New  York  or  Chicago,  and  later  by  covering 
their  contracts.  When  we  consider  the  aggregate  of  wheat  purchases 
made  in  this  country,  and  remember  that  all  of  these  sales  are  in 
time  covered  by  corresponding  purchases  of  wheat,  and  that  in  all 
cases  these  speculative  sales  and  purchases  call  for  the  actual  delivery 
of  grain,  we  may  gain  some  conception  of  the  reasons  why  future 
sales  make  so  large  a  total. 

But  these  insuring  or  protecting  sales  and  purchases  are  by  no 
means  confined  to  foreigners,  who  l)uy  throughout  the  world  and 
ship  to  Europe.  One  may  also  find  ample  illustration  at  home.  A 
New  York  merchant  buys  100,000  bushels  of  hard  wheat  at  Duluth, 
and  orders  it  shipped  by  vessel  to  Buffalo,  to  go  thence  to  New  York 
by  canal.  He  does  this,  not  because  he  wants  the  wheat  for  his  own 
use,  but  because  he  believes  that,  in  view  of  known  or  apparent  market 
conditions,  he  will  be  able  to  sell  the  grain  in  New  York  at  a  profit. 
With  a  more  primitive  view,  he  would  ship  this  grain,  wait  until  it 
arrived,  look  for  a  purchaser,  and,  finding  one,  sell  the  wheat  for  the 
price  current  on  the  day  of  arrival — say,  three  weeks  after  he  bought 
it.  If  at  a  profit,  well  and  good;  but  if  the  price  had  declined,  he 
would  sustain  a  heavy  loss,  owing  to  the  size  of  the  shipment.  But, 
nowadays,  the  New  York  merchant  sells  100,000  bushels  of  spring 
wheat,  September  delivery,  at  Chicago,  at  the  date  of  his  Duluth  pur- 
chase in  August.  When  the  wheat  reaches  Buffalo,  the  price  has 
advanced,  and  the  millers  there  want  part  of  his  consignment.  He 
sells  them  25,000  bushels,  and  buys  25,000  bushels  of  spring  wheat  at 


i8o  CURRENT  ECONOMIC  PROBLEMS 

Chicago,  September  delivery,  to  make  good  the  original  quantity  pur- 
chased. By  this  time  he  has  also  sold  at  New  York  100,000  bushels, 
September  delivery,  to  an  exporter,  and  bought  100,000  bushels  more 
at  Chicago,  relying  on  the  75,000  bushels  on  its  way  and  his  ability  to 
get  25,000  bushels  more,  before  it  is  demanded,  to  keep  his  engage- 
ment. When  the  75,000  bushels  hard  wheat  reach  New  York,  the 
price  has  declined  fractionally;  and  the  owner  is  enabled,  in  conse- 
quence, to  purchase  25,000  bushels  at  a  slightly  better  price,  relatively, 
than  he  paid  in  Duluth,  selling  25,000  coincidentally  at  Chicago  for 
September  delivery.  He  lost  on  his  Duluth  purchase  and  on  the 
25,000  and  100,000  bushel  purchases  at  Chicago,  and  on  the  2^,000 
bushel  purchase  at  New  York.  But  he  made  rather  more  than  corre- 
sponding gains  through  his  sale,  spot  delivery,  of  25,000  bushels  at 
Buffalo,  including  profits  on  his  sales  of  225,000  bushels  for  Sep- 
tember delivery  at  Chicago  and  New  York,  so  that  he  gains  on  sales  of 
250,000  bushels,  and  loses  on  the  purchases  of  250,000  bushels.  The 
transaction,  as  a  whole,  is  not  very  profitable  ;  but  millers  at  home  and 
abroad  get  wheat  at  the  lowest  market  price  on  the  dates  of  purchase, 
and  the  merchant  whose  sagacity,  energy,  and  foresight  led  him  to 
make  a  purchase,  even  when  price  conditions  were  unfavorable,  is 
able  to  protect  himself  from  excessive  loss,  without  depressing  the 
price  to  the  original  holder,  and  without  having  an  incentive  undulv 
to  advance  the  price  to  the  consumer. 

82.     The  Ups  and  Downs  of  Securities'^ 

BY  FRANCIS  W.  HIRST 

In  the  first  place  the  value  of  a  security  depends  mainly  upon  a 
quality  which  a  bale  of  cotton  or  a  ton  of  coal  does  not  possess.  It 
is  either  actually  or  potentially  interest-bearing.  This  quality  is  visi- 
ble in  a  bond  with  coupons  attached.  A  bond  like  that  bought  by 
subscribers  to  a  Prussian  state  loan  will  have  attached  to  it  quarterly 
or  half-yearly  coupons,  which  can  be  cashed  in  almost  any  great  cen- 
ter of  finance.  If  the  government  promises  to  redeem  the  bond  at 
the  end  of  a  definite  period  at  par,  at  its  maturity  the  bond  will  be 
worth  par.  In  the  meantime  it  will  rise  and  fall  according  to  the 
conditions,  first  of  German  credit,  secondly  of  the  international  rate 
of  interest.  But  these  tendencies  may  be  wholly  or  in  part  counter- 
acted by  antagonistic  movements  of  an  international  character,  tor 
instance,  a  great  war  which  destroys  a  vast  amount  of  capital  and 
absorbs  vast  quantities  of  savings.     But  the  Prussian  bond  is  not 

22Adapted  from  The  Stock  Exchange,  pp.  199-210.  Copyright  by  Henry 
Holt  &  Co.  and  Williams  &  Norgate,  191 1. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION       i8i 

likely  to  fluctuate  much,  and  the  limits  of  its  fluctuations  will  be  the 
more  restricted  the  more  nearly  it  approaches  its  maturity.  Thus 
the  value  of  a  security  depends  mainly  upon  (i)  the  rate  of  interest, 
(2)  the  safety  of  the  principal,  and  (3)  the  likelihood  of  the  prmci- 
pal  or  the  rate  of  interest  either  rising  or  falling.  These  are  the  main 
causes  of  a  rise  or  fall  in  securities. 

But  the  business  of  the  stock  exchange  operators  is  to  endeavor 
to  forecast  and  discount  in  advance  the  natural  fluctuations  of  m- 
trinsic  value.  In  the  old  days  before  the  telegraph,  fortunes  were 
made  by  getting  early  information,  or  spreading  false  information 
of  victories  and  defeats,  which  would  enhance  or  depress  the  price 
of  stocks.  The  first  Rothschild  laid  the  foundations  of  his  immense 
fortune  by  getting  early  news  of  important  events.  Nowadays  the 
principle  is  still  the  same,  but  the  art  of  anticipation  has  been  made 
much  more  doubtful  and  complicated.  Telegraphs  and  telephones 
are  open  to  all.  What  everybody  reads  in  his  morning  paper  is  of 
no  particular  use  to  anybody  in  a  speculative  sense.  Besides,  many 
foreign  governments  keep  large  funds  in  London  and  Paris  for  the 
express  purpose  of  supporting  the  market.  Hence  in  the  market 
for  government  bonds,  big  movements  are  rare. 

When  we  come  to  the  prices  of  railroad  and  industrial  stocks  the 
causes  of  movement  are  much  more  difficult  to  detect,  and  the  possi- 
bilities of  making  large  profits  by  inside  knowledge  is  much  greater. 
The  newspapers  may  be  the  conscious  or  unconscious  tools  of  the 
manipulators.  In  new  countries  the  banks  are  likely  to  be  a  working 
part  of  the  speculative  machinery.  Thus  in  the  United  States  those 
who  use  great  fortunes  in  finance  frequently  have  a  controlling  in- 
.terest  in  a  bank.  What  is  called  a  "community  of  interest"  may  be 
established  which  will  control  important  railroads  and  huge  indus- 
trial corporations,  as  well  as  a  number  of  banks  and  trust  companies. 
The  various  ways  in  which  such  a  community  may  manipulate  a  sus- 
ceptible market  like  Wall  Street  might  be  made  the  subject  of  a  long 
and  fascinating  volume. 

Suppose  that  a  powerful  group  wishes  to  create  the  appearance 
of  a  general  trade  depression  in  the  United  States.  To  do  so  is  not 
at  all  impossible.  The  controlled  railways  may  announce  and  even 
partially  carry  out  a  policy  of  reduced  orders  for  rails,  equipment, 
and  repairs.  They  may  ostentatiously  proclaim  an  addition  to  the 
number  of  idle  cars.  W'ell-disciplined  combinations  of  steel  and 
textile  mills  may  declare  a  curtailment  of  production.  Banks  may 
suddenly  become  ultra-conservative ;  the  open  accounts  and  credits 
of  small  speculative  customers  may  be  closed.  In  this  way  a  general 
feeling  of  despondency  can  be  created.     Stocks  will  fall,  partly  in 


i82  CtlRMNT  ECONOMIC  PROBLEMS 

consequence  of  the  action  of  the  banks,  causing  a  compulsory  liquida-  . 
tion  of  speculative  accounts,  partly  through  the  voluntary  action 
of  speculators  who  think  that  trade,  earnings,  profits,  and  dividends 
are  likely  to  decline.  Thus  a  bear  market  is  created.  The  syndicate 
can  now  employ  huge  funds  to  advantage  in  profitable  purchases  of 
those  stocks  and  shares  which  fall  most  and  are  most  responsive  to 
ups  and  downs.  Such  a  policy  of  course  represents  great  difficulties 
and  dangers.  It  must  be  carried  out  very  cautiously  and  very  secretly, 
and  very  honorably  as  between  the  members.  If  it  is  too  successful 
it  may  create  a  slump,  or  a  panic,  in  which  the  community  of  interests 
may  itself  be  seriously  involved.  For  these  and  other  reasons  Ameri- 
can operators  and  manipulators  do  not  frequently  enter  upon  a  con- 
certed plan  for  colossal  bear  operations.  Such  a  scheme  is  unpopular. 
It  offends  public  sentiment.  A  long  bearish  movement,  accompanied 
by  unemployment,  reduced  earnings,  and  economies  in  expenditure, 
produce  all  manner  of  unpleasant  consequences,  economic,  social,  and 
political.  In  fact  big  men  often  boast  that  they  never  operate  upon  the 
short  side,  never  play  for  a  fall. 

Such  a  movement  as  that  sketched  above  is  comparatively  rare, 
cautious,  and  temporary.  Wall  Street  has  of  course  to  wait  upon 
circumstances.  Sometimes  it  is  caught  by  the  circumstances.  But 
it  must  always  try  to  adjust  itself  to  economic  and  political  condi- 
tions. A  political  assassination,  a  war,  a  movement  against  the  trusts, 
unfavorable  decisions  in  the  courts,  an  unexpected  downfall  of  the 
favorite  political  party,  a  catastrophe  like  the  San  Francisco  earth- 
quake— such  events  as  these  may  produce  an  irresistible  flood  of 
liquidation  against  which  the  strongest  combination  of  bankers  and 
corporation  men  will  struggle  in  vain.  In  a  general  scramble  pro- 
duced by  some  unexpected  event  there  is  more  likely  to  be  a  general 
loss  than  a  general  profit.  For  in  the  history  of  speculation  the  un- 
expected event  is  usually  a  calamity. 

Real  prosperity  is  built  up  gradually.  The  stock  exchange  an- 
ticipates and  exaggerates  it,  until  the  speculative  fabric  has  been 
reared  so  high  above  the  real  foundation  that  a  crash  is  seen  to  be 
inevitable.  Generally  speaking,  because  of  superior  knowledge,  the 
insiders  are  able  to  unload  at  high  levels,  just  as  they  have  been  able 
to  load  at  low  levels.  So,  by  speculating  in  stocks  of  a  national  size 
and  significance,  the  outside  public  loses  more  than  it  gains.  It  begins 
to  buy  when  they  are  dear,  and  it  begins  to  sell  when  they  are  cheap. 

For  purposes  of  scientific  analysis  we  may  rest  the  theory  of 
stock  exchange  quotations  upon  a  distinction  between  prices  and 
values.  Prices  are  temporary  ;  values  are  intrinsic ;  they  move  slowly. 
The  price  represents  the  momentary  market  value  of  a  stock  or  bond. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      1S3 

The  value  is  the  real  worth,  a  thing  undefinable  and  impossible  to 
ascertain.  If  the  real  value  were  ascertainable  and  available  to  the 
public  then  price  and  value  would  be  identical,  and  in  the  case  of  gilt- 
edge  securities,  the  two  are  as  nearly  as  possible  identical.  But  in- 
trinsic values  themselves  change  like  everything  else  in  the  world. 
They  depend  mainly  upon  (i)  the  rate  of  interest,  (2)  the  margin  of 
surplus  earning  power  or  revenue. 

Both  stocks  and  bonds  are  also  affected  in  their  intrinsic  value 
by  the  money  market  and  the  relationship  of  the  supply  of  capital 
seeking  investment  to  the  demand  for  capital  by  new  flotations.  The 
intrinsic  value  of  common  stock  depends  also  upon  the  actual  effi- 
ciency of  the  corporation,  the  condition  of  its  plant,  the  skill  of  its 
management,  and  the  contentment,  intelligence,  and  industry  of  its 
whole  staff. 

Of  course  all  these  changeful  elements  of  intrinsic  value  enter 
into  prices.  But  as  prices  sometimes  fluctuate  violently,  it  is  obvious 
that  they  must  also  be  affected  by  other  causes.  These  may  be 
summed  up  under  two  heads:  (i)  False  rumors,  which  have  got 
about  either  by  design  or  through  the  carelessness  or  mistakes  of 
newsmongers  ;  and  (2)  Rigs,  pools,  combinations,  and  other  technical 
devices,  by  which  the  market  is  either  flooded  with,  or  made  bare  of, 
a  particular  stock  or  group  of  stocks. 

83.     The  Functions  of  Exchanges^^ 

BY   CHARLES  A.    CONANT 

The  fundamental  function  of  the  exchanges  is  to  give  mobility 
to  capital.  Without  them  the  stocks  and  bonds  of  the  share  com- 
pany could  not  be  placed  to  advantage.  No  one  would  know  what 
their  value  was  on  a  given  day,  because  the  transactions  in  them 
would  be  private  and  unrecorded.  The  opportunities  for  fraud  would 
be  multiplied  a  hundred  fold.  The  mobility  for  capital  afforded  by 
the  corporation  would  be  meager  and  inadequate  if  the  holder  of  its 
bonds  and  shares  did  not  know  that  at  any  moment  he  could  take 
them  to  the  exchanges  and  sell  them.  The  publicity  prevailing  in 
stock-exchange  quotations  gives  the  holder  of  a  security  not  only  the 
direct  benefit  of  publicity,  but  the  opinion  of  the  most  competent 
financiers  of  Europe  and  America.  If  they  were  dealing  with  him 
privately,  they  might  withhold  the  information.  But  the  quoted  price 
stands  as  a  guide  to  even  the  most  ignorant  holder  of  securities. 

The  second  benefit  is  in  affording  a  test  of  the  utility  to  the  com- 
munity of  the  enterprises  which  solicit  the  support  of  investors.    The 

23Adapteci  from  Wall  Street  and  the  Country,  pp.  88-116.  Copyright  by 
the  author,  1904. 


i84  CURRENT  ECONOMIC  PROBLEMS 

judgment  of  experts  is  there  expressed,  through  the  medium  of  price, 
on  the  utility  of  the  object  dealt  in.  If  an  unprofitable  railroad  is 
built  in  the  wilderness  of  Manitoba,  the  investor  does  not  have  to 
hunt  up  information  on  the  freight  and  passengers  carried:  he  has 
only  to  look  at  the  quotations  on  the  New  York  State  Exchange  to 
know  at  once  the  judgment  of  experts  on  it  as  a  commercial  venture. 
If  the  investor  finds  that  the  stocks  of  cotton  mills  are  declining,  he 
makes  up  his  mind  that  there  are  no  further  demands  for  cotton  mills. 
If  stocks  are  exceptionally  high,  he  knows  that  the  public  demands 
more  cotton  mills,  and  that  an  investment  in  them  will  prove  profita- 
ble. All  this  information  is  put  before  the  investor  in  a  single  table  of 
figures.  It  would  be  practically  unattainable  in  any  other  form.  Thus 
there  is  afforded  to  capital  throughout  the  world  an  almost  unfailing 
index  of  the  course  in  which  new  production  should  be  directed. 

Suppose  for  a  moment  that  the  stock  markets  of  the  world  were 
closed,  that  it  was  no  longer  possible  to  learn  what  concerns  were 
paying  dividends,  what  their  stocks  were  worth,  how  industrial  estab- 
lishments were  faring.  How  would  the  average  man  determine  how 
new  capital  should  be  invested.  He  would  have  no  guide  except  the 
most  isolated  facts  gathered  here  and  there  at  great  expense  and 
trouble.  A  great  misdirection  of  capital  and  energy  would  result. 
The  stock  market  is  the  great  governor  of  values — the  guide  which 
points  the  finger  to  where  capital  is  needed  and  where  it  is  not  needed. 

The  very  sensitiveness  of  the  stock  market  is  one  of  its  safe- 
guards. Again  and  again  it  is  declared  in  the  market  reports  that 
certain  events  have  been  discounted.  As  a  consequence  when  the 
event  actually  happens,  it  results  in  no  such  great  disturbance  to 
values  as  was  expected.  Is  it  not  better  that  this  discounting  of  future 
possibilities  should  occur?  Is  it  desirable  that  capital  and  produc- 
tion should  march  blindly  to  the  edge  of  a  precipice  and  then  leap  off, 
instead  of  descending  a  gradual  decline?  This  discounting  of  the 
market  enables  the  man  who  holds  a  given  security  to  convert  it  into 
money  without  being  ruined.  It  enables  the  prudent  man  to  hold  on 
to  his  securities  and  even  to  buy  those  of  the  frightened  and  more 
excited. 

Another  important  influence  of  the  stock  exchange  is  that  which 
it  exerts  upon  the  money  market.  The  possession  by  any  country 
of  a  large  mass  of  salable  securities  affords  a  powerful  guarantee 
against  the  effects  of  a  severe  money  panic.  If  in  New  York  there 
arises  a  sudden  pressure  for  money,  the  banks  call  in  loans  and  begin 
to  husband  their  cash.  If  they  hold  large  quantities  of  securities 
salable  on  the  London  or  Paris  or  Berlin  market,  a  cable  order  will 
effect  the  sale  of  these  in  an  hour,  and  the  gold  proceeds  will  soon  be 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION       185 

available.  These  securities  prevent  sudden  contraction  and  expan- 
sion in  the  rate  of  loans.  This  influence  of  the  stock  market  has 
much  the  effect  of  a  buffer  upon  the  impact  of  two  solid  bodies. 
Crises  are  prevented  when  they  can  be  prevented,  and  when  they 
cannot  they  are  anticipated,  and  their  force  is  broken.  Securities 
are  in  many  cases  better  than  money.  If  a  large  shipment  of  money 
has  to  be  made  from  New  York  to  London,  it  is  much  more  economical 
to  ship  securities  of  the  same  amount  than  to  ship  kegs  of  gold.  Credit 
is  forwarded  by  cable  and  the  securities  follow  by  mail.  All  markets 
are  thus  brought  into  touch  with  each  other,  and  respond  to  a  fluctua- 
tion of  a  fraction  of  one  per  cent,  but  without  the  confusion  and  crash 
which  would  ensue  if  every  sudden  pressure  for  money  was  felt  upon 
a  market  naked  of  such  securities. 

There  is  another  important  consideration  in  this  influence  of  the 
stock  market  upon  modern  society,  which  will  perhaps  gather  up  and 
bring  into  a  clearer  light  some  of  the  other  points  which  have  been 
made.  The  stock  market,  by  bringing  all  values  to  a  level  in  a  com- 
mon and  public  market,  determines  the  direction  of  production  in  the 
only  way  in  which  it  can  be  safely  determined  under  the  modern 
industrial  system  of  production  in  anticipation  of  demand.  It  does 
so  by  offering  the  highest  price  for  money  and  for  the  earnings  of 
money  at  the  point  where  they  are  most  needed.  It  is  only  through 
the  money  market  and  the  stock  exchange  together  that  any  real  clue 
is  afforded  of  the  need  for  capital,  either  territorially  or  in  different 
industries.  Capital  is  attracted  to  securities  that  are  selling  high 
because  the  industries  they  represent  are  earning  well.  Consequently 
there  results  a  closer  adjustment  of  production  to  consumption,  of  the 
world's  work  to  the  world's  need,  than  would  be  possible  under  any 
other  system. 

G.     THE  CORPORATION 

84.     The  Nature  of  the  Business  Corporation-* 

BY   HARRISON  S.  SMALLEY 

Superficially  considered,  a  corporation  is  an  association  of  persons 
for  the  accomplishment  of  certain  purposes.  While  non-commercial 
motives  lead  to  the  organization  of  corporations,  most  of  them  are 
formed  with  money-making  ends  in  view.  These  last  are  called  busi- 
ness corporations.  Persons  become  members  by  acquiring  one  or 
more  shares  of  stock,  on  which  account  they  are  called  shareholders. 

A  share  of  stock  represents  an  interest  in  the  business ;  hence 

2^Adapted  from  a  textbook  entitled  The  Corporation  Problem,  privately 
published  in  1912. 


1 86  CURRENT  ECONOMIC  PROBLEMS 

a  stockholder  is  an  entrepreneur.  All  the  shares  of  stock  represent 
all  the  interests  in  the  business ;  and  thus  if  there  are  1,000  shares  of 
stock  outstanding,  one  who  owns  100  shares  has  a  one-tenth  interest 
in  the  business.  A  nominal  value,  called  the  "par  value,"  is  assigned 
by  the  corporation  to  its  stock.  In  most  cases  the  par  value  of  a 
share  is  $100,  though  many  companies  have  chosen  other  sums.  The 
total  par  value  of  all  the  stock  does  not  necessarily  equal  the  value 
of  the  corporation's  property. 

All  net  earnings,  treated  as  profits,  are  distributed  among  the 
stockholders  pro  rata,  and  are  called  dividends. 

The  price  of  a  share  of  stock  depends  largely  upon  the  rate  of 
dividends  customarily  paid  on  it.  If  6  or  7  per  cent  per  annum  is 
paid,  the  price  will  be  about  par ;  if  20  per  cent  can  be  paid  each  year, 
the  price  will  be  far  above  par.  But  numerous  other  factors,  for  in- 
stance, the  general  credit  and  standing  of  the  company,  the  apparent 
future  prospects  of  industries  of  that  type,  the  condition  of  the  money 
market,  the  general  business  situation,  all  share  in  determining  the 
price  of  the  stock. 

In  addition  to  a  right  to  dividends,  the  shareholder  is  entitled  to 
other  privileges  and  advantages.  If  the  business  is  closed  out,  he 
has  a  right  to  his  proportionate  share  of  the  net  assets.  During  its 
life  he  has  a  voice  in  the  management  of  the  enterprise.  In  addition 
to  electing  the  directors,  the  stockholders  have  a  right  to  decide  such 
questions  of  exceptional  character  as  the  issue  of  stocks  and  bonds, 
the  amendment  of  the  corporate  charter,  the  dissolution  of  the  busi- 
ness, etc.  Aside  from  these  few  extraordinary  matters,  the  stock- 
holders are  without  power,  for  the  affairs  of  the  company  are  in  the 
hands  of  the  directors,  who,  once  elected,  may  manage  the  business 
as  they  see  fit.  All  that  the  stockholders  can  do  if  not  satisfied  is  to 
wait  until  the  next  annual  meeting  and  then  replace  the  directors  with 
others. 

In  stockholders'  meetings  each  stockholder  has  one  vote  for  each 
share  of  stock  held  by  him.  In  voting  for  directors  he  has  as  many 
votes  per  share  as  there  are  directors  to  be  elected.  Thus,  if  five 
directors  are  to  be  elected  and  he  holds  one  hundred  shares,  he  has 
five  hundred  votes.  These  he  can  distribute  in  any  way  he  sees  fit. 
He  can  cast  all  for  one  candidate,  one  hundred  for  each  of  five,  or 
otherwise.  This  is  called  cumulative  voting.  He  is  priviliged  to  vote 
by  proxy. 

In  a  majority  of  corporations,  most  of  the  stockholders  take  no 
active  part.  The  control  of  the  corporation  is  highly  autocratic  rather 
than  democratic  in  character.  Many  corporations  have  thousands  of 
members.     Yet  almost  always  it  is  dominated  by  less  than  a  dozen 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION       187 

men,  who  may  own  only  a  minority  of  its  stock.  Few  persons  attend 
the  annual  meeting  of  the  stockholders.  Parties  particularly  inter- 
ested collect  proxies  of  absent  members.  Thus  it  is  relatively  easy 
for  a  management  to  perpetuate  its  control  and  to  carry  out  its 
policies. 

In  many  corporations  the  stock  is  of  two  classes,  common  and 
preferred.  The  leading  difference  is  that  dividends  at  a  certain  fixed 
rate  must  be  paid  on  the  preferred,  before  any  can  be  declared  on  the 
common  ;  but  usually  there  are  also  other  differences.  If  the  business 
is  closed  up,  the  preferred  stockholders  usually  have  a  prior  claim. 
Not  infrequently  there  is  a  difference  in  voting  rights.  In  some 
cases  preferred  stockholders  cannot  vote  unless  their  dividends  are  in 
arrears.  In  other  cases  the  preferred  stockholders  are  entitled  to 
elect  a  certain  number  of  directors,  and  the  common  stockholders  the 
rest. 

Cumulative  preferred  stock  is  stock  upon  w^iich,  in  addition  to 
current  dividends,  all  arrears  of  dividends  must  be  paid  before  any 
dividends  can  be  declared  on  the  common. 

A  corporation  usually  puts  out  bonds.  The  bond  does  not  repre- 
sent an  investment  in  the  business ;  it  simply  evidences  a  debt  owed 
by  the  corporation  to  an  outsider.  A  bond  is,  in  effect,  a  formal 
promissory  note,  a  promise  to  repay  money  with  interest  at  a  certain 
per  cent.  The  bondholder  is  not  an  entrepreneur,  but  simply  a  capi- 
talist. In  consequence  he  has  no  vote  in  corporate  affairs.  Bonds 
are  almost  invariably  secured  by  a  mortgage  upon  a  part  or  all  of  the 
corporate  property.  All  the  stocks  and  bonds  of  a  corporation  are 
known  as  its  securities,  and  the  sum  of  the  par  values  of  all  the  securi- 
ties is  called  the  "capitalization"  of  the  corporation. 

If  a  corporation  is  unable  to  pay  interest  on  its  bonds,  or  is  other- 
wise insolvent,  the  proper  court  will,  on  application,  appoint  a  re- 
ceiver, who,  as  a  temporary  officer  of  the  court,  takes  charge  of  the 
corporate  property  and  business.  In  these  days  it  is  deemed  inex- 
pedient to  terminate  an  established  enterprise,  except  in  rare  cases, 
and  the  receiver  continues  the  business  and  attempts  to  build  it  up. 

While  the  receiver  is  thus  engaged,  the  security  holders  form  one 
or  more  "reorganization  committees,"  to  put  the  corporation  on  a 
sounder  basis.  They  must  raise  money  to  pay  off  back  debts.  Gen- 
erally they  must  scale  down  the  capitalization,  so  that  the  earning 
power  wall  cover  the  bond  interest  and  also  a  fair  rate  of  dividends. 
This  means  that  existing  security  holders  must  allow  a  portion  of 
their  securities  to  be  cancelled,  and  the  struggle  to  see  how  much 
each  class  of  security  holders  will  sacrifice  is  often  long  and  bitter. 
Preferred  stockholders  suffer  more  than  boldholders,  and  common 


1 88  CURRENT  ECONOMIC  PROBLEMS 

stockholders  more  than  preferred.  Sometimes  the  stockholders  are 
wholly  "frozen  out." 

A  corporation  can  be  formed  only  with  the  consent  of  the  gov- 
ernment, and  upon  such  conditions  as  the  government  may  prescribe. 
The  instrument,  granted  by  the  state,  and  specifying  the  terms  and 
conditions  upon  which  the  corporation  may  engage  in  the  business  for 
which  it  is  organized,  is  called  the  charter.  In  this  country  the  leg- 
islative branch  of  the  government  has  always  exercised  the  function 
of  creating  corporations.  According  to  "general  laws,"  now  uni- 
versally in  force,  any  group  of  persons,  not  less  in  number  than  a 
fixed  minimum,  can  become  a  body  corporate  under  the  conditions 
laid  down  in  the  law. 

A  few  striking  facts  will  show  that  in  the  eyes  of  the  law  the 
corporation  is  an  entity  distinct  from  the  stockholders,  having  a  legal 
status  and  legal  rights  and  liabilities  of  its  own.  First,  the  corporate 
property  belongs  to  the  corporation  itself,  not  to  the  members ;  a 
change  in  membership  does  not  disturb  the  title.  Second,  a  corpora- 
tion's contract  is  not  the  undertaking  of  its  members.  Third,  the 
transfer  of  shares  by  the  members  has  no  effect  upon  the  life  of  the 
corporation. 

Lawyers  and  judges  have  regarded  the  corporation  as  an  artificial 
person.  The  trouble  resulting  from  that  concept  has  been  evident  in 
connection  with  the  penal  laws  concerning  corporations.  We  have 
attempted  to  punish  the  corporation  for  violations  of  law,  when  it  is 
evident  that  in  every  offense  the  real  actors  are  human  beings.  To 
inflict  a  fine  on  a  corporation  is  to  lay  a  burden  on  the  whole  body  of 
stockholders.  In  reality  a  few  men  committed  the  offense.  Such  a 
method  of  corporate  punishment  is,  therefore,  as  unjust  as  it  is 
ineffectual.  Consequently  there  has  arisen  the  saying  "guilt  is  per- 
sonal," and  we  are  now  beginning  to  attack  the  responsible  individuals 
themselves. 

The  true  view  of  the  corporation  would  seem  to  be  that  it  is  an 
imaginary  entity  which  serves  the  association  of  persons  as  a  con- 
venient instrument  through  which  they  may  conduct  their  business. 

85.     Corporate  Distribution  of  Risk  and  ControP^ 

BY  W.   H.  LYON 

The  corporation  makes  possible  a  parceling-out  of  the  incidents 
of  ownership  in  many  combinations,  an  allotment  of  management, 
risks,  and  income  in  varying  proportions.  The  line  of  apportionment 
becomes  very  flexible. 

^^Adapted  from  Capitalisation:  A  Book  of  Corporation  Finance,  pp.  6-16. 
Copyright  by  the  author.    Published  by  Houghton,  Mifflin  &  Co.,  1912. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      189 

The  corporate  form  marks  the  line  of  division  of  management 
into  administration  and  control.  Shareholders  possess  control,  but 
through  directors  delegate  administration  to  officers.  Varying  rights 
given  special  classes  of  stock  make  a  widely  varying  apportionment 
of  income,  control,  and  risk.  Common  stockholders  accept  a  maxi- 
mum of  risk  in  expectation  of  a  maximum  of  income.  They  may 
share  the  incident  of  control  equally  or  in  varying  proportions  with 
other  classes  of  stock.  If  two  classes  of  stock  enjoy  exactly  equal 
rights,  except  that  one  has  preference  as  to  income,  they  do  not  divide 
control,  but  risks,  and  the  combination  of  control  plus  risk  in  one  as 
compared  with  the  combination  of  control  plus  risk  in  the  other 
makes  the  ownership  represented  by  one  class  entirely  different  from 
the  ownership  represented  by  the  other. 

We  may  speak  of  these  divisions  and  combinations  of  income, 
control,  and  risk,  creating  different  kinds  of  ownership,  as  horizontal 
divisions.  But  there  is  another  division  of  ownership,  that  repre- 
sented by  the  number  of  shares  of  stock  or  the  number  of  bonds. 
It  makes  a  division  into  amount  of  ownership  rather  than  kind,  into 
quantity  rather  than  quality,  a  perpendicular  division. 

Now  these  two  kinds  of  division  of  ownership  accomplish  two 
very  different  results.  The  perpendicular  division  of  amounts  of 
ownership  makes  possible  the  fitting  of  every  man's  pocketbook  or 
financial  ability.  The  horizontal  division  into  kinds  of  ownership 
results  in  an  even  more  difficult  fitting,  that  of  his  type  or  state  of 
mind.  For  one  man  may  be  more  or  less  willing  to  take  a  chance 
than  another.  The  same  man  may  be  more  willing  at  one  time  than 
another.  He  may  be  unwilling  to  take  any  risk  without  having  some 
control. 

A  corporation's  stock  regularly  carries  the  largest  share  of  pres- 
ent control  and  also  regularly  the  largest  share  of  risk.  The  stock 
may  itself  divide  into  two  or  more  classes  having  obviously  diver- 
gent interests,  with  the  result  that  each  class  will  exercise  for  differ- 
ent purposes  the  amount  of  control  it  possesses.  If  there  is  common 
stock  and  preferred  stock  with  a  limited  dividend,  the  common  share- 
holders may  throw  their  influence  in  favor  of  a  more  hazardous 
conduct  of  the  enterprise  with  an  expectation  of  greater  profit 
accruing  to  them.  Since  the  preferred  stockholders  get  only  lim- 
ited dividends,  they  will  throw  their  influence  in  favor  of  a  safer 
conduct  of  the  business.  Interests  of  both  classes  of  stockholders 
might  coincide.  If  the  corporation  should  not  earn  enough  to  pay 
full  dividends  on  preferred  stock,  the  preferred  stockholders  might 
desire  the  more  hazardous  conduct  of  the  business.  If  the  amount 
of  preferred  and  common  were  the  same,  and  each  had  the  same 


I  go  CURRENT  ECONOMIC  PROBLEMS 

voting  power,  each  class  would  enjoy  control  equally.  In  practice 
this  might  not  lead  to  a  dead-lock  in  policy,  for  one  shareholder  own- 
ing a  large  amount  of  common  and  a  small  amount  of  preferred 
might  vote  his  preferred  in  favor  of  his  common.  If  the  amount  of 
common  were  twice  as  great  as  the  amount  of  preferred,  and  a  share 
of  each  class  had  the  same  voting  rights,  the  quality  of  control 
would  in  a  way  differ  just  as  truly  as  if  the  amounts  of  each  class 
were  equal  but  a  greater  voting  power  were  given  the  common 
than  the  preferred.  In  either  case  the  common  shareholder  in  a 
clash  of  interests  would  be  more  likely  to  have  the  corporation's 
policy  incline  to  his  advantage. 

A  corporation  having  only  one  class  of  stock,  and  no  other  secu- 
rities^, offers  the  simplest  type.  Such  a  security  carries  all  the  con- 
trol, all  the  income,  and  all  the  risk.  It  effects  only  a  vertical  divis- 
ion of  ownership.  This  form  is  proper  if  a  satisfactory  division 
of  income,  management,  and  risk  cannot  be  made.  A  mining  com- 
pany especially  cannot  well  divide  the  peculiar  hazards  of  the  enter- 
prise. Since  any  class  of  mining  securities  must  retain  so  much 
risk,  investors  will  not  sacrifice  anything  of  income  or  control.  So 
it  follows  that  nearly  all  mining  corporations,  including  oil  com- 
panies, have  only  one  class  of  stock  and  no  other  securities.  Coal- 
mining companies  have  issued  bonds  to  some  extent,  but  this  busi- 
ness rests  upon  a  more  assured  basis  than  mining  for  metals.  Man- 
ufacturing companies  frequently  issue  no  securities  but  their  com- 
mon stock.  This  is  probably  due  to  the  fact  that  they  are  engaged 
in  established  kinds  of  business  and  follow  the  precedents  set  by 
the  older  partnerships.  .  So  far  our  financial  ingenuity  has  directed 
itself  for  the  most  part  to  the  comparatively  new  forms  of  business, 
railroads  and  other  public-service  corporations.  With  the  coming 
of  the  big  industrial  concerns  more  complex  forms  of  financing  ap- 
pear, and  will  probably  make  their  way  generally  into  industrial 
corporations.  Though  a  holding  company  may  have  only  common 
stock,  that  fact  does  not  necessarily  imply  simplicity,  for  the  sub- 
sidiary companies  may  have  complex  capitalizations. 

86.    The  Management  of  the  Corporation^^ 

BY  WESLEY  C.   MITCHELL 

The  classical  economist  assumed  that  there  stood  at  the  head  of 
the  typical  business  enterprise  a  capitalist-employer,  who  provided  a 
large  part  of  the  capital  invested,  assumed  the  pecuniary  risk,  per- 
formed the  work  of  superintendence,  and  pocketed  the  profits.  Many 

2GAdapted  from  Business  Cycles,  pp.  32-34.  Copyright  by  the  author, 
1913.     Published  by  the  University  of  California  Press. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      191 

enterprises  of  this  versatile  type  remain  today ;  but  the  extraordinary 
growth  in  size  and  influence  of  the  joint-stock  company  has  given 
greater  prominence  to  another  form  of  business  management. 

The  large  corporation,  dominant  in  business  today,  is  owned  by 
a  miscellaneous  and  shifting  body  of  stockholders.  The  funds  re- 
quired for  fixed  investment  are  provided  in  some  measure  by  these 
owners,  but  in  larger  part  by  bondholders,  who  may  or  may  not  own 
shares  as  well  as  bonds.  The  work  of  management  is  usually  dis- 
associated from  ownership  and  risk.  The  stockholders  delegate  the 
supervision  of  the  corporation's  affairs  to  the  directors  and  they  turn 
over  the  task  of  administration  to  a  set  of  general  officers.  The 
latter  are  commonly  paid  fixed  salaries. 

In  such  an  organization  it  is  difficult  to  find  anyone  who  corre- 
sponds closely  to  the  capitalist-employer.  Neither  the  typical  stock- 
holder, who  votes  by  proxy,  nor  the  typical  director,  who  gives  his 
attention  to  routine  affairs,  fills  the  bill.  The  general  officers,  re- 
munerated largely  by  salaries,  and  practicing  among  themselves  an 
elaborate  division  of  labor,  have  no  such  discretion  and  carry  no 
such  risk  as  the  capitalist-employer.  The  latter  has,  in  fine,  been 
replaced  by  a  "management,"  which  includes  several  active  directors 
and  high  officials,  and  often  certain  financial  advisers,  legal  counsel, 
and  large  stockholders  who  are  neither  directors  nor  officials.  It 
is  this  group  which  decides  what  shall  be  done  with  the  corporation's 
property. 

In  other  cases,  however,  a  single  enterpriser  dominates  the  cor- 
poration, and  wields  full  authority.  The  stockholders  elect  his  can- 
didates, the  directors  defer  to  his  judgment,  the  officials  act  as  his 
agents.  His  position  may  be  firmly  intrenched  by  an  ownership  of 
a  majority  of  the  voting  shares,  or  may  rest  upon  personal  influence 
over  the  owners  of  voting  shares.  In  the  "one-man"  corporations 
the  theoretical  division  of  authority  and  function  becomes  a  legal 
fiction.  Practically  the  dominant  head  corresponds  to  the  old  cap- 
italist-employer, except  for  the  fact  that  he  furnishes  a  far  smaller 
proportion  of  the  capital,  carries  a  far  smaller  proportion  of  the 
pecuniary  risk,  and  performs  a  far  smaller  proportion  of  the  detailed 
labor  of  superintendence.  These  limitations  do  not  restrict,  but  on 
the  contrary  enhance,  his  power,  because  they  mean  that  the  indi- 
vidual who  "owns  the  control"  can  determine  the  use  of  a  mass  of 
property  and  labor  vastly  greater  than  his  own  means  would  permit. 

While  the  corporate  form  of  organization  has  made  a  theoretical 
division  of  the  leadership  of  business  enterprises  among  several 
parties  at  interest,  it  has  also  been  possible  to  practice  a  centraliza- 
tion of  power.    The  great  captains  of  finance  and  industry  wield  an 


192  CURRENT  ECONOMIC  PROBLEMS 

authority  swollen  by  the  capital  which  their  prestige  attracts  from 
thousands  of  investors,  and  often  augmented  still  further  by  working 
alliances  among  themselves.  Among  the  enterprises  of  the  whole 
country,  this  small  coterie  exercises  an  influence  out  of  proportion 
not  only  to  their  numbers  but  also  to  their  wealth.  The  men  at  the 
head  of  smaller  enterprises,  though  legally  free,  find  their  field  of 
initiative  limited  by  the  operations  of  these  magnates. 

In  large  corporations  the  few  individuals  in  control  have  an  op- 
portunity to  make  money  for  themselves  at  the  expense  of  the  en- 
terprise itself,  or  at  the  expense  of  the  other  parties  at  interest.  By 
giving  lucrative  contracts  to  construction  or  repair  companies  in 
which  they  are  interested,  by  utilizing  their  advance  information  of 
the  corporation's  affairs  for  speculation  in  the  price  of  its  shares, 
by  rigging  its  accounts  for  the  same  purpose,  by  making  loans  or 
granting  rebates  to  other  companies  in  which  they  are  interested, 
it  is  possible  for  an  inner  ring  to  make  profits  out  of  wrecking  the 
corporation.  There  are  certainly  instances  enough  to  invalidate  the 
easy  assumption  that  every  business  enterprise  is  managed  to  make 
money  for  the  whole  body  of  its  owners. 

87.     The  Function  of  the  Corporation" 

BY  J.  B.   CANNING 

The  function  of  the  modern  business  corporation,  as  a  form  of 
business  organization,  is  to  increase  the  productivity  of  invested 
capital  and  to  facilitate  and  stimulate  saving.  The  peculiar  ability 
of  the  corporation  to  perform  this  function  is  due  to  its  unique  com- 
bination of  legal  rights  and  privileges  which  allow:  (i)  indefinitely 
minute  division  of  its  certificates  of  ownership  (stocks)  and  of  its 
■certificates  of  indebtedness  (bonds)  ;  (2)  limitation  of  liability  of 
its  members  (stockholders)  ;  (3)  the  distribution  of  the  risks  of  in- 
dustry, by  means  of  issues  of  different  classes  of  stocks  and  of  bonds, 
among  its  members  and  creditors;  (4)  the  delegation  by  its  mem- 
bers of  the  power  to  direct  and  administer  its  business  policy  to  its 
responsible  agents,  the  directors  and  officers ;  and  (5)  an  easy  means 
for  transferring  ownership  of  its  securities  from  one  investor  to 
another.  None  of  these  rights,  by  itself,  is  peculiar  to  the  corpora- 
tion. Partnership  with  limited  liability  and  joint-stock  companies 
possess  them  in  part,  but  no  other  form  possesses  quite  so  advan- 
tageous a  combination  of  them. 

To  a  saver  investing  his  accumulations  of  capital  to  secure  an  in- 
come, the  value  of  a  nominal  income  of  given  amount,  rate  of  flow, 

"1915. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      193 

and  time  of  accrual,  becomes  greater  as  the  possibility  of  loss  is  min- 
imized or  limited  and  as  the  probability  of  gain  is  increased.  In 
general,  the  greatest  loss  possible  to  an  investor  in  the  stock  of  a 
corporation  is  limited  to  the  sum  paid  for  the  issued,  and  fully  paid, 
stock.  For,  unlike  the  condition  found  in  the  ordinary  partnership, 
all  of  whose  members  are  agents  of  the  firm  and  each  of  whom  is, 
therefore,  unlimitedly  liable  for  any  and  all  obligations  incurred  in 
the  course  of  the  firm's  business  by  any  other  member,  the  corpora- 
tion is,  itself,  a  legal  person  and  its  stockholders  are  not  its  agents 
nor  are  they  bound  to  it  by  any  legal  obligation  other  than  that  of 
paying  for  the  stock  its  full  subscription  value.  To  a  stockholder, 
therefore,  the  ability  and  integrity  of  other  stockholders  is  a  matter 
of  no  concern  save  as  they  possess  the  right  to  vote  for  directors  and, 
indirectly,  for  officers,  both  of  whom  are  agents  of  the  corporation. 
Since  the  latter  are  agents  of  the  corporation  and  not  of  the  stock- 
holders, they  cannot  incur  obligations  for  which  the  stockholders  are 
liable. 

The  fact  that  a  corporation  may,  and  many  do,  issue  bonds  in 
convenient  denominations,  amply  secured,  as  to  their  so-called  prin- 
cipal, by  tangible  wealth  and,  as  to  their  income,  by  net  earnings  con- 
siderably above  the  amount  required,  makes  it  possible  for  the  small 
investor  with  little  knowledge  of  the  company's  probable  total  earn- 
ing capacity  to  invest  his  savings  in  what  is,  humanly  speaking,  a 
certain  income.  The  same  corporation  may  issue  another  class  of 
security,  preferred  stock,  which  generally  has  a  first  claim  upon 
assets  and  upon  income  after  the  claims  of  the  bondholders  are  dis- 
charged. Upon  these  stocks  a  definite  income ;  usually  larger  than 
that  paid  the  bondholders,  is  promised — an  income  that  may  be,  and 
often  is,  secured  by  net  earnings  considerably  in  excess  of  the  amount 
necessary  for  the  purpose.  Purchase  of  this  stock  enables  the  in- 
vestor who%as  a  more  intimate  knowledge  of  the  company's  affairs 
and  prospects  to  secure  a  larger  income  without  necessarily  incur- 
ring greater  risk.  The  ability  of  the  corporation  to  issue  still  an- 
other class  of  security,  common  stock,  which  has  a  residual  claim 
upon  assets  and  upon  income  after  all  claims  of  the  holders  of  bonds 
and  of  preferred  stocks  have  been  met,  allows  still  another  class  of 
investors  who  have  the  most  in,timate  knowledge  of  the  company's 
affairs,  and  who  are  most  willing  to  incur  risks,  to  secure  an  income 
objectively  less  certain  but  with  no  maximum  limit  other  than  the 
earning  capacity  of  the  company.  The  ability  of  the  corporation 
thus  to  issue  any  number  of  classes  of  securities,  each  with  a  dif- 
ferent rank  as  to  priority  of  claims  upon  assets  and  upon  income, 


194  CURRENT  ECONOMIC  PROBLEMS 

allows  for  any  relative  distribution  of  risks  and  of  rewards  that 
promises  to  please  the  investing  public  best. 

In  addition  to  the  limitation  of  liability,  which,  in  general,  limits 
possible  loss  to  the  amount  paid  for  an  issued  and  fully  paid  stock, 
and  in  addition  to  the  possibility  of  selecting  from  a  given  corpora- 
tion's securities  one  carrying  little  appreciable  risk,  the  investor  has 
another,  and  very  important,  means  of  reducing  the  risk  of  large 
loss,  viz.,  he  may  distribute  his  investment  among  the  securities  of 
several  corporations  engaged  in  different  kinds  of  enterprise  and 
located  in  different  parts  of  a  country  or  in  different  countries.  Since 
stocks  may  be  issued  in  denominations  as  small  as  desired,  and  since 
a  stock  certificate  represents  an  undivided  interest  in  income  and 
assets,  it  must  be  obvious  that  the  total  loss  of  an  investment  dis- 
tributed widely  over  the  field  of  industry  and  apportioned  judiciously 
among  the  existing  industries  and  corporations  can  scarcely  occur 
short  of  a  catastrophe  involving  the  general  collapse  of  economic  ac- 
tivities. Furthermore,  the  simple  and  direct  means  of  transferring 
ownership  of  corporation  securities  makes  it  easy  for  an  investor,  if 
he  loses  faith  in  a  concern  in  whose  securities  he  has  invested,  or  if 
he  learns  of  some  other  concern  that  promises  better  returns,  to 
transfer  his  funds  to  another  enterprise.  Incidentally  this  ease  of 
liquidation  makes  corporation  securities  highly  acceptable  as  col- 
lateral for  loans.  Since  the  minimizing  of  risk  increases  the  value 
of  a  prospective  income,  all  these  attributes  of  the  corporation  op- 
erate to  offer  the  investor  a  larger  reward  for  saving  and,  in  conse- 
quence, tend  to  increase  the  amounts  saved. 

The  attributes  of  the  corporation  above  discussed  are  econom- 
ically advantageous  whether  the  scale  of  industry  be  large  or  small, 
but  in  the  field  of  large-scale  industry  the  corporation  possesses  a 
superiority  of  another  sort.  We  have  said  that  the  investor  may 
distribute  his  investment  over  a  wide  range;  the  converse  of  this 
statement  is  also  true,  viz.,  a  new  enterprise,  however  great,  may 
draw  funds  in  small  amounts  from  a  great  number  of  investors. 
This  makes  it  possible  to  gather  together  the  smallest  accumula- 
tions as  fast  as  they  are  made  and  to  put  them  to  immediate  use  in 
those  new  enterprises  that  promise  the  greatest  gains  no  matter  how 
great  those  new  enterprises  may  be.  This  result  is  usually  accom- 
plished through  the  agency  of  savings  banks,  trust  companies,  in- 
surance companies,  and  other  financial  middlemen,  who  either  advise 
the  individual  in  his  choice  of  securities  or  else  make  the  investment 
in  their  own  names  from  funds  loaned  them  at  interest  by  the  saving 
public.     As  a  consequence  of  this  aptitude  of  the  corporation  for 


PECUNIARY  BASIS  OFIeCONOMIC  ORGANIZATION      195 

accumulating  large  amounts  from  small  savings,  managerial  ability, 
mechanical  labor,  and  machine  processes  may  be  so  co-ordinated  as 
to  enhance  to  the  greatest  possible  degree  the  productivity  of  the 
capital  saved. 

The  advantages  of  the  corporation  are  readily  seen,  then,  to  be 
both  interacting  and  cumulative.  The  productivity  of  capital  is  in- 
creased by  the  choice  and  co-ordination  of  productive  factors  ren- 
dered possible  by  large-scale  industry.  Accumulated  capital  is  put  to 
immediate  usa  where  it  is  most  productive.  The  value  of  the  in- 
creased income  is  enhanced  by  the  limitation  and  distribution  of 
risks.  All  these  work  together  to  stimulate  and  to  accelerate  in* 
vestment. 

H.    THE  ORGANIZATION  OF  TRADES 

88.     Competition  and  Association-* 

BY  HENRY  CLAY 

What  effect  has  the  pressure  of  competition  on  the  relations  of 
the  firms  and  individuals  that  make  up  the  business  community?  We 
can  usually  trace  the  effect  of  any  continuous  pressure  in  the  structure 
of  a  body;  we  can  do  so  in  this  case  in  the  structure  of  economic 
society.  Competition  gives  rise  to  a  series  of  conflicting  interests 
and  a  series  of  common  interests  among  competing  firms.  The  con- 
flicting interests  lead  them  to  stand  alone,  the  common  interests  lead 
them  to  associate.  Thus,  according  as  we  look  at  it  from  the  point 
of  view  of  the  conflicting  or  the  common  interests,  we  shall  see  society 
as  an  assembly  of  competing  or  an  assembly  of  associated  units. 

First  the  conflicting  interests.  The  different  trades  compete,  for- 
ward for  society's  income,  backward  for  the  agencies  of  production 
and  the  service  of  the  transport,  power,  and  implement  industries. 
What  one  has,  another  cannot  have.  Districts  and  countries  compete 
for  custom — for  the  market,  as  we  say — and  for  raw  materials  and 
other  requisites  of  production.  In  each  trade  at  each  stage,  the  dif- 
ferent firms  compete,  each  anxious  to  get  as  big  a  share  of  the  whole 
trade  as  possible,  each  anxious  to  get  its  materials  and  the  means 
of  production  specialized  to  its  business  as  cheaply  as  possible.  The 
individuals  of  society  compete  with  one  another  in  two  capacities ; 
they  compete  as  consumers  and  they  compete  as  producers.  As  con- 
sumers they  could  all  probably  do  with  more  than  they  get;  they 
would  all  certainly  prefer  to  pay  the  lowest  price  for  their  goods  at 
which  they  could  get  them  if  they  were  the  only  consumers  for  them. 

28  From  Economics:  An  Introduction  for  the  General  Reader,  pp.  119-22. 
Copyright  by  Macmillan  and  Co.,  1916;  by  the  Macmillan  Co.,  1918. 


196  CURRENT  ECONOMIC  PROBLEMS 

Similarly  they  compete  as  producers ;  each  has  some  labor  to  sell,  or 
else  the  use  of  some  land  or  capital.  The  price  each  can  get  depends 
upon  the  price  that  other  people  will  accept  for  their  labor,  land,  and 
capital.  Thus  everywhere  we  find  the  conflicting  interests  which  we 
commonly  associate  with  the  word  "competition,"  and,  because  this 
conflict  of  interests  is  so  obvious,  we  are  inclined  to  forget  or  ignore 
the  correlative  community  of  interests  which  the  conflict  creates. 

How  does  competition  create  a  community  of  interests?  It  does 
so  by  its  influence  upon  prices.  Competition  to  sell  tends  to  force 
prices  down,  competition  to  buy  tends  to  force  prices  up.  The  mere 
existence  of  an  alternative  seller  is  a  check  on  the  power  of  any 
seller  to  exact  the  price  he  would  like;  the  mere  existence  of  an 
alternative  buyer  is  a  check  on  the  power  of  any  buyer  to  buy  as 
cheap  as  he  would  like.  The  worker's  income  depends  upon  selling 
labor  at  a  high  price  and  buying  commodities  and  services  at  a  low 
price;  it  is  the  competition  of  other  workers  that  keeps  down  the 
price  that  he  can  get  for  his  labor,  the  competition  of  other  con- 
sumers that  keeps  up  the  price  of  other  commodities  and  services. 
Similarly  with  landowner  and  capitalist ;  it  is  the  competition  of  other 
landowners  and  capitalists  that  hampers  their  efforts  to  get  a  higher 
price  for  the  use  of  their  land  or  capital.  So  with  industries ;  the 
competition  of  other  industries  is  the  check  on  the  prices  they  can 
charge ;  at  the  same  time  it  is  the  check  on  their  power  to  beat  down 
the  other  trades,  the  workers,  the  capitalists,  the  landowners,  from 
whom  they  buy  materials  and  aids  to  production.  Inside  any  one  in- 
dustry it  is  the  competition  of  other  firms  which  hampers  each  firm 
in  its  efforts  to  sell  its  products  dear  and  buy  its  labor  and  its  mater- 
ials cheap.  The  members  of  each  economic  group  or  class  therefore 
have  a  common  interest  in  extinguishing  or  restricting  competition 
within  the  group  or  class. 

Thus  we  get  the  common  interests  of  all  the  traders  in  one  dis- 
trict as  against  the  traders  of  another  district.  Free  traders  and 
protectionists  agree  as  to  the  desirability  of  getting  as  much  trade 
for  their  country  as  possible,  they  differ  only  to  the  means.  As  all 
the  citizens  of  a  country  have  a  common  interest  in  that  country's 
prosperity,  so  have  all  the  members  of  a  town  or  industrial  district 
in  that  town  or  district.  So  too  we  get  "the  interest  of  the  trade." 
All  the  persons  connected  with  the  cotton  industry  have  a  common 
interest  in  inducing  the  public  to  prefer  cotton  to  woolen  shirts. 
Within  the  boundaries  of  their  trade  they  may  quarrel  among  them- 
selves as  to  the  disposal  of  the  price  of  the  shirts,  but  they  are  united 
in  their  hostility  to  wool  or  linen.    They  all,  from  the  humblest  oper- 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION      197 

ative  to  the  biggest  manufacturer,  stand  to  gain  by  a  growth  in  the 
demand  for  cotton  goods. 

Within  each  trade,  again,  while  there  is  conflict  between  the  dif- 
ferent firms  at  every  stage,  the  stages  have  each  a  common  interest 
which  will  somehow  serve  as  a  basis  for  common  action.  Manufac- 
turers all  agree  that  retailers  get  more  than  their  fair  share  of  the 
profits  of  an  industry,  and  they  will  all  act  together  to  prevent  their 
exaction.  The  retailers,  on  the  other  hand,  will  form  retailers  de- 
fense leagues  to  protect  themselves  against  the  exactions  of  the  manu- 
facturers. All  the  firms  at  each  stage  of  a  manufacturing  process 
from  the  preceding  stage  and  in  selling  their  work  as  dear  as  possible 
have  a  common  interest  in  getting  as  cheap  as  possible  what  they  take 
to  the  succeeding  stage.  To  come  to  individual  firms,  while  employer 
and  employed  do  not  always  constitute  a  happy  family,  they  have 
some  interest  in  common.  The  employer  wants  as  big  a  share  of  the 
trade  as  possible,  and  his  employees  stand  to  gain  if  he  succeeds. 
They  may  get  no  bigger  wages  than  they  would  get  if  the  firm  were 
unsuccessful,  but  they  gain  something  in  regularity  and  security  of 
employment.  When  we  come  back  to  the  final  agents  of  production 
— land,  labor,  and  capital — while  landowners  compete  with  one 
another,  laborers  with  one  another,  and  capitalists  with  one  another, 
no  one  who  is  interested  in  politics  is  likely  to  forget  that  there  is  a 
"landed  interest,"  a  "capitalistic  interest,"  and  a  "labor  interest." 

Thus  ever)'body  in  our  present  economic  society  stands  in  two 
relations  to  the  other  members  of  the  society,  in  a  relation  of  con- 
flicting and  in  a  relation  of  common  interest.  Both  these  relations 
spring  from  the  same  cause — the  prevalence  of  what,  for  want  of  a 
better  word,  we  call  "competition."  Competition  tends  to  force  us 
to  struggle,  fight,  conflict  with  our  neighbors ;  the  desire  to  relieve 
ourselves  from  the  pressure  of  competition  compels  us  to  combine, 
associate,  co-operate  with  our  neighbors.  We  associate  with  our 
competitors  in  one  economic  group,  in  order  to  compete  more  ef- 
fectively with  other  groups. 

89.     The  Relations  Between  Trades'^ 

BY  JOHN  A.  HOBSON 

Let  US  consider  the  nature  of  the  bonds  of  harmony  and  of  repul- 
sion among  trades. 

I.  The  closest  relations  of  common  interest  will  evidently  exist 
between  trades  which  draw  upon  some  single  source  of  supply  of 
raw  materials  or  productive  power. 

20Adapted  from  The  Industrial  System,  pp.  28-31.  Copyright  by  Long- 
mans, Green  and  Co.,  1910. 


198  CURRENT  ECONOMIC  PROBLEMS 

All  trades  whose  chief  material  is  wool  or  leather,  or  timber  or 
steel,  pulling  at  some  common  supply,  must  look  closely  after  one 
another.  Anything  which  increases  or  reduces  the  common  supply 
affects  them  all  alike,  so  that  there  is  community  of  interest.  Any- 
thing which  gives  one  of  them  a  better  pull  upon  the  supply  than 
the  others  affects  these  latter  injuriously,  so  far  as  there  is  diversity 
of  interest.  The  same  evidently  holds  where  a  number  of  local  manu- 
facturers are  dependent  for  coal  or  other  source  of  power  upon  the 
same  supply.  Dependence  upon  some  subsidiary  material  or  other 
trade  accessory  will  set  up  a  similar  relation,  important  or  trivial, 
according  to  the  part  played  by  sugh  material  in  the  respective  trades. 

2.  Trades  that  are  complementary  or  subsidiary  to  one  another 
in  some  direct  way  are,  as  we  have  seen,  in  the  closest  harmony.  The 
coal  and  iron  trades  are  the  largest,  most  obvious  instance,  but  every 
art  of  production  throws  a  number  of  trades  into  similar  dependency 
on  one  another.  Whenever  a  number  of  materials  must  be  put  to- 
gether to  make  a  commodity,  such  direct  unity  of  interest  is  estab- 
lished among  the  trades  that  handle  each  material.  Such  are  the 
relations  between  the  fruit-growing  and  the  sugar-refining  trades, 
between  the  wine-growing  and  the  bottle-making  trades,  between  the 
various  trades  which  go  to  feed,  with  materials,  the  building  trades. 

3.  Where  two  sorts  of  material  or  two  sets  of  processes  are 
alternatives  for  production,  a  keen  antagonism  exists  between  them. 
Here  we  first  come  across  the  relation  known  as  substitution,  which 
plays  so  important  a  part  in  industrial  progress. 

Bedsteads  are  made  from  wood  or  steel,  so  are  many  other  articles 
of  furniture  or  fittings  ;  sugar  may  be  made  from  cane  or  beet ;  cotton, 
linen,  wool  are  alternatives  for  many  kinds  of  dress  or  other  fabrics ; 
electricity,  gas,  oil,  steam  are  competing  against  one  another  as 
sources  of  industrial,  locomotive,  or  domestic  energy.  Just  here  we 
are  not  concerned  with  the  choice  between  different  sorts  of  goods 
which  satisfy  the  same  want,  but  with  the  choice  exercised  by  pro- 
ducers between  different  materials  and  processes  which  can  be  sub- 
stituted for  one  another  on  some  business  process.  The  choice 
exercised  by  the  consumer  has  generally  some  influence  in  the  selec- 
tion of  material  or  method  of  production,  as,  for  instance,  in  deter- 
mining the  alternative  use  of  wood,  vulcanite,  or  amber,  in  making 
pipestems. 

But  as  the  law  of  substitution  opens  up,  we  get  glimpses  of  a 
wider,  more  general  sympathy  and  opposition  among  trades.  The 
productive  energy  of  man,  directly  operative  through  labor,  in- 
directly through  capital,  is  within  certain  limits  free  to  choose  among 


PEUCNIARY  BASIS  OF  ECONOMIC  ORGANIZATION       199 

all  the  various  channels  of  industry.  They  are  all  open  to  him  as 
alternative  occupations.  So  there  is  a  more  universal  sympathy  and 
opposition  between  all  trades  than  any  yet  named.  All  causes  af- 
fecting the  volume,  fluidity,  and  efficiency  of  the  capital  and  labor  in 
a  community  will  affect  all  trades  in  common.  In  proportion  as  labor 
and  capital  are  free  to  enter  several  trades,  and  even  to  transfer 
themselves  from  one  occupation  to  another,  they  must  be  regarded 
as  forming  a  common  fund  of  industrial  energy  which  pulsates 
through  the  whole  framework  of  industry,  as  the  blood  courses 
through  the  various  veins.  Though  the  flow  of  labor  and  of  capital 
is  far  from  free  and  is  impeded  by  many  economic  barriers,  there  is 
enough  fluidity  to  give  a  real  unity  to  the  terms  "labor  market"  and 
"market  for  loanable  capital."  Capital  and  labor  can  flow  into  var- 
ious channels  of  production  with  sufficient  freedom  to  make  every 
trade  sensitive  to  the  expansion  and  contraction,  the  prosperity  and 
depression  of  every  other  trade. 

But  trades  are  connected,  not  only  through  common  interests  in 
processes  of  production,  but  through  changes  in  methods  of  con- 
sumption. The  "standard  of  comfort"  of  different  classes  is  con- 
stantly changing.  Every  rise  or  fall  of  wages  alters  the  proportion 
of  working-class  incomes  spent  on  different  commodities,  and  so 
distinctly  stimulates  or  depresses  groups  of  trades.  The  great  change 
from  rural  to  city  life  has  revolutionized  the  expenditure  of  large 
masses  of  our  population.  New  articles  of  consumption  or  the 
cheapening  of  old  articles,  which  brings  them  in  reach  of  poorer 
classes,  create  or  stimulate  new  tastes  which  not  merely  absorb  new 
increments  of  income  but  displace  older  articles  of  consumption. 
Taste,  fashion  and  caprice  constantly  exert  a  larger  influence  on  the 
expenditure  of  larger  sections  of  the  public.  Every  article  of  a  man's 
consumption  is  in  a  sense  competing  with  every  other  article  for  a 
larger  share  of  his  expenditure. 

Any  change  in  standards  of  consumption  brings  other  changes 
by  reason  of  affinity.  The  rapid  spread  of  the  taste  for  cycling 
which  followed  the  invention  of  the  safety  bicycle,  besides  its  direct 
competitive  effect  upon  the  use  of  riding  horses  and  the  carriage 
trade,  had  a  large  number  of  clearly  traced  subsidiary  effects,  reduc- 
ing the  sale  of  cheap  pianos  and  jewelry,  damaging  the  book  trade, 
altering  the  nature  of  the  clothing  trades,  and  reviving  the  country 
inns.  You  cannot  touch  the  consumer  at  any  point  in  his  expenditure 
without  altering  in  countless  seen  and  unseen  ways  his  whole  standard 
of  valuations  and,  through  alterations  of  this  standard,  affecting  the 
entire  series  of  industrial  processes  which  support  it. 


200  CURRENT  ECONOMIC  PROBLEMS 

Thus  the  growth  of  harmonious  and  conflicting  desires  of  con- 
sumers weaves  the  closest  and  most  intricate  network  of  relations 
among  all  the  various  productive  processes  of  the  industrial  world. 
The  closer  we  examine  any  section  of  the  industrial  system,  the  more 
numerous  and  complex  become  the  relations  between  the  businesses, 
the  trades,  and  the  groups  of  trades  contained  in  it.  The  ramifica- 
tions come  to  resemble  those  which  the  microscope  displays  in  the 
section  of  a  leaf  or  a  bit  of  animal  fiber. 

As  we  recognize  the  fineness  of  these  relations,  we  come  un- 
consciously to  shift  the  metaphors  we  use,  and  to  regard  industry  less 
as  a  stream  or  a  machine  and  more  as  a  living  organism  with  some- 
thing like  a  common  flow  of  blood,  a  common  system  of  nerves,  and 
an  organic  co-ordination  of  parts  resting  upon  a  complexity  of  busi- 
ness cells.  None  of  these  metaphors  is  strictly  applicable:  industry 
is  neither  river,  machine,  nor  organism,  but  there  are  many  points 
in  which  the  last  term  gives  the  most  correct  impression.  If  we 
could  follow  out  far  enough  the  ties  between  businesses  and  trades 
and  trade  groups  in  what  we  call  the  industrial  world,  we  should  find 
a  sort  of  common  connective  tissue  running  throughout,  thinner  and 
coarser  in  some  parts,  stouter  and  finer  in  others,  but  binding  the 
whole  set  of  industrial  operations  so  closely  together  that  any  touch 
bestowed  at  any  point  may  be  communicated  to  the  most  distant  parts. 

90.     The  "Planlessness"  of  Productions^" 

BY  WESLEY  C.   MITCHELL 

With  technical  experts  to  guide  the  making  of  goods,  business 
experts  to  guide  the  making  of  money,  lenders  to  review  all  plans 
requiring  large  investments,  and  government  to  care  for  the  public 
welfare,  it  may  seem  that  the  money  economy  provides  a  staflf  and 
a  procedure  adequate  to  the  task  of  directing  economic  activity,  vast 
and  difficult  though  that  task  may  be.  This  impression  is  strength- 
ened by  observing  that  each  class  of  business  leaders  is  spurred  to 
efficiency  and  deterred  from  recklessness  by  danger  of  pecuniary 
loss.  The  engineer  who  blunders  is  discharged,  the  enterpriser  who 
blunders  goes  into  bankruptcy,  the  lender  who  blunders  loses  his 
money.  Thus  the  guides  who  misdirect  the  industrial  army  are 
always  being  eliminated.  On  the  other  hand,  those  who  succeed  are 
constantly  being  promoted  to  posts  of  wider  power. 

With  this  powerful  stimulus  of  industrial  efficiency,  the  money 
economy  unites  an  opportunity  for  co-operation  on  a  grand  scale. 

30  Adapted  from  Business  Cycles,  pp.  37-40.  Copyright  by  the  author, 
1913.    Published  by  the  University  of  California  Press. 


PECUNIARY  BASIS  OF  ECONOMIC  ORGANIZATION       201 

By  paying  money  prices,  the  lenders  can  enlist  the  aid  of  laborers 
who  contribute  work  of  all  kinds,  of  expert  advisers  who  contribute 
special  knowledge,  of  landlords  who  contribute  the  uses  of  their 
property,  and  of  investors  who  contribute  the  uses  of  their  funds. 
And  all  these  classes  can  be  made  to  work  in  disciplined  order  toward 
the  execution  of  a  single  plan. 

The  union  between  encouragement  of  individual  efficiency  and 
opportunity  for  wide  co-operation  is  the  great  merit  of  the  money 
economy.  It  provides  a  basis  for  what  is  unquestionably  the  best 
system  for  directing  economic  activity  which  men  have  yet  practiced. 
Nevertheless,  the  system  has  serious  limitations. 

1.  The  money  economy  provides  for  effective  co-ordination  of 
effort  within  each  business  enterprise,  but  not  for  effective  co-ordi- 
nation of  effort  among  independent  enterprise. 

The  two  schemes  differ  in  almost  all  respects.  Co-ordination 
within  the  enterprise  is  the  result  of  careful  planning  by  experts; 
co-ordination  among  independent  enterprises  cannot  be  said  to  be 
planned  at  all ;  rather  is  it  the  unplanned  result  of  natural  selection 
in  a  struggle  for  business  survival.  Co-ordination  within  an  enter- 
prise has  a  definite  end — the  making  of  profits ;  co-ordination  among 
independent  enterprises  has  no  definite  end,  aside  from  the  con- 
flicting aims  of  the  several  units.  Co-ordination  within  an  enter- 
prise is  maintained  by  a  single  authority  possessed  of  power  to  carry 
its  plans  into  effect ;  co-ordination  among  independent  enterprises 
depends  upon  many  different  authorities  contending  with  each  other, 
and  without  power  to  enforce  a  common  program  except  so  far  as 
one  can  persuade  or  coerce  others.  As  a  result  of  these  conditions 
co-ordination  within  an  enterprise  is  characterized  by  economy  of 
effort;  co-ordination  among  independent  enterprises  by  waste. 

In  detail,  then,  economic  activity  is  planned  and  directed  with 
skill ;  but  in  the  large  there  is  neither  general  plan  nor  general  direc- 
tion. The  charge  that  "capitalistic  production  is  planless"  therefore 
contains  both  an  important  element  of  truth  and  a  large  element  of 
error.  Civilized  nations  have  not  yet  developed  sufficient  intelligence 
to  make  systematic  plans  for  the  sustenance  of  their  populations ; 
they  continue  to  rely  upon  the  badly  co-ordinated  efforts  of  private 
initiative.  Marked  progress  has  been  made,  however,  in  the  skill 
with  which  the  latter  efforts  are  directed. 

2.  But  the  managerial  skill  of  business  enterprises  is  devoted 
to  money-making.  If  the  test  of  efficiency  in  the  direction  of 
economic  activity  be  that  of  determining  what  needs  are  most  im- 
portant for  the  common  welfare  and  then  satisfying  them  in  the 


202  CURRENT  ECONOMIC  PROBLEMS 

most  economical  manner,  the  present  system  is  subject  to  a  furthei 
criticism.  For,  in  nations  where  a  few  have  incomes  sufficient  to 
gratify  trifling  whims  and  where  many  cannot  buy  things  necessary 
to  maintain  their  own  efficiency,  it  can  hardly  be  argued  that  the 
goods  which  pay  best  are  most  needed.  It  is  no  fault  of  business 
leaders  that  they  take  prospective  profits  as  their  guide.  They  are 
compelled  to  do  so ;  for  the  men  who  mix  too  much  philanthropy 
with  business  soon  cease  to  be  leaders.  But  a  system  of  economic 
organization  which  forces  men  to  accept  so  artificial  an  aim  as 
pecuniary  profit  cannot  guide  their  efforts  with  certainty  toward 
their  own  ideals  of  public  welfare. 

3.  Even  from  the  point  of  view  of  business,  prospective  profit 
is  an  uncertain  flickering  light.  Profits  depend  upon  two  variables, 
on  margins  between  selling  and  buying  prices,  and  on  the  volume  of 
trade.  These  are  related  to  each  other  in  unstable  fashion  and  each 
subject  of  perturbations  from  a  multitude  of  unpredictable  causes. 
That  the  system  of  prices  has  its  own  order  is  clear;  but  is  it  not 
less  clear  that  the  order  fails  to  afford  certainty  of  business  success. 
Men  of  long  experience  and  proved  sagacity  often  find  their  calcula- 
tions upset  by  conjunctures  which  they  could  not  anticipate.  Thus 
the  money  economy  confuses  the  guidance  of  economic  activity  by 
interjecting  a  large  element  of  chance  into  every  business  venture. 

4.  The  hazards  to  be  assumed  grow  greater  with  the  extent  of 
the  market  and  with  the  time  that  elapses  between  the  initiation  and 
the  fruition  of  an  enterprise.  But  the  progress  of  industrial  tech- 
nique is  steadily  widening  markets,  and  requiring  heavier  invest- 
ments of  capital  for  future  production.  Hence  the  share  in  eco- 
nomic leadership  that  falls  to  lenders,  that  of  receiving  the  various 
chances  offered  them  for  investment,  presents  increasing  difficulties. 
And  a  large  proportion  of  these  investors,  particularly  the  lenders 
on  long  time,  lack  the  capacity  and  the  training  for  the  successful 
performance  of  such  work. 

These  defects  in  the  system  of  guiding  economic  activity  and 
the  bewildering  complexity  of  the  task  itself  allow  the  processes  of 
economic  life  to  fall  into  those  recurrent  disorders  which  constitute 
crises  and  depressions. 


V 

PROBLEMS  OF  THE  BUSINESS  CYCLE 

Under  the  simple  conditions  assumed  in  the  last  division,  the  problem 
of  the  organization  of  industrial  life  was  found  to  present  many  bewildering 
aspects.  But  placed  in  a  developing  society  it  becomes  doubly  bewildering. 
None  of  the  economic  and  ethical  questions  which  were  noted  have  disappeared 
and  the  new  setting  adds  its  own  quota  of  problems. 

The  disturbing  elements  in  the  larger  situation  are  closely  associated  with 
those  regularly  recurring  phenomena  which  are  usually  called  "crises"  and 
"depressions."  It  was  once  held  that  these  played  havoc  with  "economic 
gear  and  cogs,"  throwing  the  "industrial  machine"  "out  of  joint,"  or  leaving 
it  "half  stalled."  Such  conditions  were  looked  upon  as  abnormal ;  they  were 
thought  to  create  problems  of  a  mechanical  character ;  they  called  for  the 
services  of  the  industrial  mechanism.  But,  the  damage  once  repaired,  the 
"industrial  machine"  could  run  its  prosperous  course  until  another  catastrophe 
threw  "the  monkey-wrench  into  the  machine." 

Recent  analysis,  however,  has  shown  that  the  matter  is  not  so  simple  as 
all  this.  Two  closely  related  lines  of  movement  converge  to  produce  these 
disturbances.  The  first  is  the  development  of  the  industrial  system.  This 
involves  change  in  technique,  in  organization,  in  markets,  and  in  the  demand 
for  goods.  The  instruments  of  production  are  largely  specialized;  labor  is 
mobile  only  within  fixed  limits;  and  only  newly  accumulated  capital  is  pos- 
sessed of  this  characteristic.  Capital  values  are  based  upon  the  earnings 
anticipated  in  view  of  the  known  and  predictable,  not  the  novel,  elements  in 
the  situation.  Particular  productive  goods  are  turned  out  with  an  expecta- 
tion that  they  will  be  used  in  the  production  of  particular  consumptive  goods. 
The  system  as  a  whole  has  far  too  much  of  rigidity  successfully  and  im- 
mediately to  adapt  itself  to  those  radical  changes.  Yet  so  delicate  is  the 
system  that  anything  which  aflfects  a  particular  industry  is  certain  to  have 
an  appreciable  effect  upon  the  whole. 

The  second  is  "the  rhythm  of  business  activity,"  or  the  economic  cycle. 
A  depression,  characterized  by  conservatism  in  business  and  financial  activity, 
gradually  leads  to  an  improvement  in  conditions;  as  business  expands  a 
spirit  of  optimism  arises,  and  stimulates  further  expansion ;  the  latter  reacts 
upon  the  feeling  of  optimism  and  causes  it  to  assume  a  tone  of  overconfidence, 
which  leads  to  "flush  times"  and  feverish  activity ;  sooner  or  later  business 
overshoots  the  mark,  losses  occur,  and  perhaps  a  crisis,  contraction  is  neces- 
sary, and  a  depression  again  appears.  The  cycle  is  a  closed  one;  it  has  no 
logical  beginning  and  no  consummation.  From  lean  to  fat  to  lean  years  it  ever 
runs  its  varied  round. 

But  the  situation  is  further  complicated  by  the  different  behavior  of  dif- 
ferent industries  and  industrial  agents  during  the  cycle.  If  the  price  scheme 
were  such  that  values  as  a  whole  could  be  quickly  readjusted  to  meet  new 
conditions,  much  trouble  might  be  avoided.  But  such  is  not  the  case.  Sheer 
necessity  alone  must  be  depended  upon  to  establish  the  lower  price  level.  But 
businesses  occupy  different  strategic  positions ;  the  baker  and  the  manufac- 
turer of  steel  rails  are  likely  to  be  affected  in  different  ways  by  price-making 
forces  at  different  stages  of  the  cycle.  The  man  with  fixed  salary  and  the 
employee  whose  contract  runs  in  terms  of  a  few  months  or  weeks  are  on  a 

203 


204  CURRENT  ECONOMIC  PROBLEMS 

different  footing.  The  result  is  that  all  values  do  not  go  up  or  go  down  to- 
gether. The  output  of  various  industries,  similarly,  do  not  increase  or  de- 
crease together.  Yet  all  of  these  industries  are  involved  in  a  delicate  system 
that  calls  for  nice  adjustments. 

It  is  these  movements  which  are  responsible  for  the  facts  that  no  two 
cycles — or  crises — are  alike ;  that  the  cycle  varies  greatly  in  length,  in  sweep, 
and  in  intensity,  and  that  a  myriad  of  dissimilar  theories  have  been  put  for- 
ward to  account  for  them,  few  of  which  contain  no  germ  of  truth. 

Its  spectacular  character  has  singled  out  the  crises  for  particular  atten- 
tion almost  to  the  exclusion  of  the  more  important  "flush  times"  and  depres- 
sions. It  is  not  surprising  that  antecedent  business  and  industrial  conditions 
are  often  overlooked,  and  crises  are  explained  in  terms  of  monetary 
standards  and  banking  systems.  Undoubtedly  ouf  banking  laws  in  the  past 
have  made  our  crises  unusually  severe.  The  elasticity  of  credit  and  note- 
issue  secured  by  the  recent  currency  act  should  do  much  to  relieve  financial 
stringency  when  a  crises  arises.  It  should  also  do  something  to  prevent  its 
occurrence.  But  those  who  expect  it  to  cause  the  industrial  process  to  pur- 
sue a  more  even  course  are  likely  to  be  disappointed. 

The  violence  of  the  ebb  and  flow  of  business  activity  increases  tremend- 
ously the  difficulty  of  properly  organizing  society  through  price.  It  also 
reveals  grave  breaks  in  the  organization.  Capital  is  insecure  and  funded 
wealth  may  disappear  overnight.  The  cycle  is  associated  with  a  rhythm  of 
overemployment,  non-employment,  and  underemployment.  The  capitalists  and 
laborers  whose  products  satisfy  marginal  wants  are  put  in  a  very  precarious 
economic  position.  The  crisis  destroys  wealth,  specialized  talent,  and  organi- 
zation, all  of  which  must  be  replaced. 

The  economic  cycle  involves  the  whole  industrial  system.  No  simple 
devise  will  arrest  the  violence  of  its  rhythm.  It  can  be  reached  only  by  a 
complex  of  many  complementary  measures.  //  we  are  to  control  the  cycle — 
we  must  learn  to  control  the  introduction  of  new  technique;  the  demand  for 
goods  must  be  steadied;  we  must  develop  an  art  of  predicting  business  con- 
ditions ;  a  means  must  be  found  for  co-ordinating  recently  accumulated  cap- 
ital and  opportunities  for  investment;  a  higher  sense  of  responsibility  in  mak- 
ing loans  must  be  developed  by  the  bankers ;  a  feeling  of  responsibility  must 
be  engendered  in  the  promoter ;  and  means  must  be  devised  for  checking 
the  speculative  mania. 

In  time,  as  our  very  rapid  industrial  development  slows  up,  the  sweep 
of  the  economic  cycle  may  be  expected  to  be  less  extreme.  Then  perhaps 
we  shall  hear  complaints  about  a  prosaic  age  that  has  no  speculative  prizes 
to  dangle  before  the  eyes  of  investors  to  tempt  them  to  take  chances  with 
unknown  opportunities.  Then,  perhaps,  men  will  point  to  the  "golden  age" 
of  the  past,  when  unexploited  opportunities  were  on  all  sides.  They  may 
go  so  far  as  to  conclude  that  our  violent  fluctuations  in  business  were  a  small 
price  to  pay  for  our  rapid  industrial  development. 

A.     THE  DELICATE  MECHANISM  OF  INDUSTRY 
91.     The  Delicate  Organization  of  Industry^ 

BY  THORSTEIN  VEBLEN 

Under  the  old  order,  when  those  in  whose  hands  lay  the  discretion 
in  economic  affairs  looked  to  a  livelihood  as  the  end  of  their  en- 
deavors, the  welfare  of  the  community  was  regulated  "by  the  skill, 
dexterity,  and  judgment  with  which  its  labor  was  generally  applied." 

^Adapted  from  The  Theory  of  Business  Enterprise,  pp.  179-82.  Copy- 
right by  Charles  Scribner's  Sons,  1910. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  205 

What  would  mar  this  common  welfare  was  the  occasional  disastrous 
act  of  God  in  the  way  of  unpropitious  seasons  and  the  like,  or  the  act 
of  man  in  the  way  of  war  and  untoward  governmental  exactions. 
Price  variations,  except  as  conditioned  by  these  intrusive  agencies, 
had  commonly  neither  a  wide  nor  a  profound  effect  upon  the  even 
course  of  the  community's  welfare. 

Until  the  machine  industry  came  forward,  commerce,  with  its 
handmaid,  banking,  was  the  only  branch  of  economic  activity  that 
was  in  any  sensible  degree  organized  in  a  close  and  comprehensive 
system  of  business  relations.  "Business"  would  then  mean  commerce 
and  little  else.  This  was  the  only  field  in  which  man  habitually  took 
account  of  his  own  economic  circumstances  in  terms  of  price  rather 
than  in  terms  of  livelihood.  Price  disturbances,  even  when  they  were 
of  considerable  magnitude,  seem  to  have  had  grave  consequences  only 
in  commerce,  and  to  have  passed  without  being  transmitted  much 
beyond  the  commercial  houses  and  the  fringe  of  occupations  sub- 
sidiary to  commercial  business. 

Crises,  depressions,  hard  times,  brisk  times,  periods  of  specu- 
lative desire,  "eras  of  prosperity,"  are  primarily  phenomena  of  busi- 
ness. They  are  in  their  origin  and  primary  incidence  phenomena  of 
price  disturbance,  either  of  decline  or  advance.  It  is  only  secondarily, 
through  the  mediation  of  business  traffic,  that  these  matters  involve 
the  industrial  process  or  the  livelihood  of  the  community.  They 
affect  industry  because  industry  is  managed  on  a  business  footing, 
in  terms  of  price  and  for  the  sake  of  profits.  So  long  as  business 
enterprise  habitually  ran  its  course  within  commercial  traffic  proper, 
apart  from  the  industrial  process  as  such,  so  long  these  recurring 
periods  of  depression  and  exaltation  began  and  ended  within  the  do- 
main of  commerce.  The  greatest  field  for  business  profit  is  now 
afforded,  not  by  commercial  traffic  in  the  stricter  sense,  but  by  the 
industries  engaged  in  producing  goods  and  services  for  the  market. 
The  close-knit,  far-reaching  articulation  of  the  industrial  processes  in 
a  balanced  system,  in  which  the  interstitial  adjustments  are  made  and 
kept  in  terms  of  price,  enable  price  disturbances  to  be  transmitted 
throughout  the  industrial  community  with  such  celerity  and  effect 
that  a  wave  of  depression  or  exaltation  passes  over  the  whole  com- 
munity and  touches  every  class  employed  in  industry  within  a  few 
weeks.  Somewhat  in  the  same  measure  as  the  several  modem  in- 
dustrial peoples  are  bound  together  by  the  business  ties  of  the  world- 
market  do  these  peoples  also  share  in  common  any  wave  of  prosperity 
or  depression  which  may  initially  fall  upon  any  one  member  of  the 
business  community  of  nations. 


2o6  CURRENT  ECONOMIC  PROBLEMS 

92.     The  Spirit  of  Business  Enterprise^ 

BY  WESLEY  C.  MITCHELL 

Money  economy  has  attained  its  fullest  development  in  our  own 
day  under  the  influence  of  machine  production.  Its  essential  feature 
is  that  economic  activity  takes  the  form  of  making  and  spending 
money  incomes.  Instead  of  producing  the  goods  their  families  re- 
quire, men  "make  money,"  and  with  their  money  incomes  buy  for 
their  own  use  goods  made  by  unknown  hands.  The  economic  com- 
fort or  misery  of  the  modern  family,  accordingly,  depends  not  upon 
its  efficiency  in  making  useful  goods  and  its  skill  in  husbanding  sup- 
plies, but  upon  its  ability  to  command  an  adequate  money  income 
and  upon  its  pecuniary  thrift.  Even  in  years  when  crops  are  short 
and  mills  are  idle,  the  family  with  money  need  not  go  cold  or 
hungry.  But  the  family  without  money  leads  a  wretched  life  even 
in  years  of  abundance.  Always  the  elaborate  co-operative  process 
by  which  a  nation's  myriad  workers  provide  for  the  meeting  of  each 
other's  needs  is  brought  into  precarious  dependence  upon  the  factors 
which  determine  the  prospects  of  making  money. 

For  purposes  of  making  money  men  have  gradually  developed 
the  modern  business  enterprise — an  organization  which  seeks  to 
realize  pecuniary  profits  upon  an  investment  of  capital  by  a  series 
of  contracts  for  the  purchase  and  sale  of  goods  in  terms  of  money. 
Business  enterprises  of  the  full-fledged  type  have  come  to  occupy 
almost  the  whole  field  in  finance,  wholesale  trade,  railway  and 
marine  transportation.  They  dominate  mining,  lumbering  and 
manufacturing.  In  retail  trade  they  play  an  important  role,  and  in 
agriculture  they  have  secured  a  foothold.  But,  despite  this  wide 
extension  of  business  aims  and  methods,  there  still  remain  broad 
differences  of  degree  between  the  enterprises  typical  of  the  several 
fields  of  effort.  In  size,  in  complexity  of  organization,  in  dependence 
on  the  money  market,  in  singleness  of  business  aim,  the  typical  farm 
and  the  small  retail  store  are  not  comparable  with  the  typical  cor- 
porate enterprises  of  transportation,  mining    and  finance. 

This  uneven  development  of  business  organization  in  different 
fields  is  highly  important.  For  it  is  within  the  circles  of  full-fledged 
business  enterprise  that  the  alterations  of  prosperity  and  depres- 
sion appear  most  clearly.  Branches  of  trade  which  are  not  organized 
elaborately  are  much  less  susceptible  both  to  the  stimulus  of  pros- 
perity and  to  the  inhibition  of  depression.  In  country  districts,  for 
example,  the  pace  of  activity  is  subject  to  seasonal  but  not  to 

2  Adapted  from  Business  Cycles,  pp.  21-26.  Copyright  by  the  author,  1913. 
Published  by  the  University  of  California  Press. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  207 

cyclical  changes  such  as  occur  in  factory  towns.  The  farmers  are 
never  thrown  out  of  work  except  by  bad  weather,  and  they  are 
never  overrushed  except  by  seed-time  and  harvest.  In  other  words, 
the  scope  and  intensity  of  prosperity  and  depression  appear  to  de- 
pend upon  the  extent  and  the  perfection  of  business  organization. 

No  less  important  is  the  thoroughgoing  interdependence  of 
business  enterprises.  As  a  plant  concerned  with  the  handling  of 
commodities,  the  typical  enterprise  is  one  cog  in  a  great  machine. 
Our  industries  are  carried  on  by  sets  of  nominally  independent 
plants  which  pass  on  goods  to  each  other.  For  example,  one  series 
embraces  wheat-growers,  grain-carrying  railways,  elevators,  flour 
mills,  wholesale  dealers  in  provisions,  bakeries,  and  retail  distribut- 
ing agencies.  Each  set  of  members  in  such  a  series  is  dependent 
upon  the  preceding  set  for  its  chief  supplies  and  upon  the  succeeding 
set  for  its  chief  vent.  Further,  no  industrial  series  is  self-sufficing. 
Each  set  of  enterprises  in  our  example,  from  the  farms  to  the  retail 
agencies,  is  industrially  dependent  on  other  industrial  series  which 
equip  it  with  buildings,  machines,  fuel,  office  supplies,  etc.  A  peculiar 
mutual  dependence  exists  between  the  whole  mass  of  industries  and 
the  railways.  Coal-mining  and  the  steel  trade  also  touch  practically 
every  industrial  establishment.  Since  the  transfers  of  goods  are 
maintained  by  contracts  of  purchase  and  sale,  each  enterprise  is  af- 
fected by  the  fortunes  of  its  customers,  its  competitors,  and  the 
purveyors  of  its  supplies.  Financial  interdependence  is  also  in  part 
but  another  aspect  of  the  industrial  and  commercial  bonds.  Compli- 
cated relationships  of  debtor  aiijd  creditor  arise  from  the  purchase 
and  sale  of  goods  on  credit,  and  make  the  disaster  of  one  enterprise 
a  menace  to  many. 

A  business  enterprise  may  participate  in  the  work  of  providing 
the  nation  with  useful  goods  or  it  may  not.  For  there  are  divers 
ways  of  making  money  which  are  positively  detrimental  to  future 
welfare.  But  it  is  more  important  that  even  the  enterprises  which 
are  making  useful  goods  do  so  only  so  far  as  the  operation  is  ex- 
pected to  serve  the  primary  business  end  of  making  profits.  Any 
other  attitude  is  impracticable  under  the  system  of  money  economy. 
For  the  man  who  allowed  his  humanitarian  interests  to  control  his 
business  policy  would  soon  be  forced  out  of  business.  From  the 
business  standpoint  the  useful  goods  produced  are  merely  by- 
products of  the  process  of  earning  dividends.  A  clear  appreciation 
of  this  fact  is  necessary  to  an  understanding  of  the  relations  between 
industry,  commerce,  and  business.  For  the  well-being  of  the  com- 
munity, efficient  industry  and  commerce  are  vastly  more  important 


2o8  CURRENT  ECONOMIC  PROBLEMS 

than  successful  money-making.  A  panic  which  did  not  interrupt 
the  making  and  distributing  of  wares  desired  by  the  community 
would  be  no  great  disaster.  But  the  whip-hand  belongs  to  business. 
In  practice,  industry  and  commerce  are  thoroughly  subordinated 
to  it.  The  ebb  and  flow  of  contemporary  economic  activity  is  pri- 
marily concerned  with  the  phenomena  of  business  traffic — that  is, 
of  money-making. 

Business  prosperity  depends  upon  the  factors  which  control 
present  and  prospective  profits,  together  with  present  and  prospec- 
tive ability  to  meet  financial  obligations.  Profits  are  made  by  con- 
nected series  of  purchases  and  sales.  Accordingly  the  margin  be- 
tween the  prices  at  which  goods  can  be  bought  and  sold  are  the 
fundamental  condition  of  business  prosperity.  Just  as  the  ever- 
recurring  changes  within  the  system  of  prices  affect  business  pros- 
perity and  through  it  national  welfare,  so  do  changes  in  national 
welfare  and  business  prosperity  react  upon  prices.  A  period  of 
business  expansion  causes  an  interminable  series  of  readjustments 
in  the  prices  of  various  goods.  These  readjustments  in  turn  alter 
the  pecuniary  prospects  of  the  business  enterprises  which  buy  or 
sell  the  commodities  affected,  and  thereby  start  new  changes  in 
business  prosperity.  With  the  latter  changes  the  process  begins 
anew.  Prices  once  more  undergo  an  uneven  readjustment,  pros- 
pects of  profit  become  brighter  or  darker,  business  prosperity  waxes 
or  wanes,  prices  feel  the  reflex  influence  of  the  new  business  situ- 
ation— and  so  on  without  end. 

93.     The  Interdependence  of  Prices' 

BY  WESLEY  C.   MITCHELL 

The  prices  ruling  at  any  given  time  for  an  infinite  variety  of 
commodities,  services,  and  rights  which  are  being  bought  and  sold 
constitute  a  system. 

The  prices  which  retail  merchants  charge  for  consumers'  com- 
modities afford  the  best  starting-point  for  a  survey  of  this  system. 
These  prices  are  loosely  connected  with  each  other ;  for  an  advance 
in  the  price  of  any  commodity  usually  creates  an  increased  demand 
for  other  commodities  which  can  be  used  as  substitutes,  and  thus 
favors  an  advance  in  the  price  of  the  substitutes.  They  are,  how- 
ever, more  closely  related  to  the  prices  for  the  same  goods  which 
shopkeepers  pay  to  wholesale  merchants,  and  the  latter  to  manu- 
facturers.   There  is,  of  course,  wide  diversity  between  the  number 

3  Adapted  from  Business  Cycles,  pp.  27-32.  Copyright  by  the  author,  1913. 
Published  by  the  University  of  California  Press. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  209 

of  members  and  in  the  margins  between  the  successive  prices  in  the 
series.  These  margins  are  usually  wider  in  retail  than  in  wholesale 
trade ;  wider  on  perishable  goods  than  on  durable  stables :  wider 
when  the  manufacturer  sells  directly  to  the  consumer  than  when 
merchants  intervene ;  wider  when  a  monopolist  can  fix  prices  in  his 
own  favor,  etc.  But  these  diversions  are  themselves  prices  in  the 
series  for  each  kind  of  commodities  form  a  tolerable  business  basis 
for  making  profits  out  of  the  process  of  supplying  the  community 
with  goods. 

The  business  men  engaged  in  squeezing  money  profits  out  of 
these  price-margins  are  seldom  able  to  keep  the  whole  difference 
between  buying  and  selling  prices.  From  retailers  to  manufacturers 
they  require  various  commodities,  services,  and  rights  for  the  effi- 
cient control  of  their  operations.  For  such  producers'  goods  they 
have  to  pay  out  prices  which  eat  into  the  profit-margins  of  the  goods 
in  which  they  deal.  The  most  important  classes  of  producers'  goods 
are  raw  materials,  buildings  and  machinery,  labor,  loans,  leases, 
transportation,  insurance,  and  advertising.  It  is  difficult  in  many 
of  these  cases  to  connect  directly  the  prices  which  figure  as  costs 
with  the  margins  upon  which  particular  commodities  change  hands. 
For  the  cost  prices  are  usually  paid  for  the  pecuniary  advantage  of 
the  enterprise  as  a  whole,  and  the  accruing  benefits  extend  to  many 
transactions  and  cover  a  long  time.  The  like  is  true  of  manufac- 
turers. 

With  the  exception  of  labor,  producers'  goods  are  provided,  like 
consumers'  goods,  by  business  enterprises  operating  on  the  basis 
of  margins  between  buying  and  selling  prices.  Hence  the  price 
of  a  given  goods  is  related  not  only  to  the  prices  of  the  consumers' 
goods  in  the  production  of  which  it  is  used,  but  also  to  the  prices  of 
the  various  other  producers'  goods  employed  in  its  own  manufac- 
ture. Thus  the  prices  of  producers'  goods  form  the  beginnings  of 
new  series  of  relationships  which  run  backward  with  countless 
ramifications  and  never  reach  definite  stopping-points.  Even  the 
prices  of  raw  materials  in  the  hands  of  the  ultimate  producers  are 
related  intimately  to  the  prices  of  the  labor,  current  supplies,  ma- 
chinery, buildings,  land,  loans,  etc.,  which  the  farmers,  miners,  etc., 
employ. 

The  price  of  labor  may  seem  to  bring  the  series  to  a  definite  stop 
at  least  at  one  point.  For  in  most  cases  the  laborer  does  not  have 
a  business  attitude  toward  the  production  of  his  own  energy.  But 
the  price  which  the  laborer  can  command  is  connected  with  the 
prices  of  the  consumers'  goods  which  established  habit  has  made 


2IO  CURRENT  ECONOMIC  PROBLEMS 

into  a  standard  of  living.  At  this  point,  therefore,  analysis  of  the 
interrelations  between  prices  brings  us,  not  to  a  full  stop,  but  back 
to  our  starting-point,  the  prices  of  consumers'  goods. 

We  must  also  take  account  of  the  prices  of  business  enterprises 
themselves.  Occasionally  established  business  enterprises  are  sold 
outright.  But  the  most  important  transactions  of  this  class  are 
stock-exchange  dealings.  That  the  prices  of  whole  business  enter- 
prises or  of  shares  in  them  are  intimately  related  to  the  prices  which 
have  been  discussed  is  clear ;  for  these  prices  depend  primarily  upon 
present  and  prospective  profits,  and  the  latter  upon  price-margins 
and  the  volume  of  business  transacted. 

There  remains  for  consideration  the  prices  paid  for  heteroge- 
neous personal  services.  These  include  domestic  service,  medical 
attendance,  instruction,  many  forms  of  amusement,  etc.  The 
furnishing  of  such  services  contrasts  with  business  traffic  in  con- 
sumers' goods,  loans,  transportation,  etc.  For  systematic  organiza- 
tion has  not  been  developed  to  so  high  a  point,  business  motives  do 
not  have  such  unrestricted  scope,  and  the  wares  are  not  standardized 
in  equal  measure.  Moreover,  the  prices  people  are  willing  to  pay 
are  based  rather  on  personal  needs  and  income  than  on  calculated 
chances  of  profit.  The  prices  of  these  services  therefore  form  the 
most  loosely  organized  and  irregular  division  of  the  system  of  prices. 

This  classification  of  prices  assists  in  seeing  the  relations  which 
bind  all  prices  together  and  make  them  a  system.  Many  price  rela- 
tions are  already  sufficiently  clear,  but  several  lines  of  relationship 
should  be  indicated  more  definitely. 

1.  On  the  side  of  demand  almost  every  good  has  its  possible 
substitutes.  Through  the  continual  shifting  of  demand  changes  in 
the  price  of  one  commodity  are  often  communicated  to  the  prices 
of  its  substitutes,  from  the  latter  to  the  prices  of  their  substitutes, 
and  so  on.  An  initial  change,  however,  usually  becomes  smaller  as 
it  spreads  out  in  widening  circles. 

2.  Similarily,  on  the  side  of  supply,  almost  every  good  has  genetic 
relationships  with  other  goods,  made  of  the  same  materials,  or  sup- 
plied by  the  same  set  of  enterprisers.  Particularly  important  are  the 
genetic  relationships  based  upon  the  use  of  the  same  producers'  goods 
in  many  lines  of  trade.  Floating  capital,  transportation,  labor,  ma- 
chinery, etc.,  enter  into  the  cost  of  most  commodities.  Accordingly 
a  changed  price  established  for  one  of  these  common  producers*  goods 
in  any  important  use  may  extend  to  a  great  divsr&icy  of  other  uses, 
and  produce  further  price  disturbances. 

3.  Closely  connected  with  this  genetic  relationship  through  com- 
mon producers'  goods  is  the  relationship  through  business  competi- 


PROBLEMS  OF  THE  BUSINESS  CYCLE  211 

tion,  both  actual  and  potential.  In  so  far  as  effective  competition 
exists,  a  state  of  price-margins  which  makes  any  one  trade  more  or 
less  profitable  than  other  trades  in  the  same  market  cannot  long 
maintain  itself, 

4.  Present  prices  are  affected  by  prices  of  the  recent  past  and 
the  anticipated  prices  of  the  near  future.  Indeed,  present  prices  are 
largely  determined  by  past  bargains,  with  established  time  contracts. 
Thus  the  price  system  has  no  definable  limits  in  time.  No  analysis 
can  get  back  to  the  ultimate  term  in  the  endless  series  of  bargains 
which  helped  to  make  the  prices  of  the  present. 

5.  Nor  has  the  series  of  prices  any  logical  beginning  or  end. 
At  whatever  point  analysis  may  start  to  follow  the  interlocking  links, 
to  that  point  analysis  will  come  if  it  proceeds  far  enough.  The  system 
of  prices  is  an  endless  chain. 

Prices  then  form  a  highly  complex  system  of  many  parts  con- 
nected with  each  other  in  diverse  ways,  a  system  infinitely  flexible 
in  detail,  yet  stable  in  the  essential  balance  of  its  interrelations,  a  sys- 
tem like  a  living  organism  in  its  ability  to  recover  from  the  serious 
disorders  into  which  it  periodically  falls. 

The  most  significant  thing  about  it  is  the  function  it  performs 
in  the  economic  life  of  nations.  It  serves  as  a  social  mechanism  for 
carrying  on  the  processes  of  providing  goods.  For  prices  are  the 
means  which  make  possible  the  elaborate  exchanges,  and  the  conse- 
quent specialization  which  characterizes  the  modern  world.  They  are 
the  source  from  which  family  income  is  derived,  and  the  means  by 
which  goods  are  obtained  for  family  consumption ;  for  both  income 
and  most  of  living — the  two  jaws  of  the  vise  in  which  the  modem 
family  is  squeezed — are  aggregates  of  prices.  Prices  also  render  pos- 
sible the  rational  direction  of  economic  activity  by  accounting,  for 
accounting  is  based  upon  the  principle  of  representing  all  the  hetero- 
geneous commodities,  services,  and  rights  with  which  a  business 
enterprise  is  concerned  in  terms  of  money  price.  Most  important  of 
all,  the  margins  between  different  prices  within  the  system  hold  out 
that  hope  of  pecuniary  profit  which  is  the  motive  power  that  drives 
our  business  world. 

94.     The  Sensitive  Mechanism  of  Credit* 

BY  HAROLD  G.   MOULTON 

It  has  become  almost  a  trite  saying  that  credit  is  the  very  life- 
blood  of  commerce  and  that  without  its  wonderful  assistance  the 

*  Adapted  from  an  article  with  the  foregoing  caption  in  a  volume  as  yet 
unpublished,  1915. 


212  CURRENT  ECONOMIC  PROBLEMS 

enormous  business  of  the  modern  world  would  be  quite  impossible. 
It  is  a  commonplace,  also,  that  the  credit  structure  is  a  very  uncer- 
tain mechanism,  one  that  periodically  expands  to  a  breaking-point 
and  involves  hundreds  of  businesses  in  financial  ruin,  and  indirectly 
demoralizes  the  commerce  of  an  entire  country.  The  precise  manner 
in  which  this  credit  structure  is  built  up,  however,  with  its  intricate 
and  complicated  interrelations,  is  not  usually  clearly  understood.  It 
is  the  purpose  of  the  following  analysis  to  trace  these  intricate  rela- 
tions, and  show  the  complicated  interdependences  in  the  fabric  of 
commercial  credit. 

Commerce  relates  to  the  movement  of  goods  from  the  hands  of 
those  who  perform  the  first  operation  in  production  to  their  final 
resting-place  with  the  ultimate  consumers.  Commercial  credit  con- 
nects itself,  therefore,  with  the  various  purchases  and  sales  that 
are  made  in  the  slow  process  of  marketing  commodities.  The  nature 
and  place  of  credit  in  the  marketing  process  may  perhaps  best  be 
made  clear  by  assuming  first  a  society  that  does  business  on  a  cash 
basis  only. 

To  illustrate  the  process  let  us  begin  with  some  raw  materials 
in  the  form  of  iron  ore  and  coal  which  are  to  be  manufactured  into 
farm  machinery  for  sale  to  farmers.  These  raw  materials  normally 
pass  through  the  hands  of  the  following  classes  of  business  men : 
(i)  the  manufacturer  of  machinery;  (2)  the  wholesale  dealer;  (3) 
the  retail  merchant  from  whom  they  are  purchased  by  the  farmer. 
In  the  absence  of  credit  the  producer  of  raw  materials  would  have 
to  possess  enough  capital  to  defray  the  cost  of  producing  these  ma- 
terials. He  would  sell  them  for  cash  to  the  manufacturer,  who  pays 
for  them  with  ready  money.  In  turn,  the  manufacturer,  after  having 
converted  the  materials  into  finished  machines,  sells  them  in  a  new 
form  to  the  wholesale  dealer,  who  pays  for  them  out  of  funds  accumu- 
lated for  the  purpose.  The  wholesaler  next  passes  them  on  to  the 
retailer  for  cash ;  and  the  retailer  disposes  of  them  to  the  farmer  for 
cash.  In  each  case  cash  accumulated  and  in  hand  ready  for  payment 
is  the  significant  feature.  We  have  thus  far,  however,  but  half  com- 
pleted the  commercial  circle. 

The  farmer  does  not  purchase  the  machinery  as  an  end  in  itself. 
With  it  he  produces  crops  for  sale.  He  sells  his  annual  produce  to  a 
local  dealer  for  cash ;  the  local  dealer  sells  these  products  to  the  com- 
mission merchant  for  cash ;  the  commission  merchant  passes  them  on 
for  cash  to  a  retail,  store ;  and  the  storekeeper  sells  them  for  cash 
to  his  customers,  who  happen  to  be,  let  us  assume,  the  laborers  in 
the  mines  of  iron  and  coal  who  were  the  original  producers  of  the 


PROBLEMS  OP  THE  BUSINESS  CYCLE  213 

raw  materials  that  went  to  the  making  of  farm  machinery.  Thus 
we  have  the  complete  round  of  production. 

In  the  foregoing  analysis  we  have  assumed  each  sale  to  be  for 
cash ;  no  one  waits  for  his  payments,  and  all  keep  the  slate  clear  as 
they  go.  With  such  a  method  there  is  little  danger  of  a  general  break- 
down. If  a  purchaser  has  not  the  cash  with  which  to  pay  for  goods, 
he  is  refused  the  sale.  Hence  the  seller  is  never  dependent  upon  the 
future  solvency  of  his  purchaser.'  Sales  may  be  restricted  by  a  slack- 
ening of  the  industrial  process ;  but  there  are  never  maturing  obliga- 
tions to  meet,  and  there  is  never  a  chain  of  failures  each  due  to  the 
previous  one.  Let  us  now  introduce  credit  into  the  system  as  out- 
lined above. 

It  is  evident  that  the  farmer  who  buys  the  farm  machinery  is 
the  ultimate  demandcr  of  the  raw  materials  purchased  by  the  manu- 
facturer, and  of  course  of  the  finished  machines  handled  by  the 
wholesaler  and  retailer  respectively.  In  final  analysis  the  farmer's 
cash  pays  for  the  labor  of  the  workers  in  the  mines  of  iron  and  coal. 
Or,  traveling  around  the  circuit  in  the  opposite  direction,  it  is  the 
laborer's  cash  that  really  pays  for  crops  of  the  farmer  that  have 
been  produced  by  the  farm  machinery.  Without  credit,  however,  it  is 
impossible  for  the  precise  cash  paid  by  the  farmer  to  the  retailer  to 
be  used  by  the  latter  in  paying  the  wholesaler  and  so  on  up  to  the 
producer  of  the  raw  materials.  In  introducing  credit  into  this  system 
it  will  be  necessary  to  assume  for  the  moment  a  situation  that  does 
not  represent  the  actual  state  of  affairs.  The  corrective  will  be  given 
in  the  paragraph  following. 

Let  us  assume  that  the  producer  of  raw  materials  possess  enough 
to  produce  $10,000  worth  of  raw  materials,  paying  his  laborers  in 
advance.  Now  let  us  assume  he  sells  these  materials  to  the  manu- 
facturer on  twelve  months'  time,  that  is,  he  agrees  to  wait  twelve 
months  for  his  pay.  The  manufacturer  in  the  course  of  three  months 
converts  these  raw  materials  into  finished  machinery  and  sells  the 
machines  on  nine  months'  time  to  the  wholesaler.  In  a  month  the 
wholesaler  disposes  of  the  machinery,  letting  the  retailer  have  eight 
months  in  which  to  pay.  In  another  month  the  retailer  sells  the 
machines  to  a  farmer,  agreeing  to  wait  seven  months.  Four  months 
later  the  farmer  sells  his  crops  on  three  months'  time  to  a  local  dealer, 
who  sells  them  in  a  month  to  a  commission  merchant  on  two  months' 
time ;  the  commission  merchant  in  turn  selling  on  one  month's  time 
to  a  retail  store ;  and  the  retailer  disposes  of  them  within  a  month 
to  the  laborers  who  work  in  the  mines  for  cash  received  by  them  for 
producing  raw  materials.     Cash  would  thus  be  paid  to  the  retailer 


214  CURRENT  ECONOMIC  PROBLEMS 

of  farm  produce  just  twelve  months  from  the  date  of  the  first  sale 
of  the  raw  materials ;  and  if  this  cash  should  be  passed  on  promptly 
through  the  hands  of  the  commission  merchant,  local  dealer,  farmer, 
retailer,  wholesaler  and  manufacturer  to  the  original  producer,  it 
can  liquidate  all  the  obligations  as  per  schedule. 

In  actual  practice,  however,  twelve  months  would  be  a  long  time 
for  the  producer  to  wait  for  his  payment.  Similarly  the  periods  of 
nine,  eight  and  seven  months  would  be  too  long  for  the  others  to 
wait;  for  further  production  would  be  more  or  less  halted  mean- 
while. In  practice,  therefore,  credit  extensions  are  for  much  shorter 
periods,  usually  from  one  to  four  months,  whether  it  be  the  pro- 
ducer of  raw  materials,  the  manufacturer,  or  the  middlemen.  How 
is  this  made  possible  ? 

The  manufacturer,  for  instance,  may  give  his  note  to  the  pro- 
ducer for  three  months,  and  pay  as  soon  as  he  sells  to  the  whole- 
saler. The  question  now  is,  where  does  the  wholesaler  get  the  funds 
with  which  to  pay ;  does  he  not  have  to  wait  until  the  retailer  has 
disposed  of  the  goods  ?  This  is  where  the  banks  come  to  the  assist- 
ance of  commerce.  The  wholesaler  sells  to  the  retailer  on  time,  but 
instead  of  delaying  his  payment  to  the  manufacturer,  he  procures  a 
loan  from  his  bank,  giving  as  security  therefor  the  notes  received 
from  the  retailer.  With  this  loan  the  wholesaler  may  pay  the  manu- 
facturer at  once.  The  loan  from  the  bank  is  repaid  when  the  retailer 
settles  with  the  wholesaler.  The  bank  therefore  undertakes  the  wait- 
ing instead  of  the  dealer. 

In  the  foregoing  illustration  it  was  the  wholesaler  who  procured 
the  loan  from  the  bank.  It  may  in  fact,  however,  be  any  one  or 
several  in  the  chain  of  buyers  and  sellers.  The  manufacturer,  for 
instance,  instead  of  asking  the  wholesaler  to  pay  cash  could  accept 
a  promissory  note,-  and  then  sell  this  note  to  a  bank  for  cash,  that 
is,  have  it  discounted.  (5r  the  retailer  might  borrow  from  a  bank 
and  pay  cash  to  the  wholesaler.  Similarly,  on  the  other  side  of  the 
circle,  the  commission  merchant  may  pay  cash  to  the  local  dealer, 
borrowing  from  a  bank  for  the  purpose;  and  the  retailer  of  the 
foodstuffs  may  sell  to  his  customers  on  credit,  and  borrow  from  a 
bank  while  waiting  for  his  returns.  It  is  quite  immaterial  which 
party  procures  the  assistance  of  the  banks ;  though  in  practice  it 
usually  becomes  the  custom  for  only  certain  ones  in  the  chain  to  do 
so.  In  this  country  it  is  usually  the  manufacturers  and  the  commis- 
sion merchants  who  pay  cash. 

The  commercial  structure  which  we  have  thus  outlined  is  seen 
to  be  very  closely  interrelated;  and  it  is  because  of  this  interde- 


PROBLEMS  OF  THE  BUSINESS  CYCLE  215 

pendence  of  factors  that  a  "credit  breakdown"  has  such  far-reaching 
consequences.  The  credit  circle  cannot  be  disrupted  at  any  point 
without  more  or  less  seriously  disrupting  the  entire  system.  Sup- 
pose, for  instance,  that  a  long  drouth  or  heavy  rains  ruin  the  agri- 
cultural produce  and  render  it  impossible  for  the  future  to  pay  the 
retailer  as  promised.  This  affects  the  retailer's  ability  to  pay  the 
wholesaler,  and  in  turn  the  wholesaler's  ability  to  pay  the  manu- 
facturer, or  his  bank,  and  so  on  around  the  entire  circle.  Or  sup- 
pose a  strike„in  the  manufacturing  establishment  should  prevent  the 
manufacturer  from  filling  his  selling  orders.  It  becomes  impossible 
for  him  to  pay  the  producer  on  time ;  and  the  latter  in  turn  becomes 
unable  to  meet  his  obligations  as  they  become  due.  The  halting  of 
the  manufacturing  process  may  compel  the  producer  to  restrict  his 
output  of  raw  materials,  and  hence  discharge  laborers.  This  affects 
the  sales  of  the  retailer  of  the  farm  produce,  and  hence  his  ability 
to  pay  the  commission  merchant,  and  so  on  around  the  circle.  Numer- 
ous other  examples  of  this  sort  might  obviously  be  given. 

Whenever  there  is  a  break  in  the  delicate  structure  at  any  point, 
there  is  always  an  attempt  to  stop  the  gap  by  calling  upon  the  banks 
for  assistance.  Whoever  finds  himself  unable  to  pay  on  time  rushes 
to  his  banker  for  a  loan.  Indeed  if  there  is  but  a  well-grounded  fear 
that  difficulties  are  likely  to  come,  dealers  often  go  at  once  to  the 
banks  for  loans  in  anticipation  of  trouble  to  come.  Without  going 
into  an  analysis  of  the  responsibility  thus  placed  upon  the  banking 
institutions,  it  should  be  emphasized  that  the  success  with  which  a 
community  may  pass  through  a  period  of  disrupted  credit  operations 
depends  upon  the  ability  of  the  banks  to  expand  their  own  credit 
sufficiently  to  tide  the  commercial  world  over  the  emergency. 

B.     THE  ECONOMIC  CYCLE 
95.     The  Sensitiveness  of  Industrial  Society' 

BY  LEON  C.  MARSHALL 

Our  pecuniarily  organized,  interdependent  society  is  naturally 
enough  a  sensitive  society,  sensitive  both  to  demand  and  to  shock. 

Almost  any  organization  of  society  would  be  sensitive  in  some 
degree  to  demand.  In  a  socialistic  society,  for  example,  it  is  to  be 
expected  that  desires  and  demands  would  change  from  time  to  time 
and  that  the  industrial  structure  would  be  altered  to  meet  the  situa- 

^  From  Readings  in  Industrial  Society:  A  Study  in  the  Structure  and 
Functioning  of  Modern  Economic  Organization,  pp.  415-16.  Copyright  by  the 
University  of  Chicago,  1918. 


2i6  CURRENT  ECONOMIC  PROBLEMS 

tion.  How  quickly  the  structure  would  be  altered  is  another  matter. 
It  is  not  probable  that  it  would  be  altered  as  quickly  as  in  our  present 
society.  In  a  society  organized  on  the  gain  basis  bribes  (sometimes  of 
tremendous  size)  are  continually  awaiting  the  early  comers  in  any 
readjustment,  and  punishments  (sometimes  of  tremendous  size)  are 
continually  awaiting  the  laggards.  Indeed,  desire  for  gain  even  causes 
us  to  stimulate  new  demands. 

Any  interdependent  society  will  be  sensitive  to  shock — this  by 
hypothesis.  If  the  society  is  interdependent,  one  section  cannot  be 
indifferent  to  the  events  occurring  in  another  section.  Of  course  dif- 
ferent societies  would  be  sensitive  to  shock  in  varying  degrees.  In 
general  terms  an  interdependent  society  organized  on  a  pecuniary 
basis  is  probably  more  sensitive  to  shock  than  would  be  a  socialistic 
society.  The  gain  structure  transmits  the  shock  at  a  speed  compara- 
ble to  the  speed  involved  in  the  reactions  of  the  nervous  system.  Even 
more,  in  our  society  the  shock  may  very  well  grow  in  the  process  of 
transmission.  The  failure  of  a  small  business  unit  may  very  well 
cause  the  failure  of  a  large  one,  and  this  of  one  still  larger,  and  so  on 
more  or  less  indefinitely.  It  is  probable  that  the  shock  could  be  more 
readily  confined  to  a  relatively  small  territory  in  a  small  socialistic 
community  than  is  the  case  today. 

In  all  of  this  there  is,  or  should  be,  no  implication  of  judgment 
being  passed.  There  are  many  respects  in  which  it  is  fortunate  and 
many  respects  in  which  it  is  unfortunate  that  our  society  is  exceed- 
ingly sensitive  both  to  demand  and  to  shock.  For  our  present  purpose 
the  essential  need  is  to  see  that  our  society  is  sensitive  and  to  realize 
that  if  we  desire  to  retain  the  gains  of  society,  organized  in  such  a 
way  as  to  bring  about  this  sensitiveness,  we  must  be  alert  to  cope 
with  the  disadvantages. 

96.     The  Rhythm  of  Business  Activity^ 

BY  WESLEY  C.   MITCHELL 

With  whatever  phase  of  the  business  cycle  analysis  begins,  it  must 
take  for  granted  the  conditions  brought  about  by  the  preceding  phase, 
postponing  explanation  of  these  assumptions  until  it  has  worked 
around  the  cycle  and  come  again  to  its  starting-point. 

A  revival  of  activity,  then,  starts  with  a  legacy  from  depression: 
a  level  of  prices  low  in  comparison  with  the  prices  of  prosperity, 
drastic  reductions  in  the  costs  of  doing  business,  narrow  margins  of 

^Adapted  from  Business  Cycles,  pp.  571-79.  Copyright  by  the  author,  1913. 
Published  by  the  University  of  California  Press. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  217 

profit,  liberal  bank  reserves,  a  constructive  policy  in  capitalizing  busi- 
ness enterprises  and  in  granting  credits,  moderate  stocks  of  goods, 
and  cautious  buying. 

Such  conditions  are  accompanied  by  an  expansion  in  the  physical 
volume  of  trade.  Though  slow  at  first,  this  expansion  is  cumulative. 
In  time  an  increase  in  the  amount  of  business  which  grows  more  rapid 
as  it  proceeds  will  turn  dullness  into  activity.  Left  to  itself  this 
transformation  is  effected  by  slow  degrees ;  but  it  is  often  hastened 
by  some  propitious  event,  such  as  exceptionally  profitable  harvests,  or 
heavy  purchases  of  supplies  by  the  government. 

A  partial  revival  of  industry  soon  spreads  to  all  parts  of  the  busi- 
ness field.  For  the  active  enterprises  must  buy  materials  and  current 
supplies  from  other  enterprises,  the  latter  from  still  others,  etc.  Mean- 
while all  enterprises  which  become  busier  employ  more  labor,  use 
more  borrowed  money,  and  make  higher  profits.  There  results  an 
increase  in  family  incomes  and  an  expansion  of  consumers'  demands, 
which  likewise  spreads  out  in  ever-widening  circles.  Shopkeepers 
pass  on  larger  orders  to  wholesale  merchants,  manufacturers,  im- 
porters, and  producers  of  raw  materials.  All  these  enterprises  in- 
crease the  sums  they  pay  to  employees,  lenders,  and  proprietors.  In 
time  the  expansion  of  orders  reaches  back  to  the  enterprises  from 
which  the  initial  impetus  was  received,  and  then  the  whole  compli- 
cated series  of  reactions  begins  afresh  at  a  higher  pitch  of  intensity. 
All  this  while  the  revival  of  activity  is  instilling  a  feeling  of  optimism 
among  business  men. 

The  cumulative  expansion  of  the  physical  volume  of  trade  stops 
the  fall  in  prices  and  starts  a  rise.  For,  when  enterprises  have  in 
sight  as  much  business  as  they  can  handle  with  existing  facilities, 
they  stand  out  for  higher  prices  on  additional  orders.  This  policy 
prevails  because  additional  orders  can  be  executed  only  by  breaking 
in  new  hands,  starting  new  machinery,  or  buying  new  equipment. 
The  expectation  of  its  coming  hastens  the  advance.  Buyers  are 
anxious  to  secure  large  supplies  while  the  quotations  continue  low, 
and  the  first  signs  of  an  upward  trend  bring  out  a  rush  of  orders. 

The  rise  of  prices  spreads  rapidly  ;  for  every  advance  puts  pressure 
on  someone  to  recoup  himself  by  advancing  the  prices  of  what  he 
has  to  sell.  The  resulting  changes  in  price  are  far  from  even :  retail 
prices  lag  behind  wholesale,  and  the  price  of  finished  products  behind 
the  price  of  their  raw  materials.  Among  the  last-mentioned  the  prices 
of  mineral  products  reflect  changed  business  conditions  more  regu- 
larly than  do  the  prices  of  forest  and  farm  products.  Wages  rise 
more  promptly,  but  in  less  degree  than  wholesale  prices ;  interest 
rates  on  long  loans  always  move  sluggishly  in  the  earlier  stages  of 


2i8  CURRENT  ECONOMIC  PROBLEMS 

revival,  while  the  prices  of  stocks  both  precede  and  exceed  commodity 
prices  on  the  rise. 

In  a  great  majority  of  enterprises  larger  profits  result  from  these 
divergent  fluctuations  coupled  with  the  greater  physical  volume  of 
sales.  For  while  the  prices  of  raw  materials  and  of  bank  loans  often 
rise  faster  than  selling  prices,  the  prices  of  labor  lag  far  behind,  and 
the  prices  making  up  supplementary  costs  are  mainly  stereotyped  by 
old  agreements. 

The  increase  of  profits,  under  the  spell  of  optimism,  leads  to  a 
marked  expansion  of  investments.  The  heavy  orders  for  machinery, 
the  large  contracts  for  new  construction,  etc.,  which  result,  swell  still 
further  the  physical  volume  of  business,  and  render  yet  stronger  the 
forces  which  are  driving  prices  upward. 

Indeed,  the  salient  characteristic  of  this  phase  of  the  business 
cycle  is  the  cumulative  working  of  the  various  processes  which  are 
converting  a  revival  of  trade  into  intense  prosperity.  Not  only  does 
every  increase  in  the  volume  of  trade  cause  other  increases,  every 
convert  to  optimism  make  new  converts,  and  every  advance  in  price 
furnish  an  incentive  for  new  advances ;  but  the  growth  of  trade  also 
helps  to  spread  optimism  and  to  raise  prices,  while  optimism  and  ris- 
ing prices  support  each  other.  Finally  the  changes  going  forward 
swell  profits  and  encourage  investments,  while  high  profits  and  heavy 
investments  react  by  augmenting  trade,  justifying  optimism,  and  rais- 
ing prices. 

While  the  processes  just  sketched  work  cumulatively  for  a  time 
to  enhance  prosperity,  they  also  cause  a  slow  accumulation  of  stresses 
within  the  balanced  system  of  business — stresses  which  ultimately 
undermine  the  conditions  upon  which  prosperity  rests. 

Among  these  is  the  gradual  increase  in  the  cost  of  doing  business. 
The  decline  in  supplementary  costs  per  unit  ceases  when  enterprises 
have  secured  all  the  business  they  can  handle  with  their  standard 
equipment,  and  a  slow  increase  in  these  costs  begins  when  the  expira- 
tion of  old  contracts  makes  necessary  renewals  at  higher  rates.  Mean- 
while prime  costs  rise  at  a  relatively  rapid  rate.  The  price  of  labor 
rises  both  because  of  an  advance  in  nominal  wages  and  because  of 
higher  rates  for  overtime.  More  serious  is  a  decline  in  the  efficiency 
of  labor,  because  of  the  employment  of  undesirables,  and  because 
crews  cannot  be  driven  at  top  speed  when  jobs  are  more  numerous 
than  men.  The  prices  of  raw  material  rise  faster  on  the  average  than 
the  selling  prices  of  products.  Finally  numerous  small  wastes  creep 
up  when  managers  are  hurried  by  the  press  of  orders. 

A  second  stress  is  the  accumulating  tension  of  investment  and 
money  markets.    The  supply  of  funds  available  at  the  old  rates  fails 


PROBLEMS  OF  THE  BUSINESS  CYCLE 


219 


to  keep  pace  with  the  swelling  demand.  It  becomes  difficult  to 
negotiate  new  issues  of  securities  except  on  onerous  terms,  and  men 
of  affairs  complain  of  the  "scarcity  of  capital."  Nor  does  the  supply 
of  bank  loans,  limited  by  reserves,  grow  fast  enough  to  keep  up  with 
the  demand.  Active  trade  keeps  such  an  amount  of  money  in  circu- 
lation that  the  cash  left  in  the  banks  increases  rather  slowly.  On 
the  other  hand,  the  demand  for  loans  grows,  not  only  with  the  physical 
volume  of  trade,  but  also  with  the  rise  of  prices,  and  with  the  desire 
of  men  of  affairs  to  use  their  own  funds  for  controlling  as  many 
businesses  as  possible. 

Tension  in  the  bond  and  money  markets  is  unfavorable  to  the 
continuance  of  prosperity,  not  only  because  high  rates  of  interest 
reduce  the  prospective  margins  of  profit,  but  also  because  they  check 
the  expansion  of  the  volume  of  trade  out  of  which  prosperity  de- 
velops. Many  projected  ventures  are  relinquished  because  borrowers 
conclude  that  interest  would  absorb  too  much  of  their  profits. 

The  group  producing  industrial  equipment  suffers  especially.  In 
the  earlier  stages  of  prosperity  this  group  enjoys  exceptional  activity. 
But  when  the  market  for  bonds  becomes  stringent  and  the  cost  of 
construction  high,  business  enterprises  defer  the  execution  of  plans 
for  extending  old  or  erecting  new  plants.  As  a  result  contracts  for 
this  kind  of  work  become  less  numerous  as  the  climax  of  prosperity 
approaches.  Then  the  steel  mills,  foundries,  machine  factories,  lum- 
ber mills,  construction  companies,  etc.,  find  their  orders  for  future 
delivery  falling  off. 

The  larger  the  structure  of  prosperity,  the  more  severe  become 
these  internal  stresses.  The  only  effective  means  of  preventing  dis- 
aster while  continuing  to  build  is  to  raise  selling  prices  time  after  time 
high  enough  to  offset  the  encroachment  of  costs  upon  profits,  and  to 
keep  investors  willing  to  contract  for  fresh  industrial  equipment. 

But  it  is  impossible  to  keep  selling  prices  rising  for  an  indefinite 
time.  In  default  of  other  checks,  the  inadequacy  of  cash  reserves 
would  ultimately  compel  the  banks  to  refuse  a  further  expansion  of 
loans  on  any  terms.  But  before  this  stage  has  been  reached,  the  rise 
of  prices  is  stopped  by  the  consequences  of  its  own  inevitable  inequali- 
ties. These  become  more  glaring  the  higher  the  general  level  is 
forced ;  after  a  time  they  threaten  serious  reductions  of  profits  to 
certain  business  enterprises,  and  the  troubles  of  these  victims  dissolve 
that  confidence  in  the  security  of  credits  with  which  the  whole  tower- 
ing structure  of  prosperity  has  been  cemented. 

In  certain  lines  in  which  selling  prices  are  stereotyped  by  law, 
by  contracts  for  long  terms,  by  custom,  or  by  business  policy,  selling 
prices  cannot  be  raised  to  prevent  a  reduction  of  profits.     In  other 


220  CURRENT  ECONOMIC  PROBLEMS 

lines  prices  are  always  subject  to  the  incalculable  chances  of  the 
harvests.  In  some  lines  the  recent  construction  of  new  equipment 
has  increased  the  capacity  for  production  faster  than  the  demand 
for  the  wares  has  expanded  under  the  repressing  influence  of  high 
prices.  The  unwillingness  of  investors  to  let  fresh  contracts  threatens 
loss  not  only  to  the  contracting  firms  but  to  the  enterprises  from  which 
they  buy  materials.  Finally  the  success  of  some  enterprises  in  raising 
prices  fast  enough  to  defend  their  profits  aggravates  the  difficulties  of 
the  men  who  are  in  trouble. 

As  prosperity  approaches  its  height,  then,  a  sharp  contrast  de- 
velops between  the  business  prospects  of  different  enterprises.  Many 
are  making  more  money  than  at  any  previous  stage  in  the  business 
cycle.  But  an  important  minority  faces  the  prospect  of  declining 
profits.  The  more  intense  prosperity  becomes,  the  larger  grows  this 
threatened  group.  In  time  these  conditions  bred  by  prosperity  will 
force  radical  readjustment. 

Such  a  decline  of  profits  threatens  consequences  worse  than  the 
failure  to  realize  expected  dividends.  For  it  arouses  doubt  about 
the  future  of  outstanding  credits.  Business  credit  is  based  primarily 
upon  the  capitalized  value  of  present  and  prospective  profits,  and  the 
volume  of  credits  outstanding  at  the  zenith  of  prosperity  is  adjusted 
to  the  great  expectations  which  prevail  when  affairs  are  optimistic. 
The  rise  of  interest  rates  has  already  narrowed  the  margins  of  se- 
curity behind  credits  by  reducing  the  capitalized  value  of  given  profits. 
When  profits  begin  to  waver,  creditors  begin  to  fear  lest  the  shrinkage 
in  the  market  rating  of  business  enterprises  which  owe  them  money 
will  leave  no  adequate  security  for  repayment.  Hence  they  refuse 
renewals  of  old  loans  to  enterprises  which  cannot  stave  off  a  decline 
in  profits,  and  press  for  settlement  of  outstanding  accounts. 

Thus  prosperity  ultimately  brings  on  conditions  which  start  a 
liquidation  of  the  huge  credits  which  it  has  piled  up.  And  in  the 
course  of  this  liquidation  prosperity  merges  into  crisis.  Once  begun 
the  process  of  liquidation  extends  rapidly,  partly  because  most  enter- 
prises called  upon  to  settle  put  similar  pressure  on  their  own  debtors, 
and  partly  because  news  presently  leaks  out  and  other  creditors  take 
alarm. 

While  this  financial  readjustment  is  under  way,  the  problem  of 
making  profits  is  subordinated  to  the  more  vital  problem  of  main- 
taining solvency.  .Business  managers  nurse  their  financial  resources 
rather  than  push  their  sales.  In  consequence  the  volume  of  new 
orders  falls  off  rapidly.  The  prospect  of  profits  is  dimmed.  Expan- 
sion gives  place  to  contraction.  Discount  rates  rise  higher  than 
usual,  securities  and  commodities  fall  in  price,  and  working  forces  are 


PROBLEMS  OF  TEE  BUSINESS  CYCLE  221 

reduced.  But  there  is  no  epidemic  of  bankruptcy,  no  run  upon  banks, 
and  no  spasmodic  interruption  of  ordinary  business  processes. 

Crises,  however,  may  degenerate  into  panics.  When  the  process 
of  liquidation  reaches  a  weak  Hnk  in  the  chain  of  interlocking  credits 
and  the  bankruptcy  of  some  conspicuous  enterprise  spreads  unreason- 
ing alarm,  the  banks  are  suddenly  forced  to  meet  a  double  strain — a 
sharp  increase  in  the  demand  for  loans  and  in  the  demand  for  repay- 
ment of  deposits.  If  the  banks  meet  both  demands,  the  alarm  quickly 
subsides.  But  if  many  solvent  business  men  are  refused  accommo- 
dation at  any  price,  and  depositors  are  refused  payment  in  full,  the 
alarm  turns  into  a  panic.  A  restriction  of  payments  by  banks  gives 
rise  to  a  premium  upon  currency,  to  hoarding  of  cash,  and  to  the  use 
of  various  unlawful  substitutes  for  money.  Interest  rates  may  go 
to  three  or  four  times  their  usual  figures,  causing  forced  suspensions 
and  bankruptcies.  There  follow  appeals  to  the  government  for 
extraordinary  aid,  frantic  efforts  to  import  gold,  the  issue  of  clearing- 
house loan  certificates,  and  an  increase  in  bank-note  circulation  as 
rapidly  as  the  existing  system  permits.  Collections  fall  into  arrears, 
workmen  are  discharged,  stocks  fall  to  extremely  low  levels,  com- 
modity prices  are  disorganized  by  sacrifice  sales,  and  the  volume  of 
business  is  violently  contracted. 

There  follows  a  period  during  which  depression  spreads  over  the 
whole  field  of  business  and  grows  more  severe.  Consumers'  demand 
declines  in  consequence  of  wholesale  discharge  of  wage-earners.  With 
it  falls  the  business  demand  for  raw  materials,  current  supplies,  and 
equipment.  Still  more  severe  is  the  shrinkage  in  the  investors'  de- 
mand for  construction  work  of  all  kinds.  The  contraction  in  the 
physical  volume  of  business  which  results  from  these  shrinkages  in 
demand  is  cumulative,  since  every  reduction  of  employment  causes  a 
reduction  in  consumers'  demand,  thereby  starting  again  the  whole 
series  of  reactions  at  a  high  pitch  of  intensity. 

With  this  contraction  goes  a  fall  in  prices.  For  when  current 
orders  are  insufficient  to  employ  the  existing  equipment,  competition 
for  business  becomes  keener.  This  decline  spreads  through  the  regu- 
lar commercial  channels  which  connect  one  enterprise  with  another, 
and  is  cumulative,  since  every  reduction  in  price  facilitates  reductions 
in  other  prices,  and  the  latter  reductions  react  to  cause  fresh  reduc- 
tions at  the  starting-point. 

The  fall  in  prices  is  characterized  by  certain  regularly  recurring 
differences  in  degree.  Wholesale  prices  fall  faster  than  retail,  and 
the  prices  of  raw  materials  faster  than  those  of  manufactured  pro- 
ducts. The  prices  of  raw  mineral  products  follow  a  more  regular 
course  than  those  of  forest  or  farm  products.     Wages  and  interest 


222  CURRENT  ECONOMIC  PROBLEMS 

on  long-time  loans  decline  in  less  degree  than  commodity  prices.  The 
only  important  group  of  prices  to  rise  is  high-grade  bonds. 

The  contraction  in  the  volume  of  trade  and  the  fall  in  prices  reduce 
the  margin  of  present  and  prospective  profits,  spread  discouragement, 
and  check  enterprise.  But  they  also  set  in  motion  certain  processes 
of  readjustment  by  which  the  depression  is  overcome. 

The  prime  costs  of  doing  business  are  reduced  by  the  fall  in  the 
prices  of  raw  material  and  of  bank  loans,  by  the  marked  increases  in 
the  efficiency  of  labor  which  comes  when  employment  is  scarce,  and 
by  closer  economy  by  managers.  Supplementary  costs  are  reduced 
by  reduction  of  rentals  and  refunding  of  loans,  by  writing  down  de- 
preciated properties,  and  by  admitting  that  a  recapitaHzation  has  been 
effected  on  the  basis  of  lower  profits. 

While  costs  are  being  reduced,  the  demand  for  goods  begins  slowly 
to  expand.  Accumulated  stocks  left  over  from  prosperity  are  ex- 
hausted, and  current  consumption  requires  current  production.  Cloth- 
ing, furniture  and  machinery  are  discarded  and  replaced.  New  tastes 
appear  among  consumers  and  new  methods  among  producers,  giving 
rise  to  demand  for  novel  products.  Most  important  of  all,  the  invest- 
ment demand  for  industrial  equipment  revives.  Capitalists  become 
less  timid  as  the  crisis  recedes  into  the  past,  the  low  rates  of  interest 
on  long-time  bonds  encourages  borrowing,  and  contracts  can  be  let 
on  most  favorable  conditions. 

Once  these  forces  have  set  the  physical  volume  of  trade  to  ex- 
panding, the  increase  proves  cumulative.  Business  prospects  become 
gradually  brighter.  Everything  awaits  a  revival  of  activity  which 
will  begin  when  some  fortunate  circumstance  gives  a  fillip  to  demand, 
or,  in  the  absence  of  such  an  event,  when  the  slow  growth  of  the  vol- 
ume of  business  has  filled  order  books  and  paved  the  way  for  a  new 
rise  in  prices.  Such  is  the  stage  of  the  business  cycle  with  which  the 
analysis  begins,  and,  having  accounted  for  its  own  beginning,  the 
analysis  ends. 

C.     THE  COURSE  OF  A  CRISIS 
97.     The  Irrepressible  Crisis^ 

BY  W.  H.  LOUGH,  JR. 

We  may  make  a  list  of  twelve  factors  to  be  considered  in  sizing 
up  the  present  situation.  They  are  arranged  approximately  in  inverse 
order  to  their  immediate  influence. 

^Adapted  from  an  article  in  Moody's  Magazine,  III,  586-92.  Copyright, 
April,  1907.  This  article  was  outlined  in  February,  1907,  and  barely  missed 
getting  into  the  March  number  of  Moody's,  in  which  editorial  mention  of  it 
was  made.  Its  statements  as  to  financial  weakness  were,  at  least  in  part, 
verified  by  the  extreme  declines  in  security  values  during  the  month  of  March. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  223 

1.  The  state  of  the  public  mind. 

2.  Production  and  volume  of  credit  in  extractive  industries. 

3.  Production  and  volume  of  credit  in  manufacturing  industries. 

4.  Production  and  volume  of  credit  in  transportation  industries. 

5.  Output  of  mortgages  and  bonds. 

6.  Output  of  credit  currency. 

7.  Output  of  loans  and  discounts. 

8.  Output  of  book  credits. 

9.  Trend  of  general  prices. 

10.  Treasury  and  bank  reserves  of  cash, 

11.  Output  of  gold. 

12.  Tendency  of  foreign  exchange. 

If  we  could  get  complete  and  accurate  information  about  each 
one  of  these  twelve  factors  we  could  come  to  some  definite  and  prac- 
tically certain  conclusion  as  to  the  business  future.  Suppose  we  try 
to  sum  up  briefly  the  data  available  at  present  about  each  of  the  factors 
named. 

1.  It  is  obvious  that  neither  over-confidence  nor  speculative 
mania  is  or  has  been  especially  strong.  On  the  contrary,  intelligent 
opinion  is  notably  conservative.  Retrenchment,  not  headlong  expan- 
sion, is  the  order  of  the  day.  Land  booms  have  been  reported  from 
various  parts  of  the  country,  but  apparently  they  have  not  been 
attended  with  the  excitement  that  has  existed  in  such  cases  at  other 
times. 

2.  The  extractive  industries,  agriculture  and  mining,  have  made 
new  records  in  volume  of  production  in  the  year  just  passed  without 
interfering  with  prices  to  any  marked  extent.  The  yields  of  corn  and 
winter  wheat  were  greater  than  ever  before.  Other  crops  were,  on 
the  whole,  extraordinary,  and  1906  came  as  the  climax  of  several 
previous  years  of  large  agricultural  output.  The  prospects  for  1907 
are  favorable. 

3.  Manufacturing  industries,  as  is  well  known,  have  made  great 
strides  in  the  last  three  years.  To  take  two  examples  which  happen 
to  be  at  hand,  we  find  new  buildings  contracted  for  in  1906  worth 
$750,000,000,  and  we  find  an  output  of  25,000,000  tons  of  pig  iron 
in  1906,  against  23,000,000  tons  in  1905,  the  best  previous  year.  The 
pig  iron  was  used  largely  for  structural  steel  and  railroad  equipment. 
A  falling  oflf  in  the  demand  for  these  two  products  would  undoubtedly 
affect  a  great  amount  of  outstanding  securities,  and  short-time  credit. 
In  the  opinion  of  excellent  judges,  a  decline  in  the  demand  is  already 
at  hand,  and  will  in  all  probability  become  more  evident  as  the  year 
progresses.  As  to  other  lines  of  manufacturing  we  may  say,  in  gen- 
eral, that  production  is  large  and  increasing,  but  apparently  not  yet 
excessive. 


224  CURRENT  ECONOMIC  PROBLEMS 

4.  New  railroad  trackage  built  in  1906  reached  a  total  of  over 
6,000  miles ;  but  this  new  mileage  is  nothing  compared  to  that  con- 
templated for  the  next  few  years.  The  Northwestern  railroads  are 
especially  active,  and  in  that  region  the  "era  of  competitive  railroad 
building,"  predicted  by  E.  H.  Harriman,  is  at  hand.  What  the  effects 
will  be  on  the  large  volume  of  new  railroad  stocks  remains  to  be  seen. 
Within  the  last  two  months  railroad  managers  have  begun  to  move 
a  little  more  slowly  in  extending  and  improving  their  lines.  Never- 
theless railroad  rebuilding  and  enlargement  is  still  progressing  on  a 
great  scale,  for  transportation  facilities  are  plainly  inadequate. 

5.  In  considering  long  time  debts,  we  should  note  first  the  strik- 
ing unpopularity  of  bonds  with  the  investing  public.  The  reluctance 
of  investors  to  put  their  money  into  mortgages  and  bonds  is,  of  course, 
a  natural  result  of  high  prices  and  big  semi-speculative  profits,  which 
make  bond  returns  look  small. 

6.  In  the  amount  of  credit  currency  issued  by  the  government 
we  find,  of  course,  no  important  change  in  the  last  few  years.  The 
volume  of  bank  notes  outstanding,  however,  has  steadily  increased 
from  $172,000,000,  in  1894,  to  about  $585,000,000  now.  The  fact 
that  the  increase  has  been  brought  about  by  more  hberal  laws  and 
by  the  lowered  price  of  government  bonds,  rather  than  by  business 
demands,  naturally  leads  us  to  suspect  its  stability. 

7.  The  present  status  of  bank  loans  and  discounts  is  best  indi- 
cated by  the  following  totals  of  this  item  for  all  national  banks :  1896, 
$1,873,000,000;  1900,  $2,710,000,000;  1906,  $4,300,000,000.  These 
are  most  surprising  figures  in  view  of  the  comparatively  slight  in- 
crease in  population  and  real  capital  during  the  same  period.  They 
grow  more  astonishing  still  when  we  think  of  the  great  increase 
in  other  banking  business  during  the  last  ten  years.  The  rate  of  in- 
crease would  be  almost  beyond  belief  if  the  figures  were  not  thor- 
oughly trustworthy. 

8.  Under  the  term  "book  credits"  I  mean  to  include  all  the  great 
body  of  accommodation  extended  by  merchants  to  individual  custom- 
ers and  by  wholesalers  to  retail  firms.  Of  course  it  is  impossible  to 
compute  its  amount.  All  we  can  say  is  that,  beyond  question,  it  must 
exceed  in  volume  anything  that  this  country  has  ever  previously 
known.  If  a  wave  of  credit  restriction  should  set  in,  a  great  many 
individuals  and  firms  would  be  compelled  to  shorten  sail  in  a  hurry. 

9.  The  trend  of  general  prices  in  the  last  few  years  is  too  well 
known  to  call  for  much  discussion.  Dun's  index  numbers  for  a  few 
years  past  are  as  follows:  1897,  75.5;  1898,  79.9;  1899,  80.4;  1900, 
95.3;  1901,95.7;  1902,  101.6;  1903,  100.4;  1904,  loo.i;  1905,  100.3; 


PROBLEMS  OF  THE  BUSINESS  CYCLE  225 

1906,  105.2.    These  prices  are  the  inevitable  result  of  the  output  of 
gold  and  of  credit  during  this  period. 

10.  The  total  gold  coin  and  certificates  in  circulation  in  the 
United  States  was,  in  1896,  $497,000,000;  in  1900,  $811,000,000;  in 
1906,  $1,263,000,000.  The  total  national  bank  reserves  of  lawful 
money,  in  September,  1896,  was  $343,000,000;  in  1900,  $520,000,000; 
in  1906,  $626,000,000.  The  ratio  of  cash  on  hand  to  deposits  at 
corresponding  periods  of  the  last  few  years  has  been:  1896,  19.1%  ; 
1900,  15.9%;  1901,  147%;  1902,  13.2%;  1903,  14.370;  1904,  15%; 
1905,  14%;  1906,  12.7%,  Looking  over  the  banking  field,  we  see 
a  general  downward  tendency  in  the  proportion  of  cash  reserves  to 
the  credit  piled  up  on  the  reserves.  Unless  the  downward  tendency 
be  reversed,  according  to  all  experience,  the  result  will  be  disastrous. 
It  is  in  order,  then,  to  see  what  the  prospect  is  of  relieving  the  situa- 
tion by  large  additions  of  cash. 

11.  The  Annual  gold  production  of  the  world  has  increased  from 
$202,000,000,  in  1896,  to  over  $400,000,000,  in  1906,  and  the  outlook 
is  for  a  still  greater  production  next  year.  But,  sooner  or  later,  the 
rising  tide  of  prices  is  certain  to  cut  off  the  less  profitable  production 
and  lead  to  a  restriction  of  output. 

12.  We  turn,  as  a  last  source  of  temporary  relief,  to  the  other 
commercial  nations  in  the  hope  that  from  them  the  United  States 
may  draw  additional  supplies  of  gold.  The  principal  foreign  banks 
of  the  world  are  estimated  to  hold  about  $4,000,000,000  specie,  in- 
cluding both  gold  and  silver.  The  whole  commercial  world  seems 
deluged  with  prosperity.  No  nation  and  no  bank  has  too  much  gold. 
On  the  contrary,  every  one  is  reaching  eagerly  for  more  on  which 
to  base  an  enlarged  issue  of  credit.  American  banks  will  seek  in 
vain  in  foreign  markets  for  sufficient  additions  to  their  cash  reserves. 

The  experience  of  the  last  hundred  years  indicates  that  the  forces 
now  at  work  are  driving  us  straight  toward  a  crisis — and  I  mean 
by  crisis  not  a  Wall  Street  flurry,  such  as  we  have  lately  seen,  which 
may  come  at  any  time  from  purely  local  influences,  but  a  general, 
temporary  breakdown  of  industry.  With  credit  everywhere  ex- 
panded to  the  danger  point,  we  are  in  a  position  from  which  only 
two  means  of  escape  are  possible.  One  is  a  large  and  rapid  increase 
in  our  gold  reserves,  which  is  out  of  the  question.  The  other  is  a 
progressive  restriction  of  credit,  necessarily  gathering  momentum 
as  it  proceeds,  which  is  another  name  for  crisis.  Just  when  or  how 
the  wave  of  credit  withdrawals  will  start  no  one  can  tell.  A  big 
failure  or  a  rash  bit  of  legislation,  or  any  one  of  a  hundred  incidents, 
which  under  normal  conditions  would  do  little  harm,  might  set  it 
going. 


226  CURRENT  ECONOMIC  PROBLEMS 

So  long  as  the  decisive  incident  does  not  occur — and,  of  course, 
it  may  not  come  very  soon,  possibly  not  for  two  or  three  years — 
prices  keep  on  rising  and  credit  keeps  piling  up.  For  that  reason  the 
longer  it  is  delayed  the  harder  jolt  it  is  likely  to  give. 

98.     The  Arrested  Crisis  of  1907^ 

BY  EDWIN  R.  A.  SELIGMAN 

The  crisis  of  1907  is  on  the  whole  not  comparable  in  magnitude 
to  that  of  1857  or  that  of  1873.  The  reasons  for  this  may  be  classified 
under  five  heads. 

In  the  first  place,  the  very  magnitude  of  the  country's  resources 
has  been  a  favorable  factor.  The  unparalleled  prosperity  of  the  last 
decade  has  made  possible  the  accumulation  of  vast  reserves,  not  only 
by  great  corporations,  but  also  by  average  business  men.  This  re- 
serve has  acted  as  a  buffer  to  the  shock  of  reaction  and  has  softened 
the  impact  through  a  speedy  restoration  of  confidence  in  the  excellence 
of  the  country's  assets  and  in  the  real  solvency  of  business. 

Secondly,  the  crops  have  been  large  and  valuable.  It  must  be 
remembered  that,  notwithstanding  all  recent  developments,  this  coun- 
try is  still  primarily  agricultural  and  that  upon  our  great  crops  de- 
pends in  large  measure  the  effective  demand  which  sets  and  keeps 
in  motion  the  wheels  of  business  activity.  By  a  fortunate  coincidence 
the  crisis  was  attended  by  a  phenomenon  which  in  ordinary  times 
would  have  spelled  prosperity,  and  which  helped  to  bring  back  normal 
conditions. 

In  the  third  place,  the  overcapitalization  of  values  was  somewhat 
less  conspicuous  than  hitherto  in  transportation.  Some  former  crises 
have  been  brought  on  primarily  by  the  speculative  building  of  rail- 
roads. During  the  past  five  years  the  annual  increment  of  construc- 
tion has  been  only  four  or  five  thousand  miles.  The  consequence  has 
been  that  with  the  rapid  upbuilding  of  the  country  the  railways  have 
grown  up  to  iheir  capitalization.  For  some  time  there  has  been 
scarcely  any  overcapitalization.  A  striking  proof  of  the  absence  of  any 
real  discrepancy  between  normal  values  and  capitalization  of  earn- 
ing capacity  is  afforded  by  the  congestion  of  traffic  a  year  or  two  ago. 

Fourthly,  the  crisis  was  preceded  by  a  period  of  gradual  liquida- 
tion. General  prices  of  commodities,  with  a  few  notable  exceptions, 
like  that  of  copper,  were  indeed  high  until  well-nigh  the  outbreak 
of  the  panic.  But  the  price  of  securities  had  for  some  time  under- 
gone a  marked  shrinkage.     This  was  caused  chiefly  by  the  rise  in 

^Adapted  from  "The  Crisis  of  1907  in  the  Light  of  History,"  in  The 
Currency  Problem  and  the  Financial  Situation,  pp.  xx-xxv.  Copyright  by  the 
Columbia  University  Press,  1908. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  227 

the  rate  of  interest.  In  fact  the  one  phenomenon  is  really  the  other; 
for  where  earnings  remain  unchanged,  the  capitalization  of  the  earn- 
ings depends  upon  the  rate  of  interest. 

The  rise  in  the  interest  rate  was  due  in  part  to  the  increase  in 
the  gold  output;  for  an  increase  in  the  supply  of  standard  money 
raises  not  only  the  price  level  of  all  commodities,  but  the  price  of 
the  use  of  capital,  which  we  call  the  general  rate  of  interest.  In  part 
the  increase  was  due  to  the  relatively  smaller  amount  of  capital  availa- 
ble for  investment.  The  fund  of  free  capital  has  been  diminishing 
for  the  last  few  years.  Hundreds  of  millions  were  destroyed  by  the 
Boer  and  Japanese  wars;  hundreds  of  millions  more  disappeared 
through  the  destruction  of  San  Francisco  and  Valparaiso ;  and  count- 
less millions  in  addition  have  been  utilized  to  finance  the  more  or  less 
dubious  schemes  which  have  sprung  up  in  all  countries  during  the 
years  of  prosperity.  Despite  the  lack  of  general  overcapitalization, 
the  discounting  of  the  future  was  not  ample,  and  the  capital  was 
invested  more  rapidly  than  the  immediate  returns  would  warrant. 
The  replacement  fund,  in  other  words,  was  neither  quite  large  enough 
nor  quite  active  enough ;  and  with  the  gradual  exhaustion  of  the 
available  free  capital,  interest  rates  necessarily  rose  and  security 
values  as  a  consequence  fell. 

The  period  of  liquidation  was  thus  a  fortunate  event.  By  check- 
ing the  movement  of  exaltation,  and  preventing  the  level  of  prices 
from  being  so  extreme,  it  kept  the  reaction  from  being  so  great. 
Where  the  crest  of  the  wave  is  lower,  the  shock  of  the  break  is  less. 
Had  the  ascent  of  prices  and  values  gone  on  unhindered,  the  con- 
vulsion would  have  been  far  more  severe. 

The  fifth  and  final  cause  of  the  lesser  magnitude  of  the  crisis  is 
the  development  of  trusts.  As  against  the  undoubted  perils  associated 
with  the  newer  type  of  business  organization,  we  must  put  at  least  one 
countervailing  advantage.  The  modern  trust  is  likely  to  exert  an 
undeniably  steadying  influence  on  prices.  Precisely  because  of  the 
immense  interests  at  stake,  and  the  danger  of  a  reaction,  the  ably 
managed  trust  tends  toward  conservatism.  As  compared  with  the 
action  of  a  horde  of  small  competitors  under  similar  conditions,  it  is 
likely  during  a  period  of  prosperity  to  refrain  from  marking  up 
prices  to  the  top  notch,  and  to  make  a  more  adequate  provision  for  the 
contingencies  of  the  market.  With  this  is  likely  to  be  associated  a 
greater  provision,  which  succeeds  in  a  more  correct  adjustment  of 
present  investment  to  future  needs.  The  drift  of  business  in  its 
newer  form  is  thus  toward  a  relative  checking  of  the  discrepancy 
between  estimated  and  actual  earnings,  or,  in  other  words,  toward  a 
retardation  in  the  process  of  overcapitalization.     The  influence  of 


228  CURRENT  ECONOMIC  PROBLEMS 

trusts  in  moderating  crises  and  in  minimizing  depressions  will  doubt- 
less become  more  apparent  with  each  ensuing  decade. 

99.     The  Course  of  the  Panic  of  1907^ 

BY  RALPH  SCOTT  HARRIS 

In  July,  1907,  it  was  felt  in  every  circle  that  business  trembled 
on  the  edge  of  an  abyss.  A  continued  money  stringency  forced  Sec- 
retary Cortelyou  in  August  to  make  deposits  in  banks  and  accept  as 
security  state,  municipal  and  railway  bonds.  Beginning  in  September 
there  was  a  tone  of  ill-concealed  fright  among  the  most  hopeful. 
Only  the  financial  papers  attempted  to  coax  themselves  back  into  the 
old  confidence.  During  the  second  week  in  October  call  loans  in 
New  York  ranged  from  2^  to  6  per  cent ;  time  loans  from  6  to  7 
per  cent;  commercial  paper  from  7  to  7^  per  cent.  In  these  two 
weeks  there  were  twice  as  many  failures  as  in  the  same  period  of 
1906.  There  were  five  times  as  many  manufacturing  failures  in 
September,  1907,  as  in  September,  1906. 

A  series  ^f  bank  failures  precipitated  the  spectacular  part  of  the 
crisis.  The  first  intimation  of  upheaval  was  the  failure  of  the  stock 
exchange  firm  of  which  Otto  C.  Heinze  was  the  head.  The  suspen- 
sion was  due  to  a  failure  to  comer  the  copper  market.  There  was  a 
well-defined  suspicion  that  F.  Augustus  Heinze,  president  of  the 
Mercantile  National  Bank,  was  interested  in  his  brother's  ventures, 
and  that  the  bank  was  being  "used"  in  this  connection.  He  and  his 
supposed  allies  fell  into  public  distrust.  Seven  banks  and  a  trust 
company  with  capital  of  $21,000,000  and  deposits  of  $71,000,000 
were  dominated  by  these  interests.  Believing  them  able  to  weather 
the  storm,  the  clearing-house  association  agreed  to  help  them  out  if 
Heinze  and  his  associates  were  eliminated.  This  was  done.  A  few 
days  later,  however,  the  National  Bank  of  Commerce  refused  to  clear 
any  longer  for  the  Knickerbocker  Trust  Company,  whose  president 
was  thought  to  be  allied  with  the  suspected  interests.  The  result  was 
a  run  on  the  Knickerbocker  Trust  Company,  which,  after  paying 
out  $8,000,000  in  three  hours,  closed  its  doors.  Runs  followed  on 
the  Lincoln  Trust  Company  and  on  the  Trust  Company  of  North 
America.  Following  several  conspicuous  commercial  failures,  other 
banks  in  New  York  closed  for  safety's  sake. 

Meanwhile  the  money  scramble  began.  Banks  were  forced  to 
try  to  call  in  loans  in  order  that  they  might  be  prepared  for  the 

^Adapted  from  Practical  Banking,  pp.  250-57.  Copyright  by  the  author. 
Published  by  Houghton,  Mifflin  &  Co.,  1915. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  229 

demand  of  banks  and  individual  depositors.  The  Secretary  of  the 
Treasury  deposited  $35,000,000  in  national  banks  in  New  York  in 
four  days. 

Stock  exchange  prices  collapsed.  A  syndicate,  headed  by  the 
late  J.  P.  Morgan,  stated  that  it  would  stand  under  the  market,  and 
placed  $25,000,000  on  call  at  10  per  cent ;  later  $10,000,000  was  made 
available  at  50  per  cent,  the  high  price  being  fixed  to  discourage 
speculation.  Soon  the  banks  began  to  restrict  cash  payments ;  clear- 
ing-house loan  certificates  were  issued.  The  demand  for  cash  started 
a  premium  on  currency  the  next  week  which  continued  the  rest  of  the 
year.  It  offered  an  incentive  for  withdrawal  of  deposits.  Large 
failures  occurred  as  the  result  of  the  money  stringency.  On  Novem- 
ber 9  arrived  the  first  large  shipment  of  more  than  $100,000,000  in 
gold,  imported  to  relieve  the  money  stringency.  The  banks  had 
already  increased  their  circulating  notes  at  this  time. 

But  in  the  meantime  the  panic  had  seized  the  interior.  Banks  in 
most  of  the  cities,  over  25,000,  suspended  cash  payments.  The  clear- 
ing-house stood  guaranty  on  certificates.  It  is  estimated  that  over 
$500,000,000  of  substitute  paper  was  issued.  The  country  banks, 
having  no  clearing-house  affiliations,  suffered  most.  Many  failures 
occurred  among  them. 

Shipments  of  money  to  the  west  were  made  from  New  York. 
These  varied  from  $4,400,000  for  the  week  ending  October  19,  to 
$22,600,000  for  the  week  ending  November  16.  In  the  week  ending 
January  4  the  tide  turned  and  $5,500,000  was  shipped  to  New  York. 
The  New  York  banks  supplied  the  country  with  $125,000,000  between 
the  beginning  of  the  panic  and  the  first  of  1908.  Still  the  reserves 
of  the  clearing-house  banks  were  not  seriously  depleted,  the  im- 
portation of  gold  and  the  federal  deposits  having  almost  offset  the 
loss  of  cash. 

Domestic  exchange  was  paralyzed.  New  York  drafts  selling  from 
sixty  cents  discount  to  ten  dollars  premium  in  different  parts  of  the 
country.  As  for  foreign  exchange,  the  ordinary  rules  applying  were 
suspended.  Drafts  on  London  were  bought  when  the  export  point 
had  been  passed,  the  reason  prompting  buyers  being  their  ability  to 
sell  gold  at  a  premium. 

Common  stocks  fell,  as  did  preferred  stocks  and  bonds,  although 
not  to  so  low  a  point.  By  the  first  of  the  year  securities  took  a 
brighter  outlook  on  life.  To  sustain  the  stock  market,  the  national 
banks  increased  loans  and  discounts  some  $63,000,000  between  the 
last  of  August  and  the  first  of  December.  This  was  in  addition  to 
the  syndicate  pool  of  $35,000,000  previously  mentioned. 


230  CURRENT  ECONOMIC  PROBLEMS 

Perhaps  the  panic  could  have  been  localized  had  New  York  bank- 
ers been  able  to  meet  all  demands  without  restriction.  But  restric- 
tion inspired  country  banks  with  a  zeal  to  provide  for  any  disaster. 
Hoarding  followed.  In  December  most  country  banks  had  higher 
reserves  than  at  the  beginning  of  the  panic.  The  question  which 
each  country  banker  asked  himself  was,  Can  I  afford  to  be  less 
cautious  than  other  bankers  when  I  know  the  psychology  of  "panics" 
and  "runs"? 

Failures  drop  thick  and  fast  when  the  panic  is  past.  The  finan- 
cial battlefield  is  gory  with  the  slain  and,  what  is  more,  the  trampled. 
Failures  after  the  depression  sets  in  are  larger  and  more  important. 
From  3,645  failures  in  the  last  three  months  of  1907,  bankruptcies 
increased  to  4,909  in  the  first  quarter  in  1908. 

100.     The  Order  of  Events  in  a  Crisis^" 

BY  ARTHUR  T.  HADLEY 

The  order  of  events  in  a  crisis  is  generally  this : 

1.  A  shock  to  public  confidence  in  a  period  of  liberal,  not  to 
say  inflated,  credit,  creates  a  demand  for  ready  money.  No  one  is 
sure  that  his  neighbor  will  remain  solvent.  Each  man  is  therefore 
anxious  to  secure  himself  against  future  loss.  Every  borrower  seeks 
means  of  paying  his  obligations  and  increases  the  demand  for  money  ; 
almost  every  capitalist  tries  to  enlarge  his  cash  reserves  and  thus 
lessens  the  available  supply. 

2.  This  increase  of  demand  and  diminution  of  supply  at  first 
puts  up  the  interest  rate  on  short-time  loans.  Money  is  needed  to 
tide  over  the  immediate  exigency,  and  every  one  is  willing  to  pay 
large  prices  in  order  to  obtain  it.  But  this  is  only  a  temporary  meas- 
ure. Under  the  stress  of  need  for  securing  money,  people  who  have 
engagements  to  meet  sell  their  goods  at  a  sacrifice  in  order  to  obtain 
it.  An  unusually  large  supply  of  products  and  securities  is  thrown 
upon  the  market  just  at  the  time  when  many  property  owners  feel 
themselves  least  able  to  invest,  and  when  some  consumers  are  restrict- 
ing their  purchases  instead  of  expanding  them.  The  temporary  in- 
crease in  the  interest  rate  gives  place  to  a  more  lasting  fall  in  prices. 

3.  Such  a  fall  in  prices  lowers  profits.  A  large  number  of  people 
have  made  engagements  with  their  creditors  and  with  their  employees 
based  on  the  supposition  that  prices  will  continue  at  the  old  level. 
A  fall  in  price  renders  it  impossible  to  pay  interest  out  of  current 

loAdapted  from  Economics,  pp.  297-99.  Copyright  by  G.  P.  Putnam's  Sons, 
1896. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  231 

earnings.  Readjustments  and  foreclosures  follow  one  another  in 
rapid  succession.  In  cases  where  the  lenders  of  money  have  obtained 
proper  security  the  contracts  are  maintained  at  the  expense  of  the 
principal  of  the  borrowers.  If  a  railroad  bond  is  really  secured  by 
stock  behind  it,  the  loss  falls  on  the  stockholders,  and  the  bondholders, 
ultimately  at  any  rate,  receive  all  that  the  interest  contract  calls  for. 
But  if,  as  frequently  happens,  the  security  has  been  a  delusive  one,  the 
lenders  are  compelled  to  assent  to  a  reduction  of  the  interest  which 
they  believe  to  be  safely  guaranteed. 

4.  When  the  interest  contracts  have  been  in  large  measure  re- 
adjusted, the  chief  effect  on  wages  begins  to  make  itself  felt.  It 
might  be  supposed,  on  general  grounds,  that  a  fall  in  price  would 
aflFect  the  laborer  sooner  than  the  investor.  But  in  the  early  stages 
of  a  commercial  crisis  the  capitalist  is  not  in  a  position  to  dictate 
terms  to  his  laborers.  He  must  make  goods  and  sell  goods  at  any 
price,  in  order  to  keep  his  head  above  water.  As  long  as  it  lasts, 
the  cut-throat  competition  which  lowers  profits  prevents  the  demand 
for  labor  from  being  very  rapidly  lessened.  It  is  when  readjustments 
of  interest  have  been  made  that  the  laborers'  condition  becomes  worse. 
After  foreclosure  sales  have  been  completed  and  capital  is  reorganized 
on  a  new  basis,  no  capitalist  is  necessarily  compelled  to  work  at  a 
loss,  and  some  probably  go  out  of  work  altogether.  Under  these  cir- 
cumstances the  demand  for  labor  becomes  appreciably  less  than  it 
was,  and  the  price  offered  falls  rapidly. 

The  first  moderate  changes  are  as  a  rule  accepted  by  the  laborers 
as  inevitable,  but  as  reductions  become  more  sweeping  they  are  re- 
sisted, particularly  because  house  rents  and  consumers'  prices,  owing 
to  the  inertia  of  retail  trade,  do  not  fall  nearly  as  fast  as  producers' 
prices.  The  workman  sees  his  wages  reduced  because  his  employer 
cannot  sell  goods  at  the  old  figure,  while  the  price  that  he  pays  for 
his  supplies  remains  nearly  the  same.  He  thinks  that  something  is 
wrong  and  strikes.  This  usually  indicates  the  beginning  of  the  end 
of  a  commercial  crisis.  It  has  become  a  proverb  in  the  financial 
world  that  railroad  strikes  give  no  help  to  those  who  are  trying  to 
depress  the  price  of  securities. 

On  the  contrary,  in  spite  of  the  losses  attending  such  conflicts,  it 
has  been  found  in  1877,  1885,  and  1894  that  the  price  of  securities 
in  general  began  to  go  up  at  the  very  time  when  matters  seemed  to 
be  at  their  worst.  There  are  two  reasons  for  this.  First,  strikes 
cut  down  production  in  any  given  line  to  such  an  extent  as  to  enable 
competing  producers  to  dispose  of  their  products  or  services  more 
readily.  Second,  strikes  indicate  that  wage  contracts,  as  well  as  in- 
terest contracts,  have  been  readjusted  to  the  price  conditions  which 


232  CURRENT  ECONOMIC  PROBLEMS 

prevail,  and  that  matters  have  therefore  reached  a  point  where  specu- 
lators can  make  arrangements  for  the  future  with  the  assurance  that 
the  marginal  price  charged  by  labor  and  capital  for  their  services 
does  not  exceed  the  market  price  which  the  consumers  are  likely  to 
pay  for  the  results  of  such  service. 


D.     INDUSTRIAL  CONDITIONS  DURING  A 
DEPRESSION 

101.     Panics  versus  Depressions^^ 

BY  GEORGE  H.   HULL 

Panic  is  defined  as  "a  sudden,  unreasoning,  overpowering  fear, 
especially  when  affecting  a  large  number  simultaneously."  A  "finan- 
cial panic"  is,  therefore,  the  effect  produced  upon  the  finances  of  a 
country  by  sudden,  unreasoning,  and  overpowering  fright. 

Depression  is  defined  as  "a  state  of  dulness  or  inactivity ;  a  pro- 
tracted season  when  business  falls  below  the  normal."  "Industrial 
depression,"  therefore,  means  literally  a  state  of  dulness  or  inactivity 
in  the  industries  of  the  country ;  a  protracted  season  during  which 
the  production  of  buildings,  furniture,  goods,  machinery,  etc.,  falls 
below  the  normal. 

A  financial  panic  is  precipitated  by  sudden,  excited,  and  imprudent 
action.  An  industrial  depression  is  precipitated  by  deliberate,  thought- 
ful and  prudent  inaction.  One  is  the  result  of  mental  excitement, 
which  results  in  a  temporary  check  to  a  natural  flow  of  the  media  of 
exchange.  It  is  a  mental  disorder.  The  other  is  the  effect  of  calm, 
deliberate  consideration,  which  results  in  reducing  the  rate  of  pro- 
duction of  materials  of  physical  wealth.     It  is  a  physical  disorder. 

A  financial  panic  is  an  acute  malady.  Its  beginning  is  sudden, 
intense,  vivid,  and  startling.  Its  chief  element  is  fright.  It  par- 
alyzes finances  at  a  single  blow.  Each  subsequent  step  in  its  course 
is  an  alleviation.  Each  day,  week  or  month  shows  a  marked  recovery. 
From  its  nature  and  intensity  it  is  short-lived. 

An  industrial  depression  is  a  stubborn,  chronic  malady.  Its  begin- 
ning is  gradual  and  quiet.  It  commences  and  goes  on  increasing  in 
force  for  many  months,  unnoticed.  Its  cause  is  silently  doing  its 
fatal  work  while  actual  business  is  increasing  by  leaps  and  bounds. 
When  actual  depression  appears,  its  cause  has  almost  ceased  to  exist. 
From  its  nature  and  its  deep-seated  growth  industrial  depression  is 
long-lived. 

iiAdapted  from  Industrial  Depressions,  pp.  18-20.  Copyright  by  Frederick 
A.  Stokes  Co.,  191 1. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  233 

A  financial  panic  is  usually  a  matter  of  a  few  months,  weeks,  or 
days.  An  industrial  depression  is  usually  a  matter  of  one  or  more 
years. 

A  financial  panic  may  be  compared  to  a  mob,  in  which  a  great 
number  of  excited  minds  work  upon  and  incite  each  other  until 
men  act  in  a  body  as  no  one  of  them  would  act  if  left  to  himself. 
Industrial  depressions,  on  the  other  hand,  are  the  cumulative  results 
of  the  deliberate  and  thoughtful  decisions  of  individual  men. 

These  two  calamities  can  be  classed  together  only  because  the 
results  of  each  have  a  disastrous  effect  upon  business.  A  panic  has 
an  effect  which  is  short,  exciting,  and  a  temporary  disaster,  not  to 
existing  material  wealth,  but  to  the  documentary  representatives  of 
wealth ;  a  loss  from  which  the  country  may  entirely  recuperate  with- 
in a  short  time.  The  other  is  a  compulsory  laying  down  of  the  tools 
which  produce  wealth,  by  a  vast  army  of  wealth-creators ;  a  loss 
that  can  no  more  be  regained  than  a  lost  day  or  year  can  be  regained. 

102.     The  Extent  of  the  Depression  of  1907-812 

A  few  facts  and  figures  will  indicate  the  extent  of  the  present 
industrial  depression.  Bank  exchanges  at  all  the  leading  cities  of 
the  United  States  were  $2,073,910,424  for  the  week  ending  January 
30,  1908,  a  decrease  of  23.3  per  cent  compared  with  the  correspond- 
ing week  of  1907,  and  37.2  per  cent  compared  with  the  corresponding 
week  of  1906.  The  decrease  in  New  York  and  Philadelphia  exceeded 
28  per  cent,  compared  with  1906,  and  was  greater  than  in  any  other 
cities. 

For  the  first  two  weeks  of  January,  1908,  gross  earnings  of  rail- 
i^ds  were  about  13  per  cent  less  than  in  1907.  For  the  last  week  in 
December  they  were  15.52  per  cent  below  those  of  1906.  For  the 
entire  month  of  December  gross  earnings  were  1.13  per  cent,  while 
net  earnings  were  17.46  per  cent  less  than  were  those  for  December, 
1906. 

Transactions  of  the  New  York  stock  exchange  amounted  to 
16,634,817  shares,  compared  with  22,712,420  in  January,  1907.  The 
decline  in  the  prices  of  commodities  in  the  last  few  months  has  been 
about  10  per  cent. 

The  sharp  falling  off  in  the  net  earnings  of  the  United  States 
Steel  Corporation  in  the  last  quarter  of  1907  show  the  remarkable 
decline  in  industry.  The  net  earnings  fell  from  $17,052,211,  in  Oc- 
tober, to  $10,467,253,  in  November,  and  to  $5,034,531,  in  December. 
This  is  a  decline  of  over  70  per  cent. 

1- Adapted  from  an  editorial  in  Moody's  Magazine,  V,  151-54.  Copyright, 
January,  1908. 


234  CURRENT  ECONOMIC  PROBLEMS 

The  unparalleled  number  of  idle  cars  affords  a  barometer  of  our 
industrial  condition.  Today  there  are  approximately  320,000  freight 
cars  and  8,000  locomotives  standing  idle,  representing  an  invest- 
ment of  more  than  $400,000,000,  and  there  are  more  than  30,000 
unemployed  trainmen.  And  yet  three  months  ago  there  were  not 
enough  railroad  cars  to  move  the  traffic  of  the  country. 

The  money  market  affords  one  of  the  best  barometers  of  the 
great  change  that  has  come  over  the  industrial  situation.  From  a 
deficit  of  $54,103,600  on  November  23,  in  the  surplus  reserves  of 
the  New  York  Associated  Banks,  there  was  a  surplus  of  $40,626,725 
on  February  i.  From  rates  of  25  per  cent  or  more,  last  fall  for  call 
money,  we  now  have  rates  of  less  than  2  per  cent.  From  rates  of 
from  7  to  12  per  cent  for  time  money  last  fall,  we  now  have  rates 
of  from  4  to  4^  per  cent  on  stock  exchange  collateral,  and  from  5  to 
6  per  cent  on  commercial  paper.  The  return  of  hoarded  money  and 
the  slackening  demand  for  money  in  industrial  and  commercial  opera- 
tions are  mainly  responsible  for  this  sudden  transformation  of  the 
money  market. 

Already  gold  exports  have  begun  from  this  country.  They  may 
reach  a  considerable  volume  before  next  July.  Money  rates,  how- 
ever, may  be  expected  to  remain  about  as  at  present.  Money  rates 
are  being  followed  by  rising  prices  for  bonds  and  other  secure 
securities.  During  January  the  price  of  bonds  rose  about  twice  as 
much  as  the  price  of  common  stocks.  Under  existing  conditions 
investors  find  bonds  very  attractive  in  view  of  the  uncertainty  of 
the  situation.  Many  interior  banks  have  put  their  idle  funds  in 
bonds  on  account  of  the  comparatively  high  interest  return  they 
can  secure  by  such  a  course. 

E.    WAR  AND  THE  CYCLE 
103.     The  Beginning  of  the  War^^ 

The  entrance  of  the  United  States  into  the  war  has  caused  ad- 
vances in  prices,  greater  demand  for  goods,  and  greater  scarcity  of 
materials  in  many  lines  of  trade.  Manufacturing  plants  are  running 
as  fully  as  the  supply  of  labor  and  of  materials  will  permit.  The 
problem  of  deliveries  has  been  very  annoying  because  of  the  limitation 
of  output  and  troublesome  transportation  conditions. 

The  labor  situation  has  become  very  acute.  It  hampers  not  only 
the  manufacturers,  who  are  under  the  necessity  of  turning  out  iron 
and  steel,  ammunition,  clothing,  textiles,  and  other  products  in  greater 

13  Adapted  from  "General  Business  Condition,  District  No.  3 — Phila- 
delphia," in  Federal  Reserve  Bulletin  (May  i,  1917),  pp.  385-86. 


PROBLEMS  OF  TBE  BUSINESS  CYCLE  235 

quantity  than  ever  before,  but  it  is  also  greatly  retarding  the  basic 
industries,  such  as  agriculture  and  mining. 

There  is  a  patriotic  desire  on  the  part  of  the  people  in  the  agricul- 
tural sections  to  do  their  full  duty  toward  producing  the  maximum 
amount  of  foodstuffs;  but,  on  account  of  the  high  price  and  the 
scarcity  of  fertilizers,  the  high  price  of  seed,  and  the  scarcity  and 
high  wages  of  labor,  it  appears  that  the  acreage  planted  to  food  crops 
cannot  be  materially  increased.  Owing  to  enlistments  and  to  the 
transfer  of  labor  from  farming  to  the  more  lucrative  employment  in 
munitions,  the  farm  labor  shortage  has  become  so  acute  that  there  is 
grave  doubt  that  farmers  can  cultivate  and  harvest  a  crop  as  large 
as  last  year. 

In  particular  trades,  canners  have  disposed  of  most  of  their  old 
pack  and  prices  have  been  advancing.  Department  stores  report  that 
trade  is  extremely  good.  The  wholesale  grocery  trade  is  having  dif- 
ficulty because  of  excess  demand  for  goods.  The  continued  high 
price  for  coal  is  having  a  marked  effect  upon  the  cost  of  iron  and 
steel  production.  The  immediate  prospect  of  large  government  bor- 
rowings is  causing  hesitation  in  the  investment  of  funds.  Sales  of  all 
kinds  of  securities  have  fallen  off  and  prices  have  declined. 

104.     Eight  Months  Later'* 

Current  reports  indicate  substantial  progress  in  war  organization 
without  serious  disruption  or  diminution  of  general  activity  and  pros- 
perity. Unsatisfactory  transportation  conditions  continue  and  indi- 
cate that  more  rapid  adjustment  is  to  be  made  if  the  strain  upon  the 
railroads  is  to  be  lessened  and  serious  congestion  avoided.  Industries 
essential  to  war  preparations  are  seriously  hampered,  especially  the 
coal-mining  industry  and  through  it  all  manufacturing. 

The  general  comment  indicates  active  and  prosperous  business. 
Agricultural  implements  are  selling  well  at  prices  substantially  higher 
than  normal.  Activity  in  machinery  manufacture  continues  un- 
abated, supported  largely  by  government  orders.  Demand  for  rail- 
way, mill,  and  mining  supplies  is  lessened  slightly.  Building-trade 
materials  are  purchased  only  for  limited  immediate  requirements. 
The  absolute  necessity  of  increased  housing  facilities  in  factory  and 
shipyard  centers  has  led  to  special  efforts  toward  construction  of 
this  kind. 

Sustained  activity  is  the  report  from  the  textile  and  clothing 
industries.  Manufacturers  of  cotton  textiles  are  hampered  by  dif- 
ficulty in  obtaining  raw  cotton  promptly,  and  particularly  by  the 

^*  Adapted  from  "General  Business  Conditions,  District  No.  2 — New 
York,"  in  Federal  Reserve  Bulletin  (December  i,  1917),  PP-  960-61. 


236  CURRENT  ECONOMIC  PROBLEMS 

problem  of  the  labor  supply.  Buying  demand  is  excellent,  with  a  ten- 
dency not  to  question  prices,  buyers  trading  for  months  ahead.  Silks 
are  readily  selling  and  with  no  sign  of  diminishing  demand.  Further 
evidence  of  the  absence  of  rigid  economy  is  furnished  by  the  heavy 
volume  of  sales  of  jewelry  and  watches. 

Interior  decorators  and  house-furnishing  companies  are  exper- 
iencing a  recession  of  business.  The  paper  manufacturers  are  having 
a  good  volume  of  business,  though  with  narrowing  profit,  because  of 
increased  cost  of  labor,  fuel,  and  wood.  There  is  considerable  un- 
settlement  in  the  drug  and  chemical  lines,  with  demand  better  than 
supply. 

Conditions  in  the  metal  trades  are  very  uneven.  Practically  all 
the  copper  produced  in  this  country  is  now  being  taken  by  the  gov- 
ernment. Production  of  lead,  on  the  other  hand,  has  outrun  con- 
sumption. The  oil  industry  reports  an  upward  trend  in  prices  of 
lubricating  and  fuel  oils,  but  no  recent  change  in  the  price  of  gaso- 
line or  burning  oils. 

Conditions  in  relation  to  food  stuffs  continue  little  changed,  buy- 
ing being  careful  and  for  immediate  needs  only,  with  prices  steady  at 
levels  considered  high  by  the  trade.  For  the  past  six  weeks  there 
has  been  a  considerable  shortage  of  sugars. 

105.     The  Winter  of  1917-18^^ 

It  is  gradually  becoming  possible  to  discern  a  distinct  line  of  de- 
markation  between  industries  which  are  essential  and  those  which  are 
not.  This  district,  like  the  whole  country,  is  on  a  war  basis.  Con- 
servation orders,  fixation  of  maximum  prices,  and  the  recent  fuel 
order,  bring  personally  to  every  man  and  woman  a  vivid  realization 
that  this  war  is  a  serious  business,  requiring  the  co-operation  of  all 
resources  and  the  co-operation  of  every  citizen.  This  is  reflected  in 
the  diminishing  volume  of  business  in  luxuries. 

Heavy  snowfall  in  this  district  completely  paralyzed  transporta- 
tion for  practically  two  days  and  greatly  aggravated  the  already 
serious  shortage  of  coal  at  industrial  centers  and  elsewhere.  The 
coal  situation  has  been  a  cause  of  anxiety  for  months.  Stocks  were 
low  and  many  large  consumers  were  able  to  maintain  only  small  sup- 
plies sufficient  for  a  few  days.  With  the  complete  tie-up  of  the 
railroads  even  these  surpluses  were  wiped  out  and  this  district  found 
itself  in  a  coal  famine.  Radical  steps  had  to  be  taken  and  the  recent 
edict  of  the  fuel  administrator  forbidding  the  use  of  coal  for  a  period 

15  Adapted  from  "General  Business  Conditions,  District  No.  7 — Chicago," 
in  the  Federal  Reserve  Bulletin  (February  i,  1918),  pp.  120-22. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  237 

of  days,  except  by  essential  enterprises,  should  furnish  a  means  of 
replenishing  depleted  coal  bunkers. 

Necessary  industries  of  the  district  have  in  general  been  working 
to  capacity,  meeting  the  shortage  of  fuel,  material,  and  transportation 
with  the  means  at  hand. 

There  continues  to  be  a  scarcity  of  labor.  Wages  are  the  highest 
ever  paid.  The  demand  is  so  great  in  some  localities  that  it  has  been 
found  impossible  to  house  the  necessary  men.  Very  little  wage  dif- 
ficulty is  experienced. 

Quiet  reigns  in  the  investment  market,  the  chief  subject  of  in- 
terest being  government  financing.  Bank  deposits  are  high  through- 
out the  district.    Rates  hold  firm  and  no  softening  is  anticipated. 

In  many  cases  automobile  manufacturers  have  turned  to  gov- 
ernment work. 

As  there  has  been  no  distillation  of  beverage  spirits  since  Septem- 
ber 8,  1917,  distillers  are  disposing  of  accumulated  stocks  and  at 
high  prices.  Dry-goods  houses  report  a  good  volume  of  sales,  the 
preference  running  to  necessities.  Speculative  purchases  are  still  a 
factor  of  volume.    Collections  are  fair  to  good. 

Conditions  in  the  grain  business  are  extremely  unsatisfactory. 
Because  the  bad  weather  has  hampered  car  movement,  grain  re- 
ceipts have  been  reduced  to  a  minimum.  The  result  is  that  farmers 
hold  enormous  amounts  of  grain  which  they  are  unable  to  market, 
while  different  localities  throughout  the  country  are  suffering. 

Wholesale  grocers  report  satisfaction  with  the  volume  of  sales. 
Prospects  for  business  in  the  hardware  line  are  reported  good. 
Jewelry  houses  succeeded  in  maintaining  sales  for  December  at 
normal.  The  leather  industry  is  active  where  government  orders  have 
been  placed,  but  quiet  in  civilian  lines.  Prices  in  the  live-stock  market 
have  eased  somewhat.  The  railroad  situation  has  eased  receipts  at 
the  yards  temporarily.  Lumber  for  building  is  not  in  demand  to  an 
appreciable  extent.  Mail  order  houses  report  their  usual  increase  in 
volume  of  sales. 

Piano  orders  are  fair  in  number,  but  show  a  decided  drop  from 
last  year.  About  half  of  the  woolen  and  worsted  factories  in  the 
country  are  employed  at  government  work.  This  had  tended  to  ad- 
vance prices  materially  for  civilians.  Mills  are  offering  for  future 
sale  the  highest  priced  fabrics  ever  known,  and  these  prices  are  being 
met  as  purchasing  power  is  strong,  due  to  high  salaries  and  wages. 
The  usual  inventory  sale  is  not  so  much  in  evidence  this  year,  re- 
tailers being  unwilling  to  sacrifice  goods  which  they  can  replace  only 
at  higher  figures.  Clearings  in  Chicago  are  less  than  for  the  cor- 
responding days  of  the  month  a  year  ago. 


238  CURRENT  ECONOMIC  PROBLEMS 

106.     The  End  of  the  War^^ 

Important  changes  in  the  business  and  financial  situation  have 
occurred  during  the  month  of  December,  The  transition  from  a  war 
to  a  peace  basis  is  now  in  full  swing  and  numerous  modifications  in 
the  organization  of  business  are  now  under  way.  Reports  show 
that  the  following  significant  factors  may  be  enumerated : 

1.  Far-reaching  modifications  of  government  control  over  in- 
dustry, transportation,  manufacture,  and  prices. 

2.  Extensive  cancellation  of  government  contracts  for  manu- 
facture and  purchase  of  war  goods. 

3.  Displacement  and  readjustment  of  labor  resulting  from  the 
suspension  of  war  production  and  the  absorption  of  labor  in  indus- 
tries which  have  thus  far  suffered  from  shortage. 

4.  Changes  in  the  volume  of  trade,  indicating  on  the  whole  a 
slight  decrease  in  volume. 

5.  Revision  of  prices  with  considerable  shrinkage  in  specified 
articles  and  on  the  whole  a  distinct  though  slight  downward  tendency. 

6.  Expansion  in  demand  for  banking  accommodations  and  for 
capital. 

In  general  the  transition  has  thus  far  proceeded  with  considerable 
smoothness.  Such  slackening  as  has  occurred  is  due  to  conservatism 
and  is  an  outcome  of  a  desire  on  the  part  of  producers  to  know  more 
of  public  policies  and  the  probable  trend  of  business. 

Thus  far  the  readjustment  of  labor  to  new  conditions  has  caused 
little  inconvenience  or  difficulty.  Labor  set  free  by  the  war  has  been 
steadily  absorbed  by  general  business.  The  principal  effect  thus  far 
has  been  the  relief  of  a  previously  existing  shortage.  There  is  still 
an  excess  of  demand  at  many  points.  Costs  have  altered  but  little, 
and  the  high  expense  of  living  has  made  employers  feel  that  it  was 
incumbent  upon  them  to  maintain  wages. 

From  the  productive  standpoint  conditions  continue  to  be  satis- 
factor}'-  in  most  staple  lines.  Agriculture  is  reported  to  be  in  an  ex- 
ceptionally promising  condition.  In  the  South  the  farmer  is  holding 
his  cotton  for  better  prices  and  is  marketing  his  output  conservatively. 
Excellent  crop  prospects  are  reported  from  the  south  and  west.  In 
the  live-stock  region  conditions  are  much  improved. 

Iron  and  steel,  so  frequently  taken  as  an  authoritative  index  of 
business  conditions,  are  unsettled  on  account  of  the  cuts  that  have 
already  been  made  and  the  expected  new  price  basis  for  them.  The 
market  for  steel  is  quiet.    The  output  for  coal  is  again  moving  up- 

^6  Adapted  from  "The  Business  and  Financial  Situation  in  December, 
1918,"  in  the  Federal  Reserve  Bulletin  (January  i,  1919),  pp.  10-13. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  239 

ward,  car  service  has  improved  in  certain  sections,  and  labor  condi- 
tions are  reported  fairly  satisfactory. 

In  manufacturing  the  outlook  is  by  no  means  uniform.  Freight 
is  moving  fairly  w^ell.  Munition  industries  have  largely  reduced  their 
activity.  Machine  tool  manufacture  is  slowing  down  on  account  of 
the  cancellation  of  government  orders.  Cotton  and  wool  mills  have 
been  running  full,  but  the  end  of  unfilled  orders  is  now  approaching 
and  but  little  new  business  is  being  placed.  There  has  been  an  in- 
crease in  retail  trade,  due  to  the  holiday  season  and  to  a  relaxation 
of  war  economies. 

Prices  on  the  whole  have  shown  only  slight  changes.  There  has, 
if  anything,  been  an  advance  in  the  prices  of  consumers'  goods,  while 
raw  materials  have  shown  a  disposition  to  decline.  The  average 
level  of  prices  appears  to  be  past  the  peak,  but  as  yet  with  only  a 
slight  movement  downward. 

On  the  whole  a  general  review  of  industrial  and  commercial  con- 
ditions points  to  a  distinct  trend  toward  a  normal  or  peace  basis. 
While  there  are  substantial  alterations  of  conditions  in  particular 
lines,  a  good  volume  of  output  in  the  staple  articles  of  commerce  is 
still  maintained. 

107.     Production  and  Prices 

Much  interest  attaches  to  the  problem  of  how  far  the  rapidly 
expanding  volume  of  business  in  the  last  six  years  has  been  due  to 
an  increase  in  the  volume  of  physical  goods  produced  and  how  far 
it  represents  merely  a  rise  in  prices. 

On  account  of  the  scantiness  of  statistics  of  production  this  prob- 
lem cannot  be  studied  in  a  thoroughly  satisfactory  manner.  The  best 
line  of  attack  is  to  take  production  and  import  figures  of  staple  raw 
materials  and  interpret  the  results  on  the  assumption  that  the  total 
amount  of  all  goods  produced  varies  roughly  as  the  quantity  of  these 
raw  materials  produced  in  or  imported  into  the  United  States  . 

To  this  end  estimates  of  production,  or  imports,  or  production 
plus  imports,  as  the  case  required,  have  been  made  for  ninety  staple 
commodities.  This  estimate  has  been  made  by  years  for  the  six  year 
period  1913-1918.  Three  series  of  indexes  have  been  computed. 
The  first  indicates  the  increase  in  the  physical  volume  of  production ; 
the  second,  the  increase  in  the  price  of  the  article;  and  the  third 
reflects  the  combined  effect  of  increase  in  output  and  rise  in  prices 
for  the  period  under  review.  In  all  three  series  commodities  are 
classified  as  coming  from  farms,  forests,  or  mines.  In  these  com- 
putations 1913  is  taken  as  the  basis. 

^^  This  statement  is  based  upon  a  comprehensive  statistical  study  made  by 
Wesley  C.  Mitchell  for  the  War  Industries  Board,  1919. 


240  CURRENT  ECONOMIC  PROBLEMS 

The  figures  below  are  a  comparison  between  1913  and  1918.  In 
index  numbers  the  production  of  twenty-five  vegetable  farm  products 
increased  from  100  to  106;  their  prices  increased  from  100  to  191  ; 
and  their  aggregate  values  from  100  to  225.  The  production  of  thir- 
teen "animal  farm  products"  increased  from  100  to  126;  their  prices 
from  100  to  193;  and  their  aggregate  value  from  100  to  246.  The 
production  of  twenty-three  "forest  products"  decreased  from  100 
to  99;  their  prices  increased  from  100  to  174;  and  their  aggregate 
value  increased  from  100  to  147.  The  production  of  twenty-seven 
"mine  products"  increased  from  100  to  127;  their  prices  increased 
from  100  to  192;  and  their  aggregate  value  from  100  to  263.  The 
production  of  two  "fisheries  products"  increased  from  100  to  118; 
their  prices  from  100  to  304;  and  their  aggregate  value  from  100 
to  350. 

If  these  computations  are  thrown  together  into  a  table  for  all 
commodities  the  general  result  is  as  follows.  The  physical  volume 
of  output  shows  an  increase  from  100  in  1913  to  116  in  1918.  The 
rise  in  prices  runs  from  100  to  192.  The  combined  effect  of  increase 
in  output  and  rise  in  prices  varies  from  100  in  191 3  to  225  in  1918. 

F.     CONTROL  OF  THE  INDUSTRIAL  CYCLE 
108.     Panic  Rules  for  Banks^« 

BY  ViT ALTER  BAGEHOT 

In  time  of  panic,  advances,  if  they  are  to  be  made  at  all,  should 
be  made  so  as,  if  possible,  to  obtain  the  object  for  which  they  are 
made.  The  end  is  to  stay  the  panic;  and  the  advances  should,  if 
possible,  stay  the  panic.     For  that  purpose  there  are  two  rules : 

First,  that  these  loans  should  be  made  only  at  a  very  high  rate 
of  interest.  This  will  operate  as  a  heavy  fine  on  unreasonable  timid- 
ity, and  will  prevent  the  greater  number  of  applications  by  persons 
who  do  not  require  it.  The  rate  should  be  raised  early  in  the  panic, 
so  that  the  fine  may  be  paid  early ;  that  no  one  may  borrow  out  of 
idle  precaution  without  paying  well  for  it ;  that  the  banking  reserve 
may  be  protected  as  far  as  possible. 

Secondly,  that  at  this  rate  these  advances  should  be  made  on  all 
good  banking  securities,  and  as  largely  as  the  public  asks  for  them. 
The  reason  is  plain.  The  object  is  to  stay  alarm,  and  nothing,  there- 
fore should  be  done  to  cause  alarm.  But  the  way  to  cause  alarm  is 
to  refuse  someone  who  has  good  security  to  offer.  The  news  of  this 
will  spread  in  an  instant  through  all  the  money  markets  at  a  moment 

"Adapted  from  Lombard  Street  (loth  ed. ;  1873),  pp.  199-200. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  241 

of  terror ;  no  one  can  say  exactly  who  carries  it,  but  in  half  an  hour 
it  will  be  carried  on  all  sides,  and  will  intensify  the  terror  every- 
where. No  advances  indeed  need  be  made  by  which  the  banks  will 
ultimately  lose.  The  amount  of  bad  business  in  commercial  coun- 
tries is  an  infinitesimally  small  fraction  of  the  whole  business.  That 
in  a  panic  the  banks  should  refuse  bad  bills  or  bad  securities  will  not 
make  the  panic  worse ;  the  "unsound"  people  are  a  feeble  minority, 
and  they  are  afraid  even  to  look  frightened  for  fear  the  unsoundness 
will  be  detected.  The  great  majority,  the  majority  to  be  protected, 
are  the  "sound"  people,  the  people  who  have  good  security  to  offer. 
If  it  is  known  that  the  banks  are  advancing  on  what  in  ordinary  times 
is  reckoned  good  security,  the  alarm  of  the  solvent  merchants  and 
bankers  will  be  stayed.  But  if  securities  really  good  and  usually 
convertible  are  refused  by  the  banks,  the  alarm  will  not  abate,  the 
other  loans  made  will  fail  in  obtaining  their  end,  and  the  panic  will 
become  worse  and  worse. 

109.     How  a  Panic  Was  Averted  in  1914^^ 

It  is  possible  that  there  have  never  been  two  months  in  the  history 
of  the  United  States  since  the  Civil  War  when  so  many  and  such 
far-reaching  financial  and  commercial  problems  were  presented  as 
have  been  offered  during  August  and  September  of  this  year.  Be- 
ginning with  the  sudden  outbreak  of  the  war,  drastic  and  unpre- 
cedented fluctuations  in  securities,  cotton,  chemicals,  and  other  com- 
modities were  witnessed.  They  were  accompanied  by  a  suspen- 
sion of  practically  all  communication  with  outside  countries,  due  to 
the  unwillingness  of  shipowners  to  continue  the  operation  of  their 
vessels  from  fear  of  capture.  The  total  annihilation  of  export  trade 
for  the  time  being,  as  well  as  the  partial  destruction  of  import  busi- 
ness, produced  serious  financial  and  labor  difficulties  in  the  United 
States.  At  the  basis  of  the  whole  situation  lies  the  financial  problem 
that  was  forced  to  the  front  by  the  declaration  of  war. 

Hardly  had  the  actual  outbreak  of  the  war  become  known  when 
the  closing  of  the  European  exchanges  gave  the  signal  for  similar 
action  in  the  United  States.  On  August  i,  the  New  York  stock 
exchange  closed  its  doors,  and  this  example  was  shortly  followed  by 
the  cotton  and  coffee  exchanges,  and  by  the  Consolidated  Stock  Ex- 
change. The  immediate  reason  for  the  closing  of  the  New  York 
stock  exchange  was  twofold:  (i)  Europeans,  foreseeing  a  tre- 
mendous draft  on  their  resources,  hastened  to  sell  investment  securi- 
ties in  the  only  great  market  untouched  by  the  war.     To  this  end 

^^  Adapted    from    "Washington    Notes,"   Journal   of  Political  Economy, 

XXII  (1914).  791-93. 


242  CURRENT  ECONOMIC  PROBLEMS 

European  holders  of  American  stocks  and  bonds  cabled  their  bankers 
in  New  York  to  dispose  of  securities  at  practically  any  price.  This 
process  was  in  operation  during  the  days  before  the  closing  of  the 
exchange  and  had  already  caused  heavy  shipments  of  gold  to  Europe. 
Had  it  been  allowed  to  continue,  it  would  have,  almost  certainly, 
deprived  the  United  States  of  a  very  large  proportion  of  its  gold 
stock;  (2)  stock  exchange  operators  who  had  obtained  bank  loans 
protected  by  collateral  security  saw  that  the  reduction  of  prices  on 
the  exchange  which  would  necessarily  ensue  would  effectually  "wipe 
them  out,"  while  the  banks  which  were  "carrying"  these  persons 
understood  that,  if  obliged  to  "call"  the  loans  thus  made,  they  would 
still  further  aggravate  the  pressure  of  selling  orders  and  would 
bring  about  widespread  ruin  in  the  financial  world. 

The  confessed  closing  of  the  exchanges,  because  of  the  danger 
of  loss  of  gold  and  of  depreciation  of  prices,  naturally  tended  to 
arouse  serious  alarm  in  many  minds,  and  withdrawals  of  cash  both 
from  the  banks  and  from  the  Treasury  began  to  be  heavy.  Almost 
simultaneous  with  this  condition  was  the  declaration  of  a  so-called 
"moratorium"  by  most  of  the  principal  countries  of  Europe.  This 
prevented  Americans  who  had  maturing  European  claims  from  col- 
lecting the  amounts  due  them  until  a  later  date  than  they  had 
expected.  Hence  such  persons  were  compelled  to  draw  more  heavily 
upon  their  home  bank  accounts  and  so  far  as  possible  finance  them- 
selves through  fresh  loans  at  the  banks.  Fearing  the  heavy  draft 
on  their  resources  that  was  thus  threatened,  the  New  York  banks 
almost  immediately  had  recourse  to  the  "national  currency  associa- 
tion" which  had  been  organized  after  the  adoption  of  the  Aldrich- 
Vreeland  Act.^°  Other  banks  promptly  took  like  action.  Applications 
were  at  once  made  to  the  government  for  the  issue  of  emergency 
currency,  and  it  was  resolved  also  to  employ  an  issue  of  clearing- 
house certificates.  Both  of  these  methods  were  sanctioned  by  the 
government  on  August  2,  and  on  the  following  day  the  work  of 
issuing  the  certificates  and  notes  was  actively  begun.    It  was  found, 

20  The  Aldrich-Vreeland  Act  of  May  30,  1908,  attempted  to  create  an 
elastic  currency  for  use  in  emergencies.  It  provided  for  the  formation  of 
"national  currency  associations"  by  ten  or  more  national  banks  having  an 
aggregate  capital  of  $5,000,000.  Upon  application  of  one  of  these  associa- 
tions, the  Comptroller  of  the  Currency,  with  the  approval  of  the  Secretary 
of  the  Treasury,  was  permitted  to  issue  circulating  notes  not  to  exceed  75 
per  cent  of  the  commercial  paper  or  90  per  cent  of  the  state,  county,  and 
municipal  bonds  which  were  required  to  be  deposited  with  the  Treasury  as 
security.  The  total  of  additional  notes  for  the  entire  country  was  not  to 
exceed  $500,000,000.  A  tax  of  5  per  cent  per  annum  for  the  first  month 
was  imposed  upon  the  issue  of  these,  notes.  An  additional  tax  of  i  per  cent 
per  annum  was  imposed  for  each  month  until  a  tax  of  lO  per  cent  per 
annum  was  reached. — Editor. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  243 

however,  that  the  Aldrich-Vreeland  Act  placed  some  serious  obstacles 
in  the  way  of  an  easy  issue  of  currency.  In  consequence  a  bill  for 
the  relief  of  this  state  of  things  was  introduced  in  Congress  and  was 
signed  by  the  President  on  August  4.  This  amendatory  act  reduced 
the  tax  on  Aldrich-Vreeland  notes  for  the  first  three  months  of  their 
circulation  to  3  per  cent  and  raised  the  limit  of  issues  to  125  per  cent 
of  capital  and  surplus.  While  no  public  announcement  was  made  of 
the  issue  of  clearing-house  certificates,  it  is  known  that  in  both  New 
York  and  elsewhere  an  enormous  amount  of  such  certificates  were 
issued.  The  emergency  currency  taken  out  under  the  amended  legis- 
lation already  referred  to  expanded  so  rapidly  that  by  the  opening  of 
September  more  than  $250,000,000  of  it  had  been  issued.  The 
emergency  currency  was  freely  accepted  by  individuals,  and  banks 
in  New  York  as  well  as  elsewhere  adopted  the  policy  of  paying  it 
out  whenever  possible  while  holding  gold.  Thus  the  financial  strin- 
gency was  narrowly  averted. 

110.     Emergency  Elasticity  of  Credit^^ 

BY  HAROLD  G.  MOULTON 

Emergency  elasticity  of  credit  and  loans  will  be  secured  under 
the  currency  system  established  by  the  Federal  Reserve  Act  through 
what  is  known  as  rediscounting  commercial  paper. 

Suppose  the  First  National  Bank  of  Joliet  should,  when  the 
country  is  face  to  face  with  a  crisis,  find  itself  confronted  with  a 
heavy  demand  for  commercial  loans.  This  means  that  a  large  number 
of  business  concerns  wish  to  borrow  on  their  promissory  notes,  and 
receive  a  deposit  account  against  which  they  can  draw  checks  to 
meet  current  payments.  It  will  be  remembered  that  a  bank  must 
keep  a  certain  percentage  of  cash  reserves  to  deposits.  Suppose  now 
the  cash  of  this  bank  is  at  a  minimum,  and  that,  if  it  makes  further 
loans  on  commercial  paper,  the  reserves  will  fall  below  the  legal 
requirement.  Under  the  old  system  the  bank  would  have  had  to 
refuse  the  loans  to  the  detriment  of  legitimate  business  enterprise. 
But  under  the  new  law  the  Joliet  bank  is  enabled  to  increase  its 
reserves,  and  thereby  enlarge  its  loaning  capacity  by  rediscounting 
some  of  the  promissory  notes  in  its  possession  with  the  Federal 
Reserve  Bank  in  Chicago.  Let  us  make  this  matter  of  rediscounting 
clear. 

When  John  Jones  needs  money  he  may  take  a  note  for  $1,000 
that  he  holds  against  William  Wilson  to  his  bank  in  Joliet  and  sell 
it  to  the  bank  for  cash.    The  bank  will  give  him  $1,000  minus  interest 

"  1915. 


244  CURRENT  ECONOMIC  PROBLEMS 

for  the  time  the  note  has  yet  to  run.  What  the  Joliet  bank  does  for 
John  Jones  is  precisely  what  the  Federal  Reserve  Bank  in  Chicago 
will  do  for  the  First  National  Bank  of  Joliet.  When  this  bank  needs 
cash  it  can  take  this  note  which  it  has  discounted  and  have  it  dis- 
counted by  the  Federal  Reserve  Bank.  The  Joliet  bank  will  get 
$i,ooo  less  the  interest  for  the  short  time  the  note  still  has  to  run. 
This  second  discount  is  what  is  known  as  a  rediscount.  The  Federal 
Reserve  banks  are,  therefore,  bankers'  banks,  and  they  do  for  the 
individual  member  banks  precisely  what  the  individual  banks  do  for 
their  customers  generally.  This  ability  to  convert  paper  into  cash 
and  thereby  increase  its  reserve  enables  the  Joliet  bank  to  extend 
loans  to  its  customers  even  under  severe  financial  pressure. 

Suppose  that  a  bank  in  a  rural  community  in  the  Chicago  district 
finds,  in  the  face  of  an  emergency,  that  there  is  a  heavy  demand  for 
loans  in  the  form  of  bank  notes.  How  can  the  increased  quantity 
of  notes  be  obtained?  Under  the  new  law  elacticity  of  note  issue  is 
gained  by  permitting  the  issue  of  notes  secured  by  commercial  paper 
or  bank  assets.  The  country  bank  desiring  to  issue  more  notes  sends 
some  of  the  promissory  notes  of  customers  to  the  Federal  Reserve 
Bank  in  Chicago  for  rediscount.  The  latter  may  upon  this  paper  as 
security  have  printed  new  bank  notes  and  send  them  to  the  country 
bank.  This  gives  an  elastic  bank-note  currency  because  the  demand 
for  more  money  itself  brings  into  existence  the  commercial  paper 
that  is  to  be  the  security  for  the  new  notes.  A  farmer,  for  example, 
wants  money  with  which  to  pay  his  laborers.  So  he  gives  his  banker 
a  promissory  note,  which  is  secured  by  the  crops  soon  to  be  marketed. 
His  banker  rediscounts  the  promissory  note  and  turns  the  necessary 
bank  notes  over  to  the  farmer.  But  when  the  need  is  passed  this 
currency  is  contracted.  The  farmer  sells  his  crops  and  pays  his 
promissory  note  at  the  bank.  The  bank  now  pays  these  notes  over 
to  the  Federal  Reserve  Bank  in  Chicago  to  meet  the  obligation  which 
had  resulted  from  the  rediscount.  Bank  notes  equal  in  quantity  to 
the  amount  issued  have  now  come  back  to  the  place  of  issue.  The 
payment  of  the  obligation  which  brought  them  forth  has  automatic- 
ally retired  them. 

By  these  means  panics  can  be  substantially  checked  if  not  pre- 
vented altogether.  In  the  face  of  a  heavy  pressure  of  loans  at  a 
time  of  crisis,  any  bank  can  avail  itself  of  the  process  of  rediscount- 
ing.  This  enlarges  the  loaning  power  of  the  banks,  makes  it  possible 
for  legitimate  business  concerns  to  secure  bank  accommodations 
when  needed,  and  thereby  prevents  failures.  A  business  which  is 
unsound  or  mismanaged  is  not  entitled  to  and  cannot  obtain  loans 
from  a  bank.     It  deserves  to  fail,  and  its  early  failure  will  be  dis- 


PROBLEMS  OF  THE  BUSINESS  CYCLE 


245 


tinctly  beneficial.  But  the  business  concern  which  is  fundamentally 
sound  and  well  managed  ought  to  be  able  to  secure  banking  accom- 
modations. The  new  currency  law  permits  this;  and  at  the  same 
time  the  ability  of  the  banks  to  provide  more  currency  and  to  expand 
loans  enables  banks  to  meet  all  obligations,  forestall  runs,  and  escape 
failures. 

111.     Bettering  Business  Barometers-- 

BY  WESLEY  C.   MITCHELL 

The  American  man  of  affairs  who  seeks  to  keep  informed  about 
the  trend  of  business  conditions  relies  upon  the  financial  columns  of 
his  daily  paper,  one  or  two  of  the  financial  weeklies,  and  a  special 
trade  journal.  The  data  which  he  can  compile  from  these  sources 
covers  a  considerable  range. 

Commodity  prices  at  wholesale  are  represented  by  actual  quota- 
tions and  by  index  numbers  like  Bradstreet's.  The  prices  of  loans  on 
call  and  on  time  for  thirty  days  or  six  months  are  reported  for  New 
York,  together  with  the  market  and  bank  rates  in  London,  Paris,  and 
Berlin.  The  prices  of  securities  are  published  in  detail,  and  to  show 
the  general  trend  of  the  market  there  are  convenient  records,  such  as 
the  Wall  Street  Journal's  average  of  twenty  railway  and  twelve  in- 
dustrial stocks. 

Fluctuations  in  the  volume  of  business  must  be  estimated  from 
various  sources :  bank  clearings,  railways'  gross  earnings,  number  of 
idle  cars,  imports  and  exports,  coal,  copper,  pig-iron  and  steel  output, 
shipments  of  grain,  live  stock,  etc.  Government  crop  reports  help  to 
forecast  the  probable  state  of  trade  in  various  agricultural  sections. 
Quite  helpful  are  the  reviews  of  business  conditions  in  different 
papers. 

Information  about  the  currency  is  supplied  by  the  official  esti- 
mates of  the  monetary  stock,  by  reports  of  gold  imports  and  exports, 
by  the  recorded  movements  of  money  into  and  out  of  the  New  York 
banks,  and  by  the  figures  concerning  the  production  and  industrial 
consumption  of  gold,  and  the  distribution  of  money  between  the 
banks  and  the  public.  Regarding  the  banks  there  are  telegraphic 
statements  from  the  central  institutions  of  Europe,  as  well  as  a  va- 
riety of  domestic  reports  from  clearing-house  and  national  and  state 
banks. 

Some  idea  of  the  volume  of  investment  and  speculation  going  on 
may  be  obtained  from  the  transactions  of  the  New  York  stock  ex- 
change, the  number  of  building  permits  granted,  the  mileage  of  rail- 
way under  construction,  etc. 

22  Adapted  from  Business  Cycles,  pp.  591-95.  Copyright  b}^  the  author, 
1913.     Published  by  the  University  of  CaHfornia  Press. 


246  CURRENT  ECONOMIC  PROBLEMS 

Last  and  most  important,  the  prospects  of  profits  are  best  shown 
for  the  railways,  whose  gross  and  net  earnings  are  regularly  pub- 
lished. The  earnings  of  the  United  States  Steel  Corporation  prob- 
ably stand  second  in  general  esteem.  Then  comes  a  mass  of  infor- 
mation supplied  by  the  reports  of  large  corporations  engaged  in 
mining,  manufacturing,  banking,  etc.  The  other  side  is  shown  by 
the  statistics  of  bankruptcy  compiled  weekly  by  two  great  mercantile 
agencies. 

Though  far  from  complete,  this  list  of  materials  is  far  too  long 
for  the  average  business  man.  To  compile  and  analyze  the  available 
data  requires  more  time,  effort,  statistical  skill,  and  analytical  ability 
than  most  men  have  for  the  task.  Hence  the  typical  individual  skips 
the  bewildering  evidence  and  reads  only  the  summary  conclusions 
drawn  by  the  financial  editor.  That  the  studying  of  business  barome- 
ters and  the  forecasting  of  business  weather  has  become  a  profitable 
business  affords  convincing  proof  of  the  need  and  difficulty  of  using 
effectively  the  available  materials.  It  is  from  such  specialists  that 
we  may  expect  the  improving  and  disseminating  of  the  information 
required  as  a  basis  for  perfecting  social  control  over  the  workings 
of  the  money  economy. 

Professional  forecasters  do  not  find  the  data  at  hand  too  elab- 
orate. What  they  most  need  to  improve  their  forecasts  is  more  ex- 
tensive and  more  reliable  materials  to  work  upon.  But  it  is  also 
quite  possible  to  better  the  use  they  make  of  the  data  already  avail- 
able. 

Among  the  most  needed  additions  to  the  list  of  business  barom- 
eters are  the  following: 

A  general  index  number  of  the  physical  volume  of  trade  could 
be  made  from  data  showing  the  production  of  certain  staples,  the 
shipment  or  receipts  of  others,  the  records  of  foreign  commerce, 
etc.  Much  material  for  this  purpose  is  already  incidentally  provided 
in  official  documents.  Separate  averages  should  be  struck  for  the 
great  departments  of  industry,  since  the  difference  between  the  rela- 
tive activity  in  different  lines  would  often  be  not  less  significant  than 
the  computed  changes  in  the  total. 

The  proposed  plan  for  obtaining  reports  concerning  the  volume 
of  contracts  let  for  construction  work  and  the  percentage  of  work 
performed  on  old  contracts  merits  careful  consideration.  Few  sets 
of  figures  would  give  more  insight  into  business  conditions  when 
prosperity  was  verging  toward  a  crisis  or  when  depression  was  en- 
dangering prosperity. 

An  index  number  of  the  relative  prices  of  bonds  and  corre- 
sponding figures  showing  changes  in  interest  rates  upon  long-time 


PROBLEMS  OF  THE  BUSINESS  CYCLE  247 

loans  would  not  be  difficult  to  prepare.  Even  if  standing  alone  these 
two  series  would  possess  great  value  as  reflecting  the  attitude  of 
investors ;  but  they  would  be  still  more  useful  if  accompanied  by- 
data  concerning  the  amounts  of  bonds  and  short-term  notes  put 
upon  the  market  by  business  enterprises  and  by  governments. 

Certain  states  have  made  a  beginning  in  providing  statistics  of 
unemployment.  But  we  have  no  comprehensive  data  of  this  kind. 
Their  value,  not  only  as  an  index  of  welfare  among  wage-earners,  but 
also  as  reflecting  changes  of  activity  within  important  industries 
and  changes  in  the  demand  for  consumers'  goods,  is  such  as  to  make 
the  present  lack  a  matter  of  general  concern. 

Most  to  be  desired  are  statistics  which  would  show  the  relative 
fluctuations  of  costs  and  prices.  Unhappily  the  difficulties  in  the  way 
of  obtaining  such  figures  are  particularly  grave.  But  certainly  every 
extension  of  public  authority  over  corporate  activity  should  be 
utilized  to  secure  such  uniform  methods  of  accounting  as  have  been 
imposed  on  the  interested  railways,  and  the  reports  obtained  by  the 
government  should  be  made  available  in  some  significant  form  for 
the  information  of  the  business  public. 

The  old  barometers  of  business  could  also  be  considerably  im- 
proved. The  index  numbers  of  commodity  prices  at  wholesale 
would  be  more  useful  if  separate  series  were  computed  for  raw  ma- 
terials and  for  the  articles  manufactured  from  them,  and  if  the  raw 
materials  were  subdivided  into  farm,  animal,  forest,  and  mineral 
products.  The  dififerences  between  the  fluctuations  of  these  several 
groups  would  be  of  assistance  in  determining  the  causes,  and  there- 
fore the  significance  of  changes  in  the  grand  total.  Further,  an 
index  number  of  identical  commodities  in  the  United  States,  Eng- 
land, France,  and  Germany  would  facilitate  the  effort  to  follow 
the  concomitant  courses  of  business  cycles  in  different  countries  and 
to  anticipate  the  reaction  of  foreign  upon  domestic  conditions. 

Stock  prices  should  be  computed  upon  the  index  number  plan 
instead  of  in  the  current  form  of  averaging  actual  prices  of  shares. 
To  facilitate  comparisons  the  basis  chosen  should  agree  with  that 
chosen  for  commodity  prices.  The  distinctively  investment  stocks 
should  be  separated  from  the  speculative  favorites,  and  separate 
averages  should  be  struck  for  railways,  public  utilities,  and  indus- 
trials. By  proper  selection  fluctuations  in  the  prices  of  industrial 
stocks  might  be  made  to  reflect  the  fortunes  of  enterprises  especially 
concerned  with  providing  industrial  equipment. 

Reports  of  clearings  would  be  more  useful  if  accompanied  by 
provided  for  the  centers  in  which  financial  operations,  industriai 
index  numbers  show 'ng  the  relative  magnitude  of  the  changes  in 


248  CURRENT  ECONOMIC  PROBLEMS 

the  actual  amounts.  Separate  averages  for  these  figures  should  be 
activity,  and  agricultural  conditions  are  the  dominant  factors.  Fi- 
nally, one  of  the  darkest  points  of  current  business  conditions  in 
America  could  be  cleared  up  if  the  rates  of  discount  upon  first-class 
commercial  paper  in  these  various  centers  could  be  regularly  ascer- 
tained. 

To  extend  the  list  of  suggestions  for  bettering  figures  of  the 
sorts  already  published  would  be  easy ;  but  enough  has  been  said 
to  make  clear  the  character  of  the  desirable  changes.  In  general, 
the  need  is  for  more  careful  discrimination  between  dissimilar  data 
now  often  lumped  together  in  a  single  total,  the  collecting  from  new 
centers  of  data  already  published  for  New  York,  more  uniform 
methods  of  compilation  to  guarantee  the  comparability  of  what  pur- 
ports to  be  similar  figures,  and  the  computing  of  relative  fluctuations 
upon  a  common  basis.  In  many,  if  not  all  these  cases,  a  double  set  of 
relative  figures  is  desirable — one  set  referring  to  actual  average 
amounts  in  some  fixed  decade,  the  other  set  making  comparisons 
with  the  corresponding  period  of  the  previous  year. 

112.     The  Severity  of  the  Trade  Cycle  in  America^' 

BY   W.   A.    PATON 

The  peculiar  characteristics  of  modern  industrialism  which  make 
it  susceptible  to  serious  disturbance  are  too  well  known  to  require 
detailed  description.  They  include  the  detached  and  impersonal 
relations  between  producer  and  consumer,  and  producer  and  investor ; 
the  interdependent  nature  of  co-operative  production;  the  extreme 
length  of  the  productive  process ;  the  unstable  character  of  demand 
in  dynamic  society,  and  frequent  and  radical  changes  in  technique. 
These  characteristics  are  universal  throughout  the  Western  World ; 
yet  American  industry  has  been  particularly  subject  to  industrial 
disturbance. 

The  inadequacy  of  our  banking  system  and  credit  facilities  has 
often  been  urged  as  the  explanation.  Since  we  use  credit  to  a  far 
greater  extent  than  European  countries,  we  have  particular  need 
for  stability  in  banking  and  credit.  It  is  hoped  that  the  new  Federal 
Reserve  System,  by  giving  in  a  higher  degree  than  before  these 
characteristics,  will  do  much  to  modify  the  severity  of  the  ebb  and 
flow  of  the  trade  cycle.  But  it  needs  to  be  emphasized  that  banking 
reform  can  never  be  more  than  a  palliative.  Lax  banking  and  un- 
sound currency  systems  do  something  to  breed  speculative  fever. 
But  the  fundamental  conditions  leading  to  the  severity  of  these  dis- 
turbances lie  deeper. 

2«  1915. 


PROBLEMS  OF  THE  BUSINESS  CYCLE  249 

First  among  these  is  the  supreme  optimism  which  has  always 
characterized  American  industrial  development.  Here  was  a  vast 
new  continent,  with  an  abundance  of  land,  minerals,  natural  power, 
and  other  resources  untouched.  People  from  all  countries  were 
drawn  into  the  task  of  developing  these  resources.  To  them  America 
was  the  long-sought-for  "promised  land."  There  were  no  rigid  class 
walls ;  there  existed  every  opportunity  for  "self-development."  A 
loose  social  system  and  the  reaction  of  the  physical  environment 
made  it  inevitable  that  the  bourgeoise  attitude  should  prevail.  The 
immigrant  who,  as  a  peasant  in  Europe,  has  no  thought  of  chang- 
ing his  status ;  the  native  frontiersman,  Yankee  son  of  the  old  New 
Englander ;  the  prospector  looking  for  diggings — in  each  you  had 
the  would-be  capitalist.  There  was  also  the  man  with  capital  look- 
ing for  sudden  wealth  in  the  shape  of  land  concession,  franchise 
rights,  or  public  contracts.  The  situation,  the  large  class  of  specu- 
lative investors,  great  and  small,  and  the  political  organization,  mak- 
ing a  fetish  of  the  principle  of  let-alone,  could  not  but  induce  a 
highly  speculative,  over-optimistic  attitude  toward  industry. 

A  partial  justification  of  American  optimism  made  it  the  more 
speculative.  The  scarcity  of  labor  incident  to  the  opening  of  a  new 
country,  the  demand  for  improved  transportation  facilities  to  permit 
the  utilization  of  new  lands  and  new  resources,  and  the  rapid  and 
comprehensive  extension  of  the  machine  technique  into  line  after 
line  of  production,  did  much  to  convince  the  American  that  any- 
thing is  possible. 

The  changes  in  industrial  technique  have  been  more  rapid  and 
more  extensive  than  in  any  other  country.  The  greater  and  increas- 
ing dependence  upon  machinery  has  led  to  increasing  complexity  in 
the  productive  process,  as  well  as  to  its  greater  length.  The  dis- 
turbance in  the  labor  market,  such  as  temjjorary  unemployment, 
which  has  been  chronically  incident  to  its  introduction,  is  but  a  single 
example  of  the  strain  and  shock  to  which  the  system  as  a  whole  has 
been  subjected. 

But  minor  causes  have  also  been  at  work.  The  influx  of  labor- 
ers from  abroad  has  continually  altered  the  proportions  between 
the  productive  factors.  In  this  country,  filled  with  people  who  have 
broken  away  from  their  old  surroundings,  custom  and  tradition 
have  had  comparatively  little  force ;  among  us  it  has  been  hard  for 
conventions,  even  those  adapted  to  the  new  situation,  to  be  built  up ; 
and  the  situation  as  a  whole  has  been  particularly  sensitive  and 
variable,  especially  in  demand. 

This  brief  statement  suggests  the  essential  aspects  of  the  Amer- 
ican industrial  structure  which  has  given  it  its  peculiar  dynamic 


250  CURRENT  ECONOMIC  PROBLEMS 

character,  and  has  made  it  more  highly  sensitive  to  irregularity 
than  that  of  any  other  country.  A  word  should  be  added  to  indi- 
cate, how  these  conditions  may  intensify  the  severity  of  the  trade 
cycle.  The  great  speculative  optimism  of  the  American  people,  to- 
gether with  the  need  of  improved  technological  equipment,  leads  to 
a  greatly  increased  demand  for  capital  goods — producer's  goods. 
This  means  that  a  great  deal  of  labor  power  and  a  large  volume  of 
capital  are  devoted  to  producing  these  kinds  of  goods.  In  other 
words,  in  America  there  is  an  unusual  heaping  up  of  society's  pro- 
ductive resources  in  the  initial  stages  of  the  long-time  process.  This 
process  continues  for  some  time,  the  boom  period.  The  length  of 
time  necessary  to  permit  these  investments  to  yield  returns  is  gen- 
erally underestimated,  as  was  the  case  particularly  with  many  of 
the  early  American  railway  projects ;  and  in  other  cases  the  ven- 
tures are  ill  advised  and  could  never  become  profitable.  In  such  a 
situation  many  entrepreneurs  find  themselves  embarrassed  when 
their  obligations  fall  due,  and  a  great  many  failures  ensue.  Build- 
ing and  development  work  halts  abruptly;  prices  of  raw  materials 
fall  very  sharply ;  all  prices  go  down  in  sympathy,  and  a  more  or  less 
severe  period  of  readjustment  follows. 

In  view  of  the  conditions  above  described,  it  is  difficult  to  see 
how  this  country  could  have  had  its  very  rapid  development  with- 
out these  accompanying  periods  of  stress.  As  the  country  becomes 
older,  as  technique  becomes  more  dependable,  as  social  conventions 
standardize  demand,  as  efficient  government  checks  the  wildest  dis- 
plays of  speculative  fever,  as  speculative  capital  has  to  look  for 
golden  opportunities  abroad,  and  as  we  have  to  look  more  toward 
internal  organization  and  economy,  rather  than  to  external  acci- 
dent, for  industrial  gain,  the  ebb  and  flow  of  trade  depressions  will 
be  less  and  less  severe.  We  are  perhaps  nearer  than  we  know  to  the 
orderly  period  wherein  their  rhythm  is  as  circumscribed  as  in  prosaic 
Europe. 


VI 

THE  PROBLEM  OF  ECONOMIC  ORGANIZATION 

FOR  WAR 

Our  recent  experiences  have  led  to  an  easy  association  of  the  words  "war 
and  economics."  We  refer  glibly  to  "the  financing  of  the  war,"  "the  battle 
of  credits"  between  the  nations,  the  "death  struggle  for  raw  materials,"  "the 
conservation  of  man  power,"  and  "the  complete  utilization  of  national  wealth." 
Beneath  military  strategy  we  are  prone  to  discover  a  larger  economic  strategy;  - 
back  of  the  glory  and  din  of  the  fighting  front  we  discover  the  proasic  work 
of  farm,  factory,  and  mill ;  and  we  learn  that  the  problems  of  industry  and 
war  are  more  important  and  more  instructive,  if  perhaps  less  interesting,  than 
those  of  fighting  and  war.  We  are  all  surer  that  there  is  an  "economics  of 
war"  than  we  are  of  the  specific  subject  to  which  these  euphonious  words  refer. 

To  be  exact  war  has,  not  one,  but  many  economic  aspects.  Immediately 
speaking  war  comes  out  of  a  pursuit  called  diplomacy;  but  the  latter  is  con- 
cerned with  shipping,  trade  regulations,  concessions,  the  exploitation  of 
primitive  lands,  the  assurance  of  plentiful  raw  materials,  and  dreams  of  trade 
expansion  with  its  promise  of  profits,  property,  and  empire.  War  is  made  by 
nations,  who  in  their  political  capacities  perform  economc  functions  which 
incidentally  result  in  the  extension  of  the  benefits  of  modern  culture,  the 
machine  technique,  and  the  price-system  into  alien  lands.  In  this  benevolence 
it  frequently  chances  that  governments  get  into  each  other's  way  and  the 
competition  cannot  be  kept  on  a  peaceful  plane.  The  waging  of  war  rests 
upon  a  peculiar  and  complicated  technique  which  in  turn  has  its  roots  in 
scientific  knowledge,  the  state  of  the  industrial  arts,  the  habits  of  the  people, 
and  their  response  to  discipline.  The  provision  of  the  miscellaneous  lot  of 
services  and  articles  which  constitute  "the  sinews  of  war,"  requires  the  solution 
of  many  baffling  problems  in  industrial  organization.  Where  the  price-system 
is  in  vogue  these  are  dependent  upon  the  proper  handling  of  many  technical 
problems  of  finance.  Last  of  all,  war  raises  its  legacy  of  new  problems  to 
take  its  place  for  many  decades  after  it  is  gone  and  leaves  its  heritage  in 
changes  in  economic  institutions. 

All  of  these  problems  have  their  places  in  the  literature  of  economics. 
The  question  of  the  economic  antecedents  of  war  involves  a  long  chapter  in 
history  and  cannot  adequately  be  dealt  with  here.  The  dependence  of  war 
upon  science,  technique,  and  social  custom  carries  us  back  into  pre-industrial 
society,  reveals  another  aspect  of  the  industrial  revolution,  and  illustrates 
anew  the  importance  of  the  machine  system.  This  finds  expression  in  an 
insatiable  demand  for  men,  munitions,  and  materials — insatiable  because  the 
struggle  is  a  competitive  one  and  a  sufficient  surplus  means  victory. 

This  problem  is,  at  least  for  our  purposes,  the  most  important  of  those 
which  are  grouped  as  "the  economics  of  war."  In  its  manifest  terms  it  is  the 
problem  of  creating  a  huge  surplus  of  wealth;  but  complicated  by  the  necessity 
of  being  useless  unless  it  appears  in  the  form  of  specialized  articles  properly 
apportioned  to  each  other.  In  more  complex  terms  it  is  the  problem  of 
reorganizing  the  human  and  material  means  of  production  to  secure  the 
maximum  supply  of  a  bill  of  specified  goods.  There  are,  in  general,  two 
theories  of  how  this  surplus  is  to  be  procured.  The  first  depends  upon  in- 
creased production ;  the  second  upon  the  diversion  of  goods,  while  still  flexible, 
from  old  to  new,  or  from  non-essential  to  essential  uses. 

Neither  of  these  theories  is  wholly  adequate,  though  each  has  a  measure 
of  validity.     Since  a  nation  always  has  human  and  material  resources  which 

251 


252  CURRENT  ECONOMIC  PROBLEMS 

are  going  to  waste,  it  has  a  source  of  additional  wealth.  In  addition,  because 
of  the  rhythmic  character  of  business,  at  the  beginning  of  a  war  there  is  likely 
to  be  much  slack  in  the  business  system  that  can  be  taken  up.  Further  the 
new  incentives  which  war  brings  enable  a  nation  to  get  out  of  it  resources 
much  more  than  is  usually  deemed  possible.  But  there  are  limits  to  the 
surplus  available  through  increased  production.  Besides,  since  the  struggle 
is  competitive,  no  matter  how  successful  this  procedure,  it  will  not  solve  the 
problem.  The  surplus  must  be  larger  than  that  of  the  enemy.  Hence,  if  the 
struggle  be  a  protracted  one,  diversion  is  necessary.  In  a  society  like  ours 
the  simple  problem  of  diversion  resolves  itself  into  a  thousand  administrative 
details  concerning  particular  businesses,  economic  arrangements,  social  habits, 
and  like  matters,  all  of  which  require  for  solution  a  clear  conception  of  the 
problem  of  economic  organization  for  war  and  a  generous  allowance  of 
specific  technical  information. 

The  problem  of  war  finance  is  less  important  than  it  is  usually  assumed 
to  be.  The  real  "sinews"  of  war  are  men  and  materials,  not  money  and 
credits.  In  a  simple  society  the  problem  would  not  arise  at  all.  In  our 
society  it  is  an  instrument,  a  mere  device  for  assuring  the  production  of 
the  right  goods  and  for  diverting  wealth  into  the  new  uses.  Yet  because  all 
activity  rests  upon  the  price-system  and  the  financial  structure  of  society 
is  complicated  and  delicate,  the  problems  of  war  finance  must  be  handled  with 
knowledge  and  care.  If  they  are  "bungled"  not  only  will  "the  industrial 
machine"  be  half  stalled,  but  a  list  of  problems  will  be  passed  on  to  a  people 
at  peace.  But  care  requires  a  clear  recognition  of  the  instrumental  character 
of  war  finance. 

Together  the  problems  of  "industrial  mobilization"  and  of  "war  finance" 
raise  the  issue  of  the  dependence  which  can  be  put  in  the  price-system  to 
effect  adequately  and  quickly  the  changes  in  economic  organization  necessary 
to  insure  war  supplies.  This  has  usually  been  settled  by  an  answer  which 
gives  to  government  greater  discretion  than  in  time  of  peace.  It  has  led  to 
such  peculiar  economic  institutions  as  administration  of  food  and  fuel, 
licenses  for  foreign  trade,  priorities  to  the  use  of  transport  and  raw  materials, 
and  the  authoritative  fixing  of  prices. 

Finally  we  have  the  list  of  problems  which  constitute  the  economic  after- 
math of  the  war.  About  them  few  general  statements  can  be  made.  It  is 
safe  only  to  say  that,  fundamentally  considered,  they  are  old,  not  new,  prob- 
lems. The  war  did  not  create,  it  analyzed,  industrial  society.  These  prob- 
lems are  not  the  problems  of  this  chapter.  They  are  the  problems  of  this 
volume  and  of  the  larger  current  economics  which  is  put  up  in  no  book.  But 
it  is  significant  that  the  war  placed  its  emphasis  not  upon  pecuniary,  but  upon 
social  economics.  Its  problem  was  not.  What  paid?  It  forced  us  to  at- 
tempt to  find  out  how  the  nation  as  a  whole  could  get  the  most  out  of  its 
resources.  It  revealed  the  presence  of  a  surplus  over  and  above  the  necessities 
of  its  members.  In  war  this  surplus  has  a  specific  use.  But  the  question, 
one  of  the  most  important  in  economics,  remains  of  the  use  to  which  a  nation 
at  peace  is  to  put  its  surplus  wealth. 

A.     THE  NATURE  OF  MODERN  WAR 
113.     War  and  the  State  of  the  Industrial  Arts^ 

BY   ADAM    SMITH 

Among  nations  of  hunters,  the  lowest  and  the  rudest  state  of 
society,  every  man  is  a  warrior  as  well  as  a  hunter.  When  he  goes 
to  war,  either  to  defend  his  society  or  to  revenge  its  injuries,  he 

1  Adapted  from  An  Inquiry  into  the  Nature  and  Causes  of  the  Wealth 
of  Nations  (1776),  Wakefield  ed.,  Book  V,  chap.  i. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      253 

maintains  himself  by  his  own  labor  in  the  same  manner  as  when  he 
lives  at  home.  His  society  is  at  no  sort  of  expense  either  to  prepare 
him  for  the  field  or  to  maintain  him  while  he  is  in  it. 

Among  nations  of  shepherds,  a  more  advanced  state  of  society, 
every  man  is,  in  the  same  manner,  a  warrior.  When  a  nomadic 
nation  goes  to  war,  the  warriors  will  not  trust  their  herds  and  flocks 
to  the  feeble  defense  of  the  old  men,  their  women,  and  children ;  and 
their  old  men,  their  women  and  children  will  not  be  left  behind  with- 
out defense  and  without  substance.  The  whole  nation  takes  the  field 
in  time  of  war.  Whether  it  marches  as  an  army  or  moves  about  as  a 
company  of  herdsmen,  the  way  of  life  is  nearly  the  same,  though  the 
object  proposed  by  it  be  very  different. 

The  ordinary  life,  the  ordinary  exercise  of  a  Tartar  or  Arab 
prepare  him  sufficiently  for  war.  Running,  wrestling,  cudgel-playing, 
throwing  the  javelin,  drawing  the  bow,  etc.,  are  the  common  pastimes 
of  those  who  live  in  the  open  air  and  are  all  of  them  the  images  of 
war.  When  the  Tartar  or  Arab  actually  goes  to  war  he  is  maintained 
by  his  own  herds  and  flocks,  which  he  carries  with  him  in  the  same 
manner  as  in  peace.  Hence  his  chief  is  at  no  sort  of  expense  in 
preparing  him  for  the  field  ;  and  when  he  is  in  it  the  chance  of  plunder 
is  the  only  pay  which  he  either  expects  or  receives. 

In  a  yet  more  advanced  state  of  society,  among  those  nations  of 
husbandmen  who  have  little  foreign  commerce  and  no  other  manufac- 
tures but  those  coarse  and  household  ones  which  almost  every  private 
family  prepares  for  its  own  use,  every  man,  in  the  same  manner,  is  a 
warrior  or  easily  becomes  such.  They  who  live  by  agriculture,  gener- 
ally pass  the  whole  day  in  the  open  air,  exposed  to  all  the  inclemencies 
of  the  seasons.  The  hardiness  of  their  ordinary  life  prepares  them  for 
the  fatigues  of  war,  to  some  of  which  their  necessary  occupations  bear 
a  great  analogy.  The  necessary  occupation  of  a  ditcher  prepares  him 
to  work  in  the  trenches  and  to  fortify  a  camp  as  well  as  to  enclose  a 
field.  The  ordinary  pastimes  of  such  men  are  the  same  as  those  of 
shepherds  and  are  in  the  same  manner  the  image  of  war.  But  as 
husbandmen  have  less  leisure  than  shepherds  they  are  not  so  fre- 
quently employed  in  these  pastimes.  They  are  soldiers,  but  soldiers 
not  quite  so  much  master  of  their  exercise.  Such  as  they  are,  how- 
ever, it  seldom  costs  the  sovereign  any  expense  to  prepare  them  for 
the  field. 

Agriculture,  even  in  its  lowest  state,  supposes  a  settlement,  some 
sort  of  fixed  habitation  which  cannot  be  abandoned  without  great 
loss.  When  a  nation  of  mere  husbandmen  therefore  goes  to  war, 
the  whole  people  cannot  take  the  field  together.  The  old  men,  the 
women,  and  the  children  at  least  must  remain  at  home.    All  the  men 


254  CURRENT  ECONOMIC  PROBLEMS 

of  military  age,  however,  may  take  the  field,  and,  in  small  nations 
of  this  kind,  have  frequently  done  so.  In  every  nation  the  men  of 
military  age  are  supposed  to  amount  to  about  a  fourth  or  a  fifth  of 
the  whole  body  of  the  people.  If  the  campaign  should  begin  after 
seedtime  and  end  before  harvest,  both  the  husbandman  and  his  prin- 
cipal laborers  can  be  spared  from  the  farm  without  much  loss.  He  is 
not  unwilling,  therefore,  to  serve  without  pay  during  a  short  cam- 
paign, and  it  frequently  costs  the  sovereign  or  commonwealth  as  little 
to  maintain  him  in  the  field  as  to  prepare  him  for  it. 

In  a  more  advanced  state  of  society  two  different  causes  con- 
tribute to  render  it  altogether  impossible  that  they  who  take  the  field 
should  maintain  themselves  at  their  own  expense.  These  two  causes 
are  the  progress  of  manufactures  and  the  improvement  in  the  art  of 
war. 

Though  a  husbandman  should  be  employed  in  an  expedition,  the 
interruption  of  his  business  will  not  always  occasion  any  considerable 
diminution  of  his  revenue.  Without  the  intervention  of  his  labor, 
nature  herself  does  the  greater  part  of  the  work  which  remains  to  be 
done.  But  the  moment  that  an  artificer,  a  smith,  a  caq)enter,  or  a 
weaver  quits  his  workshop,  the  sole  source  of  his  revenue  is  com- 
pletely dried  up.  Nature  does  nothing  for  him ;  he  does  all  for  him- 
self. When  he  takes  the  field,  therefore,  in  defense  of  the  public,  he 
must  necessarily  be  maintained  by  the  public.  But  in  a  country  in 
which  a  great  part  of  the  inhabitants  are  artificers  and  manufacturers, 
a  great  part  of  the  people  who  go  to  war  must  be  drawn  from  those 
classes,  and  must  therefore  be  maintained  by  the  public  as  long  as  they 
are  employed  in  its  service. 

When  the  art  of  war,  too,  has  gradually  grown  up  to  be  a  very 
intricate  and  complicated  science,  when  the  event  of  war  ceases  to  be 
determined,  as  in  the  first  ages  of  society,  by  a  single  irregular 
skirmish  of  battle,  but  when  the  contest  generally  is  put  out  through 
several  different  campaigns,  each  of  which  lasts  through  the  greater 
part  of  the  year,  it  becomes  universally  necessary  that  the  public 
should  maintain  those  who  serve  the  public  in  war,  at  least  while  they 
are  employed  in  that  service.  Whatever  in  time  of  peace  might  be 
the  ordinary  occupation  of  those  who  go  to  war,  so  very  tedious  and 
expensive  a  service  would  otherwise  be  by  far  too  heavy  a  burden 
upon  them. 

The  art  of  war  as  it  is  certainly  the  noblest  of  all  arts,  so  in  the 
progress  of  improvement  it  necessarily  becomes  one  of  the  most  com- 
plicated among  them.  The  state  of  the  mechanical,  as  well  as  of  some 
other  arts,  with  which  it  is  necessarily  connected,  determines  the 
degree  of  perfection  to  which  it  is  capable  of  being  carried  at  any 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      255 

particular  time.  But  in  order  to  carry  it  to  this  degree  of  perfection 
it  is  necessary  that  it  should  become  the  principal  occupation- of  a 
particular  class  of  citizens,  and  the  division  of  labor  is  as  necessary 
for  the  improvement  of  this  as  of  every  other  art.  It  is  the  wisdom 
of  the  state  only  which  can  render  the  trade  of  a  soldier  a  particular 
trade  separate  and  distinct  from  all  others.  A  private  citizen  who  in 
time  of  profound  peace  and  without  any  particular  encouragement 
from  the  public  should  spend  the  greater  part  of  his  time  in  military 
exercises  might,  no  doubt,  both  improve  himself  very  much  in  them 
and  amuse  himself  very  well ;  but  he  certainly  would  not  promote  his 
own  interest.  It  is  the  wisdom  of  the  state  only  which  can  render  it 
for  his  interest  to  give  up  the  greater  part  of  his  time  to  this  peculiar 
occupation. 

A  shepherd  has  a  great  deal  of  leisure ;  a  husbandman,  in  the  rude 
state  of  husbandry,  has  some ;  an  artificer  or  manufacturer  has  none 
at  all.  The  first  may,  without  any  loss,  employ  a  great  deal  of  his 
time  in  martial  exercises;  the  second  may  employ  some  part  of  it; 
but  the  last  cannot  employ  a  single  hour  in  them  without  some  loss, 
and  his  attention  to  his  own  interest  naturally  leads  him  to  neglect 
them  altogether.  Those  improvements  in  husbandry,  too,  which  the 
progress  of  arts  and  manufactures  necessarily  introduce,  leave  the 
husbandman  as  little  leisure  as  the  artificer.  Military  exercises  come 
to  be  as  much  neglected  by  the  inhabitants  of  the  country  as  by  those 
of  the  town,  and  the  great  body  of  the  people  becomes  altogether 
unwarlike.  That  wealth,  at  the  same  time,  which  always  follows  the 
improvements  of  agriculture  and  manufactures,  and  which  in  reality 
is  no  more  than  the  accumulated  produce  of  those  improvements,  pro- 
vokes the  invasion  of  all  their  neighbors.  An  industrious  and  upon 
that  account  a  wealthy  nation  is  of  all  nations  the  most  likely  to  be 
attacked ;  and  unless  the  state  takes  some  new  measures  for  the  public 
defense  the  natural  habits  of  the  people  render  them  altogether  in- 
capable of  defending  themselves. 

In  these  circumstances  there  seem  to  be  but  two  methods  by  which 
the  state  can  make  any  tolerable  provision  for  the  public  defense. 

It  may  either,  first,  by  means  of  a  very  rigorous  police,  and  in  spite 
of  the  whole  bent  of  the  interest,  genius,  and  inclinations  of  the  people, 
enforce  the  practice  of  military  exercises  and  oblige  either  all  the 
citizens  of  the  military  age,  or  a  certain  number  of  them,  to  join  in 
some  measure  the  trade  of  a  soldier  to  whatever  other  trade  or  pro- 
fession they  may  happen  to  carry  on.  Or,  secondly,  by  maintaining 
and  employing  a  certain  number  of  citizens  in  the  constant  practice 
of  military  exercises  it  may  render  the  trade  of  a  soldier  a  particular 
trade,  separate  and  distinct  from  all  others. 


256  CURRENT  ECONOMIC  PROBLEMS 

114.     War  and  Economic  Organization- 

BY   CLARENCE   E.   AYRES 

Before  one  can  form  an  adequate  conception  of  modern  warfare 
one  must  get  rid  of  two  misconceptions  which  have  been  very  pre- 
valent in  America.  The  first  of  these  is  the  natural  result  of  the  habit 
of  thinking  of  war  only  as  a  series  of  physical  combats  between  the 
armed  forces  of  opposing  nations.  Our  predilection  to  this  obviously 
fragmentary  notion  is  due  in  part  to  the  influence  of  the  military  men 
who,  true  to  their  training,  describe  war  as  the  manipulation  of  armies 
in  the  field,  as  a  matter  of  strategy  and  tactics.  It  is  also  due  in  part 
to  man's  innate  propensity  to  look  for  the  picturesque,  rather  than 
for  the  humdrum,  workaday  machinery  behind  the  panoply  of  war. 
The  second  misconception  from  which  it  is  necessary  to  free  one's  self 
is  the  illusion  of  dollars  and  cents.  We  are  an  excessively  business- 
like people ;  that  is,  we  are  very  prone  to  calculate  everything  in 
pecuniary  terms.  We  take  to  the  intricacies  of  war  finance  with 
relish,  and  the  men  whose  opinions  on  the  war  we  value  highest  are 
bankers  and  brokers  and  big-business  men  in  general.  Consequently 
we  reckon  victories  by  the  flotation  of  war  loans  and  defeats  in  the 
language  of  inflation. 

A  year's  disillusioning  experience  in  the  work  of  war,  however, 
has  served  to  teach  us  that  war  is  neither  wholly  nor  even  largely  a 
matter  of  valor  in  the  field  and  sound  financial  tone  at  home.  Modern 
war  is  almost  wholly  a  matter  of  industrial  technique.  It  is  an  affair 
of  office  and  factory. 

Under  modern  conditions  of  transportation  and  large-scale 
machine  production  it  is  possible  for  a  nation  to  throw  its  entire  pro- 
ductive energy  into  the  fight.  The  victory  depends  not  only  upon 
placing  in  the  field  soldiers  who  are  most  valorous,  but  also  upon 
turning  out  the  most  destructive  shells  in  quantities  sufficient  to 
deluge  any  or  all  parts  of  the  enemy's  fine  at  will,  the  largest  quantity 
of  railroad  equipment  and  auto  trucks  with  which  to  make  its  artillery 
and  infantry  more  mobile  than  those  of  the  enemy,  the  largest  quan- 
tity of  airplanes  with  which  to  observe  the  enemy's  movements,  to 
bomb  him  behind  his  lines,  and  to  bring  down  the  planes  which  serve 
him  for  similar  purposes.  The  world-supply  of  coal  and  metals  is 
concentrated  upon  these  tasks ;  therefore  one  must  add  the  building 
of  merchant  ships,  transports,  and  a  navy  as  instruments  required  for 
the  transportation  of  raw  materials  and  the  finished  products  of 
munitions  industries  as  well  as  men  from  all  parts  of  the  world.  The 
successful  accomplishment  of  this  portion  of  the  military  program 

2  Adapted  from  an  unpublished  essay,  1918. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      257 

demands  the  diversion  to  munitions  industries,  including  shipping,  of 
milHons  of  workers  and  of  great  quantities  of  all  sorts  of  raw 
materials  and  products  in  the  early  stages  of  manufacture  which 
would  otherwise  have  been  consumed  in  various  ways  by  the  civilian 
population.  At  the  same  time  the  transfer  of  men  to  the  army  and  to 
munitions  industries,  the  diversion  of  materials  from  the  manufacture 
of  farming  implements  to  munitions,  the  devastation  of  fertile  lands 
by  the  armies,  and  the  exigencies  of  the  shipping  situation  all  serve 
to  make  the  problems  of  feeding  and  clothing  the  civilian  population — 
which  is  manning  the  munitions  industries — of  paramount  im- 
portance. 

Under  modern  conditions,  therefore,  war  becomes  a  problem  in 
the  organization  of  a  nation,  so  that  the  proportion  of  men  engaged  in 
holding  the  lines  compared  with  the  proportion  of  men  assigned  to 
making  guns  and  shells,  airplanes,  transportation  equipment,  mer- 
chant and  battle  ships,  and  all  other  strictly  military  supplies,  com- 
pared with  the  proportion  of  men  who  are  engaged  in  raising  and 
manufacturing  just  the  amount  of  food  and  other  necessities  that  is 
required  to  maintain  the  civilian  population  as  well  as  the  armies  at 
maximum  efficiency,  shall  be  calculated  to  bring  to  realization  the 
full  strength  of  the  nation. 

Among  the  infinite  variety  of  difficulties  which  this  problem  of 
organization  presents  three  main  types  can  be  clearly  discerned.  An 
enumeration  of  them  will  serve  to  illustrate  further  the  nature  of 
modern  war.  First  there  is  the  difficulty  of  bringing  the  whole  popu- 
lation into  line  with  the  requirements  of  the  military  situation — the 
difficulty  of  inducing  men  not  only  to  allow  themselves  to  be  enlisted 
freely  into  the  army  and  into  military  industries  but,  a  rather  more 
delicate  thing,  to  permit  their  property  to  be  used,  and  used  up,  if 
necessary,  by  the  government.  This  is  not  a  mere  matter  of  investiga- 
tion and  decision.  The  human  animal  is  very  unplastic  material — 
particularly  where  he  has  been  habituated  to  the  exercise  of  the  pre- 
rogative of  self-direction — that  is,  in  so  far  as  he  has  lived  under 
democratic  institutions.  The  remark  has  frequently  been  made  by 
farsighted  persons  in  this  country  as  well  as  in  Germany  that  the 
American  scheme  of  training  men  to  military  service  in  one  summer 
vacation  at  Plattsburg  overlooks  the  fact  that  no  soldier  is  truly 
effective  who  has  not  been  habituated  to  soldierly  ways  of  thinking 
from  childhood  up.  The  same  thing  is  true  of  the  civilian  population. 
No  people  is  sufficiently  plastic  in  the  hands  of  its  military  organizers 
which  has  not  been  trained  for  more  than  a  generation  to  submit 
readily  to  an  indefinite  number  of  things  verhoten  and  to  look  to 
superior  authority  for  the  properly  authenticated  version  of  every 


258  CURRENT  ECONOMIC  PROBLEMS 

man's  duty.  If  a  nation  is  to  be  successful  in  war  it  must  look  well 
to  the  scheme  of  highly  centralized  paternalism  and  feudal  sub- 
servience to  authority.  Lacking  a  people  trained  to  such  a  fine  tem- 
per of  obedience  it  must  devise  some  means  to  induce  its  people  to 
give  over  for  the  time  being  at  least  their  supposed  rights  of  self- 
direction  and  fit  themselves  as  well  as  may  be  into  that  scheme  of  in- 
dustrial organization  which  is  the  first  prerequisite  to  victory. 

Yet  the  temper  of  the  people  and  the  degree  of  their  susceptibility 
to  the  appeal  of  the  war  lords  is  only  one  of  the  problems  of  the 
military  organizer  of  a  nation.  A  second  resides  in  the  fact  that  an 
organization  itself  cannot  be  brought  into  existence  overnight.  The 
industrial  order  is  so  complex  that  no  one  knows  exactly  how  complex 
it  is.  It  is  so  delicate  that  it  cannot  be  completely  reconstructed  on 
the  basis  of  any  a  priori  plan  no  matter  how  skilfully  that  plan  may 
have  been  constructed.  If  it  is  to  be  adapted  to  war,  that  adaptation 
must  inevitably  occupy  a  considerable  time  even  under  conditions  of 
perfect  wisdom  on  the  part  of  the  military  organizers.  Obviously  it 
makes  all  the  diflFerence  in  the  world  what  the  industrial  situation 
is  to  begin  with.  If  there  is  no  labor  organization  which  commands 
the  loyalty  of  all  the  laborers  in  a  certain  trade  or  industry,  or  if  there 
is  no  central  national  labor  exchange  through  which  the  demands  for 
laborers  in  all  parts  of  the  nation  take  effect,  if  all  the  important  war 
industries  are  broken  up  into  a  large  number  of  small  competing 
concerns  which  are  bound  together  by  no  stronger  tie  than  voluntary 
membership  in  trade  associations,  then  the  nature  of  the  military 
situation  clearly  demands  the  institution  of  more  highly  centralized 
types  of  organization,  such  as  will  fall  in  more  readily  with  the  war- 
time policy  of  commanding  whole  trades.  In  distinguishing  between 
reasonable  and  unreasonable  restraint  of  trade  a  military  government 
must  bear  in  mind  the  services  to  be  rendered  by  the  combination  in 
time  of  war ;  it  must  weigh  the  military  need  for  a  close-knit,  central- 
ized organization  of  each  industry,  readily  convertible  to  war  uses, 
against  considerations  of  equity  and  justice  to  the  consumer.  If  the 
nation  depends  upon  imports  for  military  supplies  it  must  encourage 
the  production  of  such  military  necessities  at  home  by  the  offer  of 
bounties  and  the  levy  of  protective  tariffs,  thus  holding  out  substan- 
tial pecuniary  rewards  to  those  business  men  who  assist  it  in  this  task 
of  perfecting  the  organization  of  the  industrial  structure  for  war. 

One  thing,  however,  industrial  organization  itself  will  not  provide. 
Technical  genius  comes  from  other  sources — this  third  difficulty  must 
be  met  in  other  ways.  Modern  war  is  peculiarly  a  war  of  weapons ; 
that  is  to  say,  the  technique  of  fighting  changes  so  rapidly  under  mod- 
ern conditions  that  it  is  not  sufficient  to  be  able  to  produce  and  wield 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      259 

a  given  set  of  military  paraphernalia.  The  successful  nation  is  the 
one  which  can  invent  new  weapons  of  offense  faster  than  the  enemy 
can  devise  means  of  defense  and  at  the  same  time  protect  itself  not 
too  tardily  from  the  new  offensive  weapons  of  the  enemy.  But  this 
technical  capacity  is  not  a  matter  of  sheer  inventive  genius ;  it  de- 
pends upon  the  amount  of  technical  knowledge  which  the  nation  can 
command  in  its  scientific  men  and  upon  the  readiness  with  which  that 
knowledge  can  be  turned  to  account.  The  military  organizer  is  pre- 
sented with  the  problem  of  seizing  upon  the  whole  available  stock  of 
scientific  knowledge,  of  increasing  it  if  there  be  time,  and  of  diverting 
it  from  its  function  as  an  instrument  for  the  discovery  of  further 
truth  to  those  industrial  channels  in  which  it  will  best  serve  the  mih- 
tary  purpose.  So  far  as  the  needs  of  modern  war  are  concerned 
chemistry  is  the  mine  from  which  gas  bombs  and  synthetic  nitrates 
are  extracted ;  history  is  the  raw  material  out  of  which  national  prop- 
aganda may  be  manufactured.  Victory  casts  her  laurels  upon  the 
nation  whose  scientific  genius  invents  the  most  atrocious  weapons  and 
the  most  convincing  propaganda. 

It  must  be  clear  from  all  this  that  modern  war  is  no  longer  exclu- 
sively heroic.  It  is  no  longer  decided  entirely,  or  perhaps  even 
primarily,  by  individual  valor  in  the  clash  of  arms.  It  has  become  a 
sordid  affair  of  the  machine  process  in  which  the  real  hero  is  as  likely 
to  be  an  engineer  or  a  physicist  as  a  dashing  general.  Its  problerns 
are  the  problems  of  the  adaptability  of  the  whole  people  to  the  dis- 
cipline of  war,  of  the  organization  of  industrial  monopolies  and  the 
creation  of  non-indigenous  industries,  of  the  utilization  to  the  fullest 
extent  of  the  scientific  genius  of  a  people.  The  game  is  played  on 
the  farm  and  in  the  factory  ;  the  armies  merely  tally  up  the  score. 

115.     The  Larger  Economic  Stategy^ 

The  larger  strategy  of  war  calls  for  the  solution  of  complicated 
problems  in  industrial  organization.  Single  military  campaigns  may 
aim  at  the  taking  of  supplies,  the  capture  of  men,  or  the  occupation 
of  territory.  But  these  immediate  objects  are  part  of  the  larger  pur- 
pose of  a  destruction  of  the  armed  resistance  of  the  enemy.  In  terms 
of  this  event  their  success  or  failure  is  to  be  judged.  To  this  end  it 
is  necessary  that  eventually,  as  campaign  follows  campaign,  an  army 
sufficient  in  numbers,  equipped  with  an  adequate  amount  of  devices, 
and  supplied  with  the  requisite  volume  of  materials  be  hurled  upon 
the  opposition.    Antecedent  to  the  strictly  military  problem  this  larger 

^Adapted  from  a  reading  with  the  foregoing  caption  in  Clark,  Hamilton, 
and  Moulton,  Readings  in  the  Economics  of  War,  pp.  120-25.  Copyright  by  the 
University  of  Chicago,  1918. 


26o  CURRENT  ECONOMIC  PROBLEMS 

strategy  involves  the  two  problems  of  securing  the  requisite  men  and 
materials  and  of  distributing  and  utilizing  them  in  complementary 
branches  of  service. 

It  is  evident  that  the  first  of  these  problems  depends  upon  the 
nature  and  intensity  of  the  struggle.  If  the  enemy  is  vastly  inferior 
in  man  power  and  in  economic  resources,  or  if  serious  deficiencies  in 
industrial  organization  make  it  impossible  for  it  effectively  to  bring 
its  strength  into  play,  the  strategy  of  supply  involves  no  difficulties. 
If,  for  example,  the  United  States  were  seriously  bent  upon  the  con- 
quest of  Mexico,  an  army  large  enough  for  the  purpose  and  an 
adequate  supply  of  materials  might  be  obtained  with  little  difficulty. 
An  army  might  easily  and  quickly  be  recruited  by  calling  for  vol- 
unteers who  could  leave  their  positions  or  their  leisure  with  little 
difficulty.  The  material  might  be  obtained  simply  by  taking  up  the 
slack  in  the  industrial  system,  which  is  not  running  at  full  speed. 
But  if  the  enemy  is  strong  in  men  and  resources,  well  organized,  and 
willing  to  pay  the  necessary  price  for  military  success,  the  problem  is 
greatly  changed.  It  is  suicide  to  meet  an  enemy  with  a  million  men 
with  an  army  of  only  half  a  million.  Gas  shells  by  the  tens  of  thou- 
saiads  are  not  a  match  for  gas  shells  by  the  hundreds  of  thousands,  and 
rifles  are  ineffective  against  machine  guns.  Furthermore,  if  the 
opponents  be  evenly  matched,  the  struggle  becomes  a  competitive  one. 
A  surplus  of  men  and  machines  gives  one  side  an  advantage  for 
attack,  and  every  effort  is  made  to  secure  it.  But  this  calls  for  similar 
exertion  by  the  other.  It  is  the  competitor  who  is  willing  to  plunge 
most  heavily  who  determines  the  plane  of  competition.  If  the  enemy's 
effective  forces  are  not  matched,  the  victory  is  lost.  They  must  be 
overmatched  if  effective  victory  is  to  be  won. 

In  view  of  this  really  cut-throat  competition,  the  securing  of  a 
surplus  of  men,  machines,  and  materials  becomes  alike  of  the  greatest 
importance  and  of  the  greatest  difficulty.  However  simply  it  may  be 
stated,  it  involves  great  precision  in  estimating  the  strength  of  the 
enemy  and  in  anticipating  the  course  of  events,  nice  calculations  and 
careful  judgments  about  the  use  in  a  complementary  way  of  many 
groups  of  men  and  a  bewildering  variety  of  industrial  equipment.  It 
involves  a  reconciliation  between  three  sets  of  interests.  First,  men 
and  means  must  be  left  at  their  appointed  tasks  to  turn  out  food, 
clothing,  and  other  necessities  sufficient  to  insure  health  and  productive 
efficiency  to  the  population.  Secondly,  a  force  must  be  sent  to  the 
front  sufficient  to  prove  effective  there.  And  thirdly,  men  and  ma- 
terials must  be  kept  back  of  the  line  adequate  to  produce  the  large 
and  varied  supplies  which  the  army  requires.  Too  many  men  and 
materials  in  the  first  or  third  of  these  groups  is  at  the  expense  of 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      261 

the  second.  Too  few  rob  the  second  of  a  part  of  their  fighting 
efficiency.  In  short,  the  problem  is  to  make  the  fighting  force,  which 
is  the  cutting  edge  of  the  industrial  machine,  as  large  and  as  efficient 
as  is  necessary,  without  weakening  the  supply  service  enough  to  de- 
crease its  efficiency.  It  is  evident  that  the  problem  requires  the  utmost 
delicacy  to  be  manifested  in  a  series  of  careful  judgments.  To  cite 
examples  of  its  importance,  examples  now  quite  familiar,  England 
suffered  during  the  earlier  years  of  the  war  from  not  having  men  and 
materials  enough  at  the  front,  and  one  of  the  causes  which  led  to  the 
disorganization  of  the  Russian  industrial  structure,  so  evident  after 
the  revolution,  was  the  withdrawal  of  too  many  men  from  the  eco- 
nomic system  for  use  in  the  armies. 

Under  most  favorable  conditions  the  solution  of  the  problem  is 
attended  with  difficulty.  In  democratic  nations  like  Great  Britain, 
France,  and  the  United  States  the  difficulties  are  particularly  baffling. 
One  problem  is  in  adjusting  to  the  unified  demands  of  war  an  in- 
dustrial system  which  has  been  contrived  with  no  such  end  in  view. 
Laborers  are  specialized  to  particular  tasks,  capital  has  been  stereo- 
typed into  buildings  and  equipment  which  know  not  war,  trade  has  cut 
deep  and  peaceful  grooves  for  itself,  and  personal  habits  have  become 
unwarlike  and  rigid.  Although  the  nation  may  be  willing,  it  is  hard 
for  rational  thought  to  displace  the  habits  and  conventions  of  gen- 
erations, and  for  the  newer  rationalized  thought  to  create  a  belligerent 
industrial  system  in  its  own  likeness.  A  kindred  obstacle  lies  in  the 
great  difficulty  of  securing  the  surplus  for  war  use  in  a  society  as 
intricate  and  complicated  as  ours.  One  runs  the  risk  of  failing  to 
secure  a  surplus  large  enough  to  put  an  adequate  army  at  the  front 
and  yet  of  imposing  upon  certain  groups  of  society  burdens  heavier 
than  they  can  bear  and  still  retain  their  efficiency.  In  short,  there 
may  be  much  waste  which  might  be  converted  into  necessary  war 
materials.  From  this  it  is  evident  that  the  problem  of  securing  the 
surplus  is  a  strategic  one  which  ramifies  throughout  the  industrial 
system  and  in  its  solution  calls  for  the  co-operation  of  all  the  people 
of  the  country. 

At  this  point  an  illustration  may  serve  to  point  the  nature  of  this 
problem  of  strategy.  It  is  now  a  commonplace  that  the  army  which 
has  the  offensive  is  at  an  advantage,  and  that  superior  numbers  of 
men  and  materials  give  the  chance  for  the  offensive.  Each  of  the 
warring  nations  has  been  trying  to  get  to  the  front  as  many  men  as 
possible.  To  do  this  all  of  them  have  utilized  the  services  of  children, 
the  aged,  the  infirm,  and  the  leisured  in  industry.  Above  all,  they 
have  attempted  to  draw  women  into  industrial  occupations  to  release 
men  for  the  front.     In  this  connection  it  may  be  remarked  that  at 


262  CURRENT  ECONOMIC  PROBLEMS 

present  American  women  are  just  beginning  to  awaken  to  their  part 
in  the  strategy  of  the  war  surplus.  For  months  they  used  a  large 
supply  of  labor  in  turning  out  a  very  small  product  by  knitting  for 
the  Red  Cross.  Of  course  this  little  was  better  than  nothing.  But 
it  cannot  be  remarked  too  often  that  a  nation  which  uses  the  machine 
system  exclusively  possesses  an  enormous  advantage  over  one  which 
employs  in  considerable  measure  the  technique  of  handicraft. 

But  the  problem  of  securing  an  economic  surplus  large  enough  to 
be  effective  leads  to  a  second  strategical  problem  of  an  economic 
nature.  The  men  and  materials  freed  from  the  industrial  tasks  of 
peace  times  are  a  fluid  mass.  The  men  have  to  be  separated  into 
groups,  such  as  infantry,  aeroplane,  munitions,  etc.,  and  these  have 
to  be  specialized  for  tasks  which  in  the  great  art  of  war  are  comple- 
mentary. And  each  of  these  larger  groups  has  to  be  divided  into  a 
myriad  of  subgroups.  Likewise  the  materials  have  to  be  specialized 
to  particular  services.  This  separation  has  to  be  carefully  made  and 
the  correlation  carefully  effected  in  view  of  a  larger  program  of  mili- 
tary operations.  It  is  manifest  that  this  separation  and  correlation  is 
a  problem  in  the  organization  of  men  and  materials. 

Complementary  to  this  and  conditioning  it  is  the  third  problem 
of  the  larger  strategy,  that  of  hurling  it  upon  the  enemy  so  as  to 
secure  the  disorganization  of  armed  resistance.  This  resolves  itself 
into  the  kindred  problems  of  concentration  and  dissipation.  The  object 
is  to  concentrate  one's  effective  strength  and  to  cause  the  enemy  to 
dissipate  his,  or,  more  properly,  to  fall  upon  an  enemy  who  has  been 
forced  to  dissipate  his  forces  with  a  military  establishment  organized 
against  his  weakest  point.  Such  a  problem  involves  conserving  the 
economic  resources  of  men  and  materials  and  causing  the  enemy  to 
waste  as  many  men  and  as  much  of  his  limited  materials  as  possible. 
To  cite  an  example,  the  object,  or  at  least  one  of  the  objects,  of  the 
Gallipoli  campaign,  was  to  cause  a  "diversion'  'of  the  resources  of  the 
Central  Empires  from  the  Eastern  and  Western  fronts.  Italy's  en- 
trance into  the  war  was  premised  upon  no  expectation  of  being  able 
immediately  to  break  the  strength  of  Austria  by  crossing  the  Alps,  but 
to  weaken  the  German  lines  on  the  Western  front.  And,  in  a  way,  the 
dissipation  of  the  resources  of  the  Central  Powers  and  their  inability 
to  strike  a  conclusive  blow  was  the  chief  result  of  Russia's  participa- 
tion in  the  war.  How  the  costs  of  these  ventures  compare  with  the 
results  is  a  question  which  does  not  now  concern  us.  The  point  is 
that  the  object  is  to  cause  the  enemy  to  use  as  many  men  and  materials 
as  possible  by  the  expenditure  of  a  minimum  of  energy  on  the  part  of 
the  aggressor. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      263 

Perhaps  the  clearest  example  of  an  attempt  to  force  a  great  waste 
of  men  and  resources  upon  the  enemy  with  little  expenditure  is  the 
use  of  the  submarine  by  Germany.  The  casual  reader,  who  has  no 
interest  in  the  larger  problems  of  strategy,  has  been  taught  by  the 
newspapers  that  the  success  of  the  submarine  is  to  be  measured  by 
its  ability  to  bring  the  Allies  to  their  knees  by  disorganizing  their 
communications  and  forcing  starvation  upon  the  people  of  England 
Those  responsible  for  submarine  activity  doubtless  had  some  thought 
of  such  a  happy  outcome  and  would  not  be  seriously  disappointed  in 
such  an  event.  But  its  success  or  failure  is  not  to  be  appraised  by  so 
obvious  a  method  as  its  ability  or  disability  to  bring  England  to  terms. 
Its  destruction  of  ships  has  added  to  the  cost  of  carriage  of  cargoes 
the  cost  of  the  ships  destroyed  as  well  as  the  cost  of  the  cargoes 
which  have  gone  to  the  bottom.  One  can  see  also  that  if  the  average 
ship  makes  twenty,  or  even  forty  or  fifty,  trips  before  it  goes  to  the 
bottom,  the  cost  of  carriage,  which  is  in  the  last  analysis  nothing  else 
but  labor  and  economic  resources,  has  been  multiplied  many  fold 
because  of  submarine  dangers.  But  to  this  must  be  added  the  labor 
of  men  and  materials  embodied  in  convoys,  destroyers,  mine-sweep- 
ers, aeroplane  observation,  and  the  development  and  manufacture  of 
the  thousand  and  one  devices  which  are  used  in  submarine  chasing. 
In  addition,  the  scarcity  of  ships  interposes  an  obstacle  between  the 
manufacture  of  munitions  in  America  and  their  use  three  thousand 
miles  away.  The  small  neck  of  the  bottle  interferes  in  ways  too 
subtle  and  too  numerous  to  be  mentioned  here  with  the  production  of 
supplies  in  the  proportions  to  each  other  which  those  responsible  for 
the  military  program  deems  necessary.  What  these  costs  in  the  aggre- 
gate are,  and  what  the  items  would  be  as  an  overhead  charge  for  the 
protection  of  shipping  in  any  larger  scheme  of  national  accountancy, 
is  not  definitely  known  and  it  would  be  idle  to  try  to  compute  it  from 
the  meager  evidence  at  hand.  But  it  is  apparent  to  any  candid  mind 
which  wishes  to  face  the  facts,  that  the  men  and  materials  required 
to  maintain  the  submarine  menace  are  only  a  fraction  of  those  re- 
quired to  meet  it.  In  short,  by  the  use  of  a  certain  amount  of  limited 
resources  Germany  is  able  to  force  upon  her  enemies  the  expenditure 
of  many  times  that  amount  of  resources. 

Together,  these  problems — the  organization  of  men  and  materials 
between  necessary  civilian  production,  war  supplies,  and  the  opera- 
tions of  the  front,  the  apportionment  of  men  and  materials  between 
various  military  and  semi-military  demands,  and  the  problem  of  con- 
centration of  resources  against  an  enemy  dissipating  his,  constitute 
the  larger  problem  of  strategy.  Aspects  of  this  problem  are  neces- 
sarily antecedent  to  the  military  problem ;  others  are  complementary 


264  CURRENT  ECONOMIC  PROBLEMS 

to  it ;  but  all  are  intimately  associated  with  it,  and  the  problem  of 
purely  miliary  strategy  can  be  solved  only  in  terms  of,  and  in  the 
light  of,  the  solution  of  the  larger  problem  of  the  economic  strategy 
of  war. 

B.     THE  SINEWS  OF  WAR 

116.     The  Demands  of  War* 

The  art  of  war  is  the  master  and  slave  of  industry.  However 
dependent  it  is  upon  generalship,  numbers,  and  the  manly  fiber  of 
troops,  these  are  of  little  avail  unless  the  industrial  system  is  in 
bondage  to  its  ends.  The  military  establishment  is  the  visible  part 
of  a  complex  structure  of  materials,  men,  and  values  which  compre- 
hends the  social  order.  The  army  which  engages  the  enemy  three 
thousand  miles  from  home  is  the  cutting  edge  of  a  great  and  complex 
machine,  which  ramifies  unto  the  utmost  confines  of  the  land,  includes 
the  activities  of  all  sorts  and  conditions  of  men,  and  depends  for  its 
speed  and  efficiency  upon  the  everyday  habits  and  activities  of 
ordinary  people.  All  the  aspects  of  the  economic  order,  the  medley 
of  arrangements  and  relations  which  make  it  up,  and  the  scheme  of 
motives,  ideals,  and  ends  which  find  expression  in  it,  can  be  assessed 
in  terms  of  advancing  or  impairing  military  efficiency.  In  this  ability 
to  meet  the  requirements  of  war  nations  may  be  divided  into  two 
groups.  The  first  includes  those  whose  governments,  industrial  sys- 
tems, and  habits  and  customs,  have  in  time  of  peace  been  arranged 
into  an  articulate  whole  capable  of  direction  to  military  ends.  The 
second  comprehends  those  which,  unmindful  of  military  strength  or 
weakness,  have  allowed  these  things  to  develop  as  a  people  at  peace 
would  have  them.  Germany  belongs  to  the  first  group ;  the  United 
States  typifies  the  second. 

In  Germany  the  whole  industrial  system,  with  its  complement  of 
farms,  mines,  factories,  banks,  railways,  shops,  and  what  not,  long 
ago  was  arranged  so  that  very  quickly  the  whole  could  be  turned  into 
a  gigantic  engine  of  war.  For  instance,  railways  were  built  to  con- 
nect the  sources  of  military  supply  with  the  frontiers ;  establishments 
which  wrought  iron  and  steel  were  built  with  an  eye  to  their  conver- 
sion to  munition  plants ;  and  chemistry,  to  mention  but  one  science, 
was  not  allowed  to  forget  that  it  might  be  needed  to  aid  a  penetration 
into  alien  lands  not  altogether  peaceful.  There  was  much  ado  that  the 
country  should  be  able  to  produce  as  nearly  as  possible  everything 
essential  to  success  at  arms.  In  order  that  the  surplus  of  men  and 
materials  might  overwhelm  the  enemy,  women  were  taught  to  assume 
tasks  which  in  Western  countries  were  exclusively  the  occupations  of 

*An  editorial,  1918,  1919. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      265 

males.  The  concentration  of  all  national  energy  upon  a  single  ob- 
jective was  achieved  by  the  elaboration  in  time  of  peace  of  a  unified 
and  far-reaching  scheme  of  control.  The  state  not  only  attempted  to 
regulate  industry,  government,  and  individual  conduct  by  actual  inter- 
ference, but  also,  through  a  careful  direction  of  the  school,  the  church, 
and  the  press,  it  aimed  to  create  a  single  public  opinion  that  could 
at  virill  be  bent  to  miUtary  ends.  Easily  and  quickly  Germany  could 
make  the  readjustments  necessary  to  war.  However  difficult  it  will 
be  for  a  Germany  in  defeat  to  organize  its  industries  for  peace,  the  old 
Germany,  at  the  end  of  a  successful  war,  could  easily  have  returned 
to  peace  which  was  only  an  armed  interlude  between  wars. 

War  came  less  easily  to  liberal  nations  and  affected  them  more 
profoundly.  The  United  States  has  attempted  to  read  no  scheme  of 
military  use  and  wont  into  its  political  system,  its  industrial  organiza- 
tion, or  its  social  life.  The  yield  of  farm,  factory,  and  mine  was 
devoted  to  consumption  or  securing  additional  equipment.  The  sur- 
plus produced  in  excess  of  necessities  was  allowed  to  find  its  way  into 
individual  incomes  where  it  appeared  as  comforts  and  vanities.  Plants 
were  not  established  with  a  view  to  their  quick  conversion  to  military 
uses,  nor  were  they  grouped  in  accord  with  their  complementary  char- 
acter. The  conglomerate  net  of  the  railroads  of  the  country  had  no 
military  design  woven  into  its  pattern.  There  was  nowhere,  either 
in  the  design  of  the  industrial  system  or  in  national  thought,  the  idea 
of  a  surplus  of  wealth  as  large  as  possible  to  be  devoted  to  military 
ends.  The  national  scheme  of  work  and  of  life  was  little  controlled 
by  the  government  and  responded  to  the  many  and  conflicting  desires 
of  many  men.  The  agencies  through  which  opinion  is  organized, 
school,  church,  press,  and  playhouse,  were  left  uncontrolled.  At  the 
beginning  of  the  war  there  was  little  popular  appreciation  of  its  nature 
and  cost.  There  was  almost  as  little  expert  understanding  of  the 
sweeping  transformations  in  industry,  its  organization,  and  control, 
needful  to  make  it  obey  new  impulses.  The  plans  of  the  most  ardent 
advocates  of  preparedness  would  have  proved  of  little  avail  had  they 
been  carried  out.  Their  authors,  one  and  all,  failed  to  understand 
the  industrial  basis  of  modern  war  and  assumed  that  readiness  to 
meet  an  enemy  consisted  in  crowding  men  into  uniforms  and  putting 
them  through  an  obsolete  ritual. 

The  problem  with  which  the  nation  in  its  unpreparedness  was  con- 
fronted at  the  beginning  of  the  war  seemed  simple.  It  was  to  use  our 
limited  resources  in  national  wealth,  industrial  equipment,  and  man 
power  in  the  creation  and  equipment  of  an  army  as  large  and  efficient 
as  possible ;  to  organize  it  into  its  component  and  complementary 
parts ;  and  to  hurl  the  mass  upon  the  enemy.    But  only  the  statement 


266  CURRENT  ECONOMIC  PROBLEMS 

of  the  problem  is  simple.  Its  magnitude,  complexity,  and  far-reach- 
ing character  can  best  be  indicated  by  a  citation  of  some  of  the  innova- 
tions by  which  it  was  met  and  the  changes  these  wrought  in  the  qual- 
ity of  national  life.  Some  four  million  men  were  withdrawn  from 
ordinary  pursuits  to  enter  the  army.  Their  places  were  taken  by  the 
unemployed  or  they  remained  unfilled.  Women  were  inducted  into 
work  that  rightly  belonged  to  men,  learned  the  trade,  became  efficient, 
liked  the  wages,  and  were  reluctant  to  jvithdraw.  The  growth  of 
war  industries  drew  no  one  knows  how  many  million  workmen  and 
led  to  a  geographic  and  occupational  redistribution  of  labor.  Plants 
were  converted  to  new  uses  and  new  ones  sprang  up  to  serve  the 
country's  needs.  The  limited  supplies  of  coal,  iron,  steel,  copper, 
wool,  and  other  priceless  materials  were  carefully  conserved.  The 
railroads  were  welded  into  a  single  instrument  of  national  transport, 
in  which  the  identities  of  individual  lines  were  for  the  time  lost.  An 
attempt  was  made  to  unify  all  industry  in  support  of  the  army  abroad. 

117.     The  Organization  of  Man  Power^ 

BY  MARK  SULLIVAN 

The  purpose  of  this  article  is  to  attempt  to  bring  simplicity  and 
understanding  to  the  industrial  situation  in  the  United  States  at  the 
present  time.  It  is  an  attempt  to  set  down  what  has  happened,  is 
happening,  and  is  going  to  happen  to  the  fundamentals  of  the  busi- 
ness and  industrial  structure  of  the  country.  It  begins  and  ends  with 
man  power,  for  that  is  what  it  all  comes  back  to.  If  the  discussion  be 
kept  in  terms  of  man  power,  it  will  be  within  the  comprehension  of 
any  understanding,  for  the  whole  problem  becomes  merely  one  of 
addition  and  subtraction — under  our  present  conditions,  chiefly  sub- 
traction. 

"Man  power"  is  frequently  used  in  military  discussion  as  meaning 
the  total  number  of  soldiers  a  nation  can  bring  together.  More 
broadly,  and  more  properly,  it  is  the  entire  strength  of  a  nation,  mili- 
tary and  industrial.  In  this  more  correct  sense  the  man  power  of  the 
United  States  is  35,000,000-^the  35,000,000  men,  women,  and  children 
who  do  the  country's  work,  who  serve  it  in  the  army,  who  dig  its  coal, 
who  raise  its  crops,  who!  run  its  trains,  who  build  its  roads,  who  make 
its  powder,  who  turn  out  its  munitions. 

This  35,000,000  man  power  is  our  all.  It  is  the  whole  measure, 
and  the  true  measure,  of  our  wealth.  It  is  the  measure  of  our  effect- 
iveness in  war  and  peace.     It  is  the  total — to  put  it  in  terms  of  our 

^Adapted  from  "Man  Power,"  Collier's  Weekly  (June  22,  1918),  pp.  1-2; 
35-38.    Copyright  by  P.  F.  Collier  &  Son,  Inc.,  1918. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      267 

national  card  game — of  our  pile  of  chips  in  the  fight  with  Germany. 
We  cannot  increase  it.  To  a  certain  extent  we  can  mobilize  it  more 
effectively  and  manage  it  more  economically.  But  we  shall  always 
come  back  to  this  35,000,000,  and  no  more,  as  the  measure  of  this 
nation's  capacity  to  work,  to  fight,  to  accomplish,  to  do. 

Now  let  us  see  just  what  has  happened  to  this  35,000,000  since  the 
war  began.  The  first  thing  to  bear  in  mind  is  that  with  the  beginning 
of  the  European  War  the  greatest  source  of  increase  for  our  man 
power  was  cut  off.  We  used  to  get  an  increase  of  a  million  man  power 
a  year  through  immigration.  We  now  get  substantially  nothing.  Few 
people  recognize  the  significance,  in  a  business  and  economic  sense, 
of  this  cutting  off  of  immigration.  The  immigrant  was  almost  the 
only  source  of  what  we  call  "day  labor,"  the  men  who  do  the  building 
and  repairing  of  railroads,  the  mending  of  streets  and  roads,  mining, 
and  the  rough  work  of  steel  mills  and  other  factories.  We  have  gone 
on  as  if  this  source  of  our  labor  were  a  perpetual  fountain.  We  have 
not  stopped  to  consider  the  business  and  economic  and  social  changes 
which  must  come  about  when  the  fountain  runs  dry,  and  we  are  com- 
pelled to  adapt  ourselves  to  a  condition  very  strange  to  us.  More- 
over, an  immigrant  raised  to  maturity,  with  all  the  expense  of  his 
nurture  and  training  paid  by  his  own  country,  delivered  at  our  gates 
free  of  charge  as  a  working  unit  of  man  power,  was  a  valuable  asset. 

After  the  cessation  of  the  accustomed  increase  from  immigration 
the  most  obvious  thing  that  has  happened  to  our  man  power  is  that 
2,000,000  of  it,  between  the  ages  of  twenty-one  and  thirty-one,  have 
gone  into  the  army,  and  are  no  longer  at  their  accustomed  posts  in 
factories,  mines,  offices,  and  farms.  This  2,000,000  is  the  best  of 
our  man  power.  It  was  at  the  age  of  greatest  vitality.  The  loss  of 
it  to  our  industries  is  greater  than  the  mere  figures  indicate.  Two 
million  man  power  (a  year  from  now  it  will  be  3,000,000,  two  years 
from  now  it  will  be  5,000,000)  out  of  our  total  35,000,000  have  ceased 
completely  to  be  normal  producers  of  goods.  Incidentally,  as  soldiers 
they  have  become  larger  consumers  than  they  were  before  of  food, 
clothes,  and  other  materials. 

Here,  then,  is  the  first  subtraction:  2,000,000  from  35,000,000 
leaves  33,000,000.  But  this  is  only  the  first,  and  not  the  largest,  of 
many  subtractions. 

Subtract  another  half  million  for  the  navy. 

Subtract  another  half  million  for  shipbuilding. 

At  this  point  it  might  be  appropriate  to  ask  some  of  the  "business 
as  usual"  advocates  just  how  business  can  be  as  usual,  just  how 
32,000,000  man  power  can  do  the  amount  of  work  and  business 
usually  done  by  35,000,000.     As  a  matter  of  fact,  we  do  not  have 


268  CURRENT  ECONOMIC  PROBLEMS 

even  32,000,000  man  power  left  available  for  business  as  usual.  For 
the  deductions  just  pointed  out  are  not  by  any  means  all  the  deduc- 
tions that  have  occurred.  They  are  not  even  the  largest  deductions. 
I  have  set  them  down  first  merely  because  they  are  the  most  obvious. 
They  are  the  best  ones  for  illustrating  the  thing  that  is  happening. 
They  involve  actual  dislocations  of  man  power — men  who  go  away, 
not  only  from  their  accustomed  pursuits,  but  also  from  their  accus- 
tomed homes.  But  it  must  be  remembered  that  man  power  can  be 
diverted  without  being  dislocated.  A  man  may  continue  to  live  in  the 
same  house,  and  use  the  same  pick,  and  work  in  the  same  mine,  and 
get  his  wages  from  the  same  boss ;  but  if  the  ton  of  ore  he  digs  finds  its 
ultimate  destination  in  rifles  instead  of  piano  wires,  he  is  a  unit  of 
man  power  subtracted  from  its  normal  uses.  And  these  diversions 
are  enormous. 

As  to  the  precise  number  who  have  gone  and  are  now  going  from 
their  normal  pursuits  into  powder  making  and  bullet  making  and  rifle 
making  and  gun  making  and  the  like,  it  is  not  possible  to  give  figures 
as  exact  as  in  the  case  of  the  army  and  navy.  But  it  is  possible  to 
arrive  at  some  convincing  estimates.  Consider,  for  example,  one  of 
the  minor  war  industries,  airplane  making.  Ultimately,  if  we  do  what 
we  ought  to  do,  we  shall  have  at  least  50,000  aviators  in  France.  It  is 
estimated  that  one  aviator  on  the  fighting  front  will  require  forty 
men  back  of  the  line  for  repairs  and  in  the  factories  as  mechanics 
and  gathering  spruce  and  in  other  ways  producing  the  materials. 
Based  on  that  estimate,  we  shall,  during  the  present  and  coming  year, 
take  another  2,000,000  out  of  our  power  for  building  our  air  fleet,  and 
keeping  an  adequate  supply  of  these  unusually  intricate  and  unusually 
breakable  machines  flowing  toward  the  front  in  France. 

But  airplane  making  is  merely  one  of  the  minor  of  the  several  war 
industries  which  are  taking  millions  away  from  the  usual  pursuits 
of  our  normal  35,000,000  of  man  power.  In  one  concern,  Bethlehem 
Steel,  nearly  100,000  employees,  about  90  per  cent,  are  engaged  on 
government  orders.  This  is  fairly  typical  of  the  steel  business  as  a 
whole.  During  May  and  for  three  months  preceding,  85  per  cent  of 
the  entire  steel  trade  of  the  United  States  was  engaged  in  war  work. 
And  until  the  war  ends  this  proportion  is  sure  to  increase  rather  than 
diminish. 

But  it  is  not  necessary  to  go  through  all  the  tedious  computations 
of  the  number  of  our  man  power  which  has  been  taken  for  powder- 
making,  for  shell-making,  for  rifle-making,  and  the  like.  The  figures 
change  from  day  to  day,  and  the  change  is  always  an  increase.  Out 
of  all  the  mass  of  figures,  exact  and  estimated,  the  one  net  fact,  the 
"red-ink"  fact,  as  the  accountants  express  it,  is  this:   as  compared 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      269 

with  normal  peace-time  production  there  is  a  labor  shortage  in  the 
United  States  of  at  least  15,000,000  man  power.  Such  a  shortage 
from  normal  as  15,000,000  is  not  a  shortage  at  all,  but  a  famine,  and  it 
is  this  famine  in  man  power  which  underlies  all  other  famines. 

Already  "the  farms  are  crying  for  labor.  The  mines  are  crying 
for  labor.  The  shops  are  crying  for  labor.  The  railroads  are  crying 
for  labor.  The  manufactories  are  crying  for  labor.  There  is  short- 
age of  labor  everywhere." 

Beat  the  devil  around  the  bush  as  we  may,  we  shall  always  arrive 
at  the  same  point ;  namely,  a  fixed  total  of  35,000,000  man  power,  and 
under  present  conditions  a  shortage  of  from  15,000,000  to  18,000,000. 

That  is  the  main,  central  fact.    That  is  the  essential  truth. 

11.8.     The  Insatiable  Demand  for  Munitions" 

BY  RIGHT  HON.  EDWIN  MONTAGU 

When  an  attack  is  planned  against  a  securely  entrenched  enemy, 
with  barbed  wire  everywhere,  with  elaborate  communication  trenches, 
and  powerful  long-range  supporting  artillery,  the  first  necessity  is  to 
break  down  the  wire  and  smash  his  first  line  of  trenches.  This  means 
a  heavy  expenditure  of  field  artillery,  shrapnel,  and  trench  mortar 
bombs  for  wire  cutting,  and  heavy  howitzer  shells  for  trench  destruc- 
tion. If  this  task  is  inadequately  performed,  if  the  wire  checks  the 
infantry,  if  machine-gun  emplacements  remain  intact,  the  attack  fails, 
and  fails  with  horrible  results.  When  the  bombardment  has  dis- 
closed to  the  enemy  an  impelling  attack,  the  enemy  tries  to  stop  it  by 
curtain  fire.  During  the  bombardment  the  enemy,  from  his  observa- 
tion posts,  is  constantly  watching  for  the  infantry  assault.  He  con- 
centrates a  converging  fire  from  hundreds  of  long-range  guns  upon 
the  trench  area  from  which  the  infantry  must  debouch.  That  fire  has 
got  to  be  subdued,  or  the  attack  takes  place  under  a  perfect  tornado 
of  projectiles ;  hence  the  necessity  for  counter-battery  work.  An 
immense  expenditure  of  shells  from  long-range  guns,  controlled  from 
the  air,  w'hence  alone  the  fire  can  be  directed  at  the  enemy's  guns, 
goes  on  whenever  aerial  observation  is  possible.  The  guns  are  well 
entrenched,  and  this  runs  away  with  an  enormous  amount  of  heavy 
and  medium  ammunition.  Next  the  attack  takes  place.  Its  flanks 
have  got  to  be  protected,  and  while  the  infantry  is  engaged  in  facing 
the  parapet  of  the  captured  trenches  the  other  way  they  have  got  to 
be  protected  from  counterattack.  A  counterattack  begins  by  the 
enemy's  bombers  coming  down  the  communication  trenches  and 

^Adapted  from  a  speech  delivered  before  the  House  of  Commons,  August 
IS,  1916. 


270  CURRENT  ECONOMIC  PROBLEMS 

bombing  the  captured  trenches.  They  cannot  be  seen — cannot  be 
spotted  from  the  artillery  observation  posts.  The  only  means  of 
dealing  with  them  is  to  direct  a  barrage  fire  which  sweeps  every  com- 
munication trench,  leaving  nothing  to  chance.  Later  the  enemy's 
more  formidable  counterattack  comes  along.  It  is  organized  under 
cover  of  concentrated  artillery  fire  by  means  of  massed  infantry  from 
the  support  trenches.  The  success  of  these  attacks  has  not  only  got 
to  be  prevented,  but  the  enemy  must  not  be  allowed  to  formulate 
them.  So  the  successful  infantry  must  be  protected  on  its  flanks 
and  front  by  barrage  fire  of  shrapnel  and  high  explosives  directed 
against  the  enemy's  support  trenches,  where  the  infantry,  unseen,  are 
organizing  for  the  counterattack. 

Finally,  to  be  able  to  press  on  successfully  from  one  attack  to  the 
next,  the  resisting  power  of  the  enemy  must  be  worn  down  by  want 
of  rest,  of  relief,  of  food.  All  day  and  all  night  the  approaches  to  his 
trenches  must  be  kept  under  fire  to  prevent  relief  coming  to  his  men, 
to  prevent  the  replenishment  of  ammunition  supplies,  and  to  prevent 
his  obtaining  food  and  rest.  If  you  add  one  more  detail,  what  I  believe 
the  French  call  tire  de  demolition,  which  is  directed  by  the  very  heav- 
iest howitzer  guns  against  especially  fortified  nodes  which  are  dotted 
about  the  area  of  the  German  lines,  and  consider  all  the  operations 
which  I  have  described,  wonder  ceases  that  you  want  so  much  am- 
munition. The  only  marvel  that  remains  is  that  you  can  ever  produce 
enough  to  sustain  the  attack  which  goes  on  week  after  week,  day  and 
night,  with  varying,  but  always  with  sustained  intensity. 

119.     The  Scientific  Basis  of  War  Technique^ 

BY  GEORGE  K.  BURGESS 

The  chemists  say  this  is  the  chemists'  war,  the  engineers  claim  it 
as  theirs,  while  a  distinguished  French  physicist  calls  the  struggle 
"a  grandiose  physical  phenomenon,"  and  the  medical  and  surgical 
fraternity  demonstrate  that  prevention  from  epidemics  and  rendering 
possible  the  return  to  the  front  of  some  three-fourths  or  more  of  all 
invalided  and  wounded  has  made  the  continuance  of  trench  warfare 
possible. 

Verdun  has  been  named  "the  metallurgical  battle"  and  also  "the 
battle  of  the  trucks,"  referring  in  the  first  case  to  the  importance  of 
the  iron-ore  deposits  of  the  Briey  region  located  a  few  miles  to  the 
northeast,  and  in  the  second  to  the  \ast  numbers  of  automobile  trucks 
employed  by  the  French  on  the  only  highway  open  at  the  outbreak  of 
the  battle. 

^Adapted  from  "Applications  of  Science  to  Warfare  in  France,"  Scientific 
Monthly,  V,  289-97-    Copyright,  1918. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      271 

The  meteorologist  is  listened  to  with  attention  by  the  Great  Head- 
quarters, as  was  the  astrologer  of  yore,  before  an  extensive  offensive 
is  undertaken ;  and  the  geologist  is  consulted  for  information  as  to 
where  to  halt  and  dig  in,  where  shelters  may  be  safely  built,  and  as  to 
the  probability  of  underground  waters.  Even  the  astronomer's  ser- 
vices are  considered  of  great  importance,  for  example,  in  the  prepa- 
ration of  new  artillery  tables  and  maps,  the  improvement  and  inven- 
tion of  instruments  which  differ  but  slightly  in  principle,  however 
much  they  may  differ  in  the  nature  of  their  use,  from  those  with  which 
he  is  familiar.  Again,  the  statistician  is  a  most  valuable  person  when 
an  offensive  is  being  planned.  Also  France,  at  least,  has  found  the 
mathematician  indispensable,  for  in  the  person  of  M.  Painleve  he  sits 
at  the  head  of  them  all  as  Minister  of  War,  whose  civil,  technical  staff 
is  largely  made  up  of  eminent  members  of  the  same  profession.  Is 
this  then  a  mathematicians' war? 

In  truth,  chemistry,  physics,  hygiene,  mathematics,  engineering, 
geography  and  geodesy,  metallurgy,  geology,  bacteriology,  mete- 
orology, or  pretty  much  the  whole  curriculum  of  physical  and  natural 
sciences  and  their  applications  are  each  of  them  fundamentally  essen- 
tial in  modern  warfare,  some  of  course  more  apparently  so  than 
others,  but  almost  none  could  be  spared  and  the  war  carried  on  suc- 
cessfully. 

Two  most  important  corollaries  immediately  suggest  themselves : 

First,  the  war  can  not  be  successfully  prosecuted  if  there  is  lacking 
any  of  the  necessary  raw  materials,  including  chemical,  physical,  and 
metallurgical  supplies  such  as  nitrates,  optical  glass,  coal,  and  steel, 
to  name  but  a  few.  The  operations  of  modern  warfare  are  so  com- 
plex and  interrelated  that  the  want  of  crucial  supplies  in  one  domain 
may  seriously  hamper  all ;  hence  the  phenomenon  of  which  there  are 
instances  innumerable,  of  intensive  scientific  research  in  the  develop- 
ment of  substitutes  as  one  or  another  essential  material  becomes 
scarce. 

Second,  modern  warfare  can  be  waged  successfully  only  by  the 
proper  organization  of  these  diverse  scientific  elements  in  addition  to, 
and  co-ordinated  with,  or  incorporated  in,  the  military  establishments. 

In  a  completely  mobilized  country,  such  as  France,  it  is  essential 
that  each  man  in  the  community,  which  is  nearly' identical  with  the 
military  establishment,  be  assigned  to  the  task  for  which  he  is  best 
fitted — or  there  must  be  scientific  organization  and  management  to 
secure  the  country's  greatest  possible  efficiency. 

What  is  this  organization?  How  and  to  what  extent  are  the 
sciences  used  in  warfare  ?    And  how  are  the  scientific  men  mobilized 


272  CURRENT  ECONOMIC  PROBLEMS 

or  otherwise  made  use  of?  A  brief  statement  of  some  of  the  im- 
pressions gained  during  a  three  months'  stay  in  England  and  France 
may  not  be  without  interest. 

The  most  striking  impression  brought  home  is  one  of  unity  of 
purpose,  perfect  adaptation  and  co-ordination  of  the  several  branches ; 
a  harmonious  whole,  in  fact,  made  up  of  separate  and  often  highly 
intricate  parts  constituting  an  organization  in  which  all  the  sciences 
and  their  applications  blend  into  one,  which  is  focused  by  the  admira- 
bly trained  technical  and  staff  officers  on  the  sole  object  of  destroy- 
ing the  enemy.  The  French  traits  of  individuality,  initiative,  and 
self-reliance,  are,  however,  in  no  sense  lessened  or  dulled  by  this 
co-operation. 

What  are  some  of  the  component  parts  of  this  unity  in  scientific 
warfare?    We  shall  mention  but  a  few  in  illustration  of  the  whole. 

Of  all  the  branches  of  this  science  the  one  that  had  in  recent  years 
been  lagging  behind  the  others  and  to  whose  development  the  least 
attention  was  being  paid,  was  acoustics ;  yet  it  is  not  an  exaggeration 
to  say  that  the  application  of  the  principles  of  acoustics,  or  sound,  is 
of  the  greatest  importance  at  the  front. 

One  of  the  most  highly  developed  is  the  location  of  enemy  guns, 
concerning  the  details  of  which  a  volume  could  be  written;  suffice 
it  to  say  that  in  the  French  armies  there  are  several  systems  in  use, 
all  of  which  will  locate  to  within  a  few  yards  an  enemy  battery  at  ten 
or  twenty  kilometers,  indicate  the  caliber  of  the  guns,  differentiate 
between  the  sounds  of  discharge,  flight  through  the  air,  and  bursting, 
and  record  each  and  every  separate  shot ;  and  the  spot  from  which  the 
shot  was  fired  may,  under  certain  conditions,  be  located  before  the 
shell  bursts.  There  have  been  developed  several  ingenious  listening 
devices  built  on  entirely  different  acoustical  principles  for  use  in  mine 
warfare,  by  means  of  which  enemy  mining  operations  may  be  exactly 
located.  Again,  for  the  location  of  sounds  in  the  air,  especially  use- 
ful, for  example,  in  locating  airplanes  at  night,  several  new  types  of 
sound  apparatus  of  extreme  sensitiveness  are  in  use.  For  submarine 
detection  some  of  the  most  promising  methods  for  further  improve- 
ment are  based  on  the  use  of  still  other  sound-detecting  devices. 
Wonderfully  powerful  megaphones  for  use  in  battle  have  also  been 
developed.  Acoustics  as  an  active  branch  of  physics  has  most  de- 
cidedly come  into  its  own. 

In  photography  and  the  technique  of  photographic  map  making 
there  have  been  great  improvements,  brought  about  directly  by  mili- 
tary necessity,  especially  in  aerial  photography,  apparatus,  and  in- 
terpretation. One  of  our  most  interesting  visits  at  the  front  was 
to  the  photographic  headquarters  of  a  French  army  corps,  where  we 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      273 

listened  to  an  admirably  delivered,  illustrated  lecture  on  the  taking 
and  interpretation  of  aerial  photographs.  The  art  of  map-making 
from  photographs,  as  carried  out  at  the  front,  is  practically  a  new 
branch  requiring  great  skill,  and  is  evidently  of  the  first  importance, 
as  oftentimes  the  success  of  an  offensive  is  largely  dependent  upon 
the  quality  of  this  work. 

As  would  be  expected,  there  have  been  not  a  few  advances  made 
in  applications  of  electricity,  especially  wireless  apparatus  and  meth- 
ods, signalling  and  listening  devices.  There  may  be,  for  example, 
during  a  battle  more  than  1,500  separate  wireless  stations  sending 
messages  simultaneously  ;  provision  is  successfully  made  for  prevent- 
ing interference  and  sorting  out  this  great  mass  of  signals  so  as  to 
avoid  confusion.  Portable  wireless  outfits  are  supplied  by  the  tens 
of  thousands — requiring  for  the  construction  of  these  instruments 
alone  a  veritable  army  of  skilled  mechanics. 

The  reading  public  is  perhaps  more  familiar  with  some  of  the 
applications  of  chemistry  to  warfare,  such  as  the  asphyxiating,  tear- 
producing,  and  other  noxious  gases  used  in  waves  or  clouds  and  lately 
more  and  more  in  shells ;  and  the  importance  of  nitric  acid,  toluol, 
and  the  like  has  been  impressed  on  everyone.  The  stupendous  scale 
on  which  such  substances  must  be  produced  to  keep  up  with  the 
demands  of  the  armies  is  perhaps  not  sufficiently  realized,  nor  is  there 
any  adequate  appreciation  of  the  amount  of  scientific  investigation 
being  carried  out.  In  France  I  understand  there  are  some  twenty- 
five  distinct  laboratories  engaged  in  nitrogen-fixation  research  alone. 

Turning  now  to  meteorology,  what  has  the  weather  man  to  do 
with  war?  He  too  plays  a  capital  role.  With  his  sounding  balloons 
he  keeps  the  troops  informed  as  to  when  a  gas  attack  may  be  expected 
and  when  it  would  be  profitable  to  start  one  ;  the  artillery  depends  on 
him  for  data  to  calculate  important  corrections,  as  for  wind,  humidity, 
pressure,  and  temperature  and  upper-air  conditions  in  sighting  their 
guns ;  the  aviators  as  to  prevailing  winds,  especially  high  up,  and  for 
general  weather  conditions ;  the  balloon  men  keep  in  close  touch  with 
him,  and  even  the  transport  service  depends  upon  him  for  advance 
information  as  to  muddy  roads ;  headquarters  relies  upon  him  for 
knowledge  of  impending  fog  or  rain  and  other  changes — the  weather 
man  has  a  very  heavy  responsibility  in  helping  to  decide  the  most 
propitious  moment  for  an  attack  on  a  grand  scale,  and  if  his  forecast 
is  erroneous,  disaster  may  result. 

We  have  not  touched  upon  the  applications  of  science  in  the 
various  branches  of  military  engineering,  some  of  which  are  new  in 
this  war,  requiring  the  highest  directing,  technical  talent,  and  thou- 
sands of  workmen ;  the  advances  in  medicine,  sanitation,  and  surgery 


274  CURRENT  ECONOMIC  PROBLEMS 

have  not  been  treated,  nor  have  we  mentioned  trench  warfare  with 
its  manifold  engines,  appliances,  and  materials,  necessitating  the 
creation  of  new  industries  accompanied  in  all  cases  by  elaborate 
scientific  research.  Gas  warfare  alone  is  based  on  what  is  literally 
a  stupendous  industry  requiring  the  employment  of  chemists  and 
other  scientifically  trained  men  on  a  great  scale.  Again  there  are 
large  and  very  active  laboratories  maintained  for  the  examination  of 
enemy  munitions  and  appliances  of  all  kinds,  and  for  the  development 
of  new  and  improved  types. 

Examples  enough  have  been  given  to  impress  upon  the  reader, 
I  hope,  the  tremendous  magnitude,  enormous  scope,  and  far-reaching 
extent  of  the  problem  of  modern  warfare  looked  at  from  the  point  of 
view  of  the  applications  of  science  and  the  employment  of  scientific 
and  technical  men. 

The  wonderful  organization  was  not  all  built  up  in  a  day,  neither 
were  mistakes  avoided,  nor  could  all  the  developments  that  have 
taken  place  have  been  foreseen.  In  the  early  days  of  the  war  men  were 
sent  to  the  front,  whose  brains  today  would  be  an  invaluable  asset ; 
national  laboratories  were  almost  depopulated ;  the  military  authori- 
ties were  indifferent  to  advice  from  civilian  specialists.  Today  one 
would  be  embarrassed  to  decide  whether  an  officer  in  one  of  the  spe- 
cialized services  was  an  officer  before  the  war  or,  let  us  say,  a  pro- 
fessor of  chemistry.  The  national  laboratories  have  been  multiplied 
tenfold ;  and  such  care  is  now  taken  to  protect  productive  brains  that 
it  may  happen  that  the  inventor  of  a  new  device  is  not  allowed  to  go 
to  the  front  to  try  it  out. 

C.     METHODS  OF  INDUSTRIAL  MOBILIZATION 
120.     Voluntary  Army  Recruiting^ 

BY  ANDRE    CHEVRILLON 

Voluntarily  recruiting  is  not  merely  unjust;  it  is  harmful  in  its 
outcome.  It  is  the  injustice  which  causes  the  obvious  and  immediate 
difficulty.  For  instance,  for  young  bachelors  of  twenty  and  twenty- 
five  to  remain  peacefully  smoking  their  cigarettes  in  the  streets  while 
heads  of  families  are  risking  death  is  evidently  unjust;  but  it  also 
involves  extra  expense  to  the  state,  for  every  unmarried  soldier  costs 
only  eighteen  pence  a  day  and  his  keep,  while  in  the  case  of  each 
married  volunteer  a  wife  and  almost  always  several  children  must  be 
provided  for.  It  was  calculated  in  the  month  of  August  that  three 
men  who  had  enlisted  in  London  on  the  same  day  were  leaving  alto- 

^Adapted  from  England  and  the  War,  pp.  197-99.  Copyright  by  Doubleday, 
Page  &  Co.,  1917. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR       275 

gather  twenty-six  persons  to  be  supported  by  the  state.  Not  only, 
then,  for  a  moral  reason  should  compulsory  service,  if  established,  be 
enforced  first  of  all  on  bachelors.  The  voluntary  system  has  other 
defects  still  more  injurious  to  the  successful  conduct  of  the  war.  Not 
only  is  the  number  of  recruits  smaller  than  it  might  be,  but  who  can 
foretell  what  this  number  will  be  tomorrow,  or  six  months  hence? 
It  is  impossible  to  estimate  and  prepare  the  necessary  equipment  and 
the  adequate  lists  of  instructors  and  officers ;  this  became  clear  in  the 
first  months  of  the  war.  Such  was  the  sudden  rush  of  volunteers, 
that  for  lack  of  enough  buildings,  uniforms,  guns,  and  instructors 
many  had  to  be  refused.  The  men  were  discouraged ;  the  idea  spread 
that  no  more  men  were  wanted,  and  the  next  appeal  met  with  a  poor 
response ;  it  was  necessary  to  resort  to  new  propaganda.  Then  there 
was  another  difiiculty  leading  to  another  kind  of  confusion.  A  man 
would  often  enlist  for  a  particular  corps  or  a  particular  service  only. 
A  chief  engineer,  priceless  in  the  workshop,  would  insist  on  going  to 
the  firing  line  ;  an  unskilled  mechanic  would  prefer  to  serve  at  home  in 
a  factory.  Finally,  for  lack  of  the  numbers  of  fighting  men  which 
conscription  would  give,  the  state,  as  the  war  extends  and  the  need  of 
soldiers  increases,  ends  by  taking  all  who  offer  themselves,  even  boys 
and  weaklings,  who  quickly  sink  to  the  hospital  and  are  finally  dis- 
missed. Time  was  required  to  reveal  all  these  defects,  some  of  them 
clearly  immoral,  of  a  system  which  owes  all  its  prestige  to  its  appear- 
ance of  superior  morality  and  the  force  of  tradition. 

121.     Voluntary  Enlistment  of  Factories^ 

BY   HAROLD  G.    MOULTON 

The  most  usual  method  of  industrial  mobilization  is  by  means  of 
what  may  be  called  the  voluntary  enlistment  of  factories  in  the  pro- 
duction of  war  supplies.  This  is  induced  on  the  part  of  the  govern- 
ment by  means  of  an  offer  of  high  prices  and  large  profits.  This 
has  sometimes  been  called  the  financial  method  of  readjustment, 
because  it  involves  the  use  of  money  as  a  medium  for  effecting  the 
necessary  readjustments. 

The  precise  role  that  money  plays  in  industrial  society  is  confusing 
at  all  times  to  the  economic  novice,  and  it  is  perhaps  especially  so  in 
connection  with  war.  Our  government  is  to  raise  the  first  year  of  the 
war  $19,000,000,000.  It  is  to  spend  this  vast  sum  in  inducing  people 
to  furnish  the  materials  that  are  required  for  military  operations. 
These  funds  are  to  be  passed  through  the  Treasury  Department  in 
successive  instalments,  giving  purchasing  power  while  there,  but 

"Adapted  from  "Industrial  Conscription,"  Journal  of  Political  Economy, 

XXV  (1917),  917-45- 


276  CURRENT  ECONOMIC  PROBLEMS 

passing,  in  the  act  of  purchasing,  back  again  into  the  channels  of 
industry.  Money  then  is  the  means  by  which  the  government  is 
enabled  to  buy  the  things  it  needs. 

While  the  process  thus  far  is  perhaps  generally  enough  understood, 
it  is  usually  not  so  clear  that  if  the  commodities  required  by  the 
government  are  to  be  found  ready  on  the  market  when  they  are 
desired,  the  government  must  use  the  money  placed  in  its  hands  in 
such  a  way  as  to  induce  capital  and  labor  to  be  shifted  into  the 
production  of  the  supplies  and  materials  demanded. 

Let  us  take  some  concrete  examples.  X,  a  manufacturer  of 
automobiles,  is  offered  a  contract  by  the  government  to  produce  motor 
trucks  for  army  service.  If  the  price  offered  is  attractive,  and  if  the 
factory  can  be  easily  adapted  to  the  manufacture  of  motor  trucks,  the 
manager  will  usually  readily  accept  the  government  contract.  Here 
we  have  a  diversion  of  energy  without  great  difficulty  and  without 
having  to  pay  enormously  high  prices  to  accomplish  it.  But  let  us 
take  a  different  case.  Y  is  engaged  in  the  manufacture  of  candy,  or 
perfumery,  or  beer,  or  ceramics.  The  government  seeks  to  induce 
Y's  concern  to  manufacture  war  supplies.  To  do  so  would  require 
extensive  rehabilitation  of  plant  if  not  indeed  new  factories  altogether. 
Will  Y  change  the  character  of  his  business?  Purchasers  of  candy, 
perfumery,  beer,  and  ceramics  engage  in  direct  competition  with  the 
government  and  seek  to  induce  Y  to  continue  his  present  business,  by 
demanding  the  usual  output  of  such  commodities.  The  government 
must  here  greatly  outbid  private  spenders  if  it  is  to  secure  the  pro- 
duction of  war  supplies. 

In  this  connection  it  must  be  borne  in  mind  that  the  government 
is  not  a  very  effective  competitor  for  either  labor  or  capital — it  must 
pay  much  higher  returns  than  normal  industry  if  it  is  to  attract  the 
requisite  production.  Why?  Because  the  laborer  does  not  usually 
feel  the  call  of  patriotism  or  the  lure  of  adventure  except  when  he 
contemplates  entering  the  active  military  establishment.  The  pecu- 
niary motive  alone  must  generally  be  looked  to  as  the  means  of  in- 
ducing him  to  enter  the  industrial  army  of  the  government.  He  will 
not  often  voluntarily  leave  his  position  and  apply  for  one  in  munitions 
factories  at  the  same  wages,  because  of  the  costs  incident  to  trans- 
ferring to  a  new  (and  often  distant)  employment,  and  because  of  the 
ephemeral  nature  of  the  demand  for  war  materials.  Very  high  wages 
are  therefore  required  if  he  is  to  be  tempted. 

Similarly,  the  government  must  pay  very  high  prices  for  the 
materials  supplied  if  the  capitalist  is  to  be  tempted  into  new  and 
uncertain  fields.  Can  he  get  efficient  laborers  for  this  work  ?  How 
high  wages  will  he  have  to  pay  ?    How  long  will  the  war  last  ?    These 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      277 

are  but  a  few  of  the  questions  the  industrial  manager  has  to  ask  and 
answer  as  best  he  may.  Generally  speaking,  he  will  assume  the 
speculative  risks  involved  if  the  financial  inducements  are  high 
enough,  but  not  otherwise. 

It  should  be  observed  in  this  connection  that  the  government's 
inducement  must  be  high  enough  to  cover  all  costs  incident  to  the 
transition  into  the  war  business,  the  losses  due  to  high  cost  of  opera- 
tion while  engaged  in  the  manufacture  of  war  supplies,  and  finally  the 
losses  incident  to  the  transition  back  to  peace-time  industry  of  the 
period  of  reconstruction  at  the  close  of  the  war.  Now  there  may  be  a 
few  who  would  volunteer  under  any  circumstances ;  but  the  general 
tendency  in  any  event  would  be  to  delay  as  long  as  possible,  to  delay 
perchance  too  long  to  be  of  any  assistance  in  the  prosecution  of  the 
war. 

It  should  be  observed,  however,  that  this  method  eventually 
results  in  a  readjustment  of  business  to  war  requirements.  It  is 
largely  accomplished  by  a  negative  process — as  a  result  of  declining 
profits  from  normal  operations,  caused  by  a  curtailment  of  consump- 
tive demand.  There  are  several  reasons  for  this  retrenchment  in 
consumption.  In  the  first  place,  the  perfect  barrage  fire  of  argument 
as  to  the  necessity  of  saving  which  has  been  hurled  at  the  American 
public  in  recent  months  is  bearing  fruit. 

In  the  second  place,  it  is  impossible  for  the  rank  and  file  of  the 
American  people  to  buy  Liberty  Bonds  and  spend  as  usual.  If  they 
buy  bonds  it  must  be  at  the  sacrifice  of  accustomed  luxuries.  More- 
over, we  are  now  looking  forward  to  the  payment  of  taxes,  and  we  are 
making  our  preparations  for  this  by  economizing  in  our  normal 
purchases.  It  must  be  borne  in  mind  in  this  connection  also  that  at  a 
time  when  the  future  is  so  uncertain  a  great  many  people  are  saying, 
"I  had  better  save  all  I  can  now,  because  there  is  no  telling  whether 
it  will  be  possible  for  me  to  save  anything  in  the  next  few  years." 

Finally,  it  must  be  noted  that  the  rapid  rise  of  prices  in  nearly 
every  line  eventually  forces  rigid  economy  among  the  masses.  Sta- 
tistics published  by  the  government  early  in  1918  show  that  retail 
prices  of  foodstuffs  in  the  United  States  are  now  57  per  cent  higher 
than  they  were  in  1914,  while  general  wholesale  prices  are  81  per  cent 
higher.  Students  of  the  question  are  unanimous  in  the  belief  that 
prices  will  continue  to  rise  here  throughout  the  war,  just  as  they  have 
in  the  nations  of  Europe.  It  will  therefore  shortly  be  impossible  for 
the  masses  of  our  people  to  devote  much  of  their  earnings  to  the  pur- 
chase of  nonessentials.  They  will  count  themselves  fortunate  if 
they  are  able  to  purchase  enough  of  the  necessities  of  life  to  sustain 
themselves  in  a  state  of  normal  efficiency.    Already  in  many  cases  the 


278  CURRENT  ECONOMIC  PROBLEMS 

pinch  of  war  prices  is  beginning  to  mean  real  privation. 

These  forces,  however,  do  not  for  several  years  result  in  a  complete 
shifting  of  productive  energy  from  nonessential  lines.  The  chief 
reason  for  this  is  that  the  laboring  classes,  who  as  a  result  of  the  war 
receive  unprecedented  high  wages,  are  unable  to  resist  the  tempta- 
tion to  spend  their  new-found  wealth  for  the  luxuries  and  comforts 
of  life,  which  have  so  long  been  denied  them.  This  excess  of  purchas- 
ing power  in  the  hands  of  the  "rich  war  laborers"  has  had  a  striking 
manifestation  in  England;  and  it  began  to  develop  rapidly  in  the 
United  States  in  the  year  1918.  A  complete  readjustment  of  industry 
can  be  rapidly  accomplished,  therefore,  only  by  the  exercise  of  some 
form  of  coercion  on  the  side  of  production,  such  as  the  exercise  of 
priority  rulings  or  conscription  of  the  use  of  industrial  establishments. 

122.     Voluntary  Mobilization  of  Labor^" 

BY   LEON    C.    MARSHALL 

In  our  industrial  system  the  standard  mechanism  for  inducing 
laborers  to  move  is  that  of  an  offer  of  higher  wages.  This  offer  was 
readily  forthcoming  from  the  contractors  in  war  industries,  particu- 
larly from  those  who  held  "cost-plus-percentage"  contracts,  which 
made  it  actually  to  the  profit  of  the  employer  to  pay  high  wages  for 
his  workers.  War  contractors  "bid  away"  from  ordinary  industries 
their  skilled  workers,  disrupting  in  so  doing  some  of  the  basic  in- 
dustries of  the  country,  and  then  bid  against  each  other  for  these 
workers.  The  lack  of  general  planning,  or  indeed  of  general  knowl- 
edge of  the  turn  events  were  taking,  caused  wages  to  rise  very  irregu- 
larly in  the  various  trades  affected,  in  the  various  communities  af- 
fected, and  even*  in  the  different  industrial  plants  within  a  given 
community. 

The  competitive  bidding  of  the  various  contractors  was  ac- 
centuated by  their  firm  belief  that  there  was  a  scarcity  of  labor, 
particularly  of  skilled  labor.  It  is  not  surprising  that  this  belief 
should  have  been  prevalent.  There  was  undoubtedly  a  scarcity  of 
certain  kinds  of  skilled  labor ;  there  was  a  scarcity  of  many  kinds  of 
skilled  labor  in  the  congested  districts ;  and  the  story  of  England's 
difficulties  in  providing  skilled  labor  had  been  widely  circulated. 
One  feature  of  our  situation  was  very  generally  overlooked.  The 
scarcity  of  shipping  made  our  problem  very  different  from  that  of 
England.  The  actual  situation  is  that,  conceding  scarcity  of  certain 
kinds  of  labor  and  of  many  kinds  of  labor  in  certain  districts  and  of 

loAdapted  from  "The  War  Program  and  Its  Administration,"  Journal 
of  Political  Economy,  XXVI  (1918),  425-60. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      279 

maladjustment  of  labor  supply  in  many  districts,  there  is  no  real 
scarcity  of  labor,  taking  the  country  as  a  whole. 

To  this  hectic  wage  situation  there  was  added  the  fact  that  we  did 
not  have  a  satisfactory  system  of  employment  exchanges  through 
whose  activities  the  movement  of  workers  could  take  place  in  an 
orderly  fashion  according  to  carefully  determined  requirements. 
The  result  was  that  the  movement  occurred  in  a  highly  disorderly 
manner,  guided,  if  such  a  term  may  be  used,  by  newspaper  advertise- 
ments of  private  industries,  by  wild  rumors  of  high  wages  in  some 
distant  locality,  and  by  the  patriotic  desire  of  the  individual  worker 
to  be  of  service.  A  plant  manager  in  one  of  these  war-industry  towns 
said  that  "for  weeks  laborers  milled  around  like  cattle"  in  his  town. 
The  story  is  told  of  one  community  in  which  an  investigator  met 
incoming  trains  and  watched  workers  accept  employment  in  as  many 
as  six  to  ten  plants  in  the  same  day,  moving  from  one  to  the  other  in 
the  hope  of  ever-higher  wages  and  accepting  employment  in  every 
one  whose  wage  offer  was  larger  than  that  of  its  predecessor. 

There  is,  of  course,  no  such  thing  as  a  "normal"  labor  turnover. 
Some  writers  have  estimated  that  a  labor  turnover  of  100  per  cent  per 
year  represents  average  conditions.  In  these  war  industry  plants  a 
labor  turnover  of  400  or  500  per  cent  was  regarded  as  low,  and  one  of 
1,600  to  2,000  per  cent  was  by  no  means  phenomenal. 

123.     Work  or  Fight' ^ 

BY  GENERAL  ENOCH   CROWDER 

Every  man,  in  the  draft  age  at  least,  must  work  or  fight. 

This  is  not  alone  a  war  of  military  maneuvres.  It  is  a  deadly 
contest  of  industries  and  mechanics.  Germany  must  not  be  thought 
of  as  merely  possessing  an  army ;  we  must  think  of  her  as  being  an 
army — an  army  in  which  every  factory  and  loom  in  the  Empire  is  a 
recognized  part  in  a  complete  machine  running  night  and  day  at 
terrific  speed.  We  must  make  ourselves  the  same  sort  of  effective 
machine. 

We  must  make  vast  withdrawals  for  the  army  and  immediately 
close  up  the  ranks  of  industry  behind  the  gap  with  an  accelerating 
production  of  every  useful  thing  in  necessary  measure.  How  is  this 
to  be  done  ?  The  answer  is  plain.  The  first  step  toward  the  solution 
of  the  difficulty  is  to  prohibit  engagement  by  able-bodied  men  in  the 
field  of  hurtful  employment,  idleness,  or  ineffectual  employment,  and 
thus  induce  and  persuade  the  vast  wasted  excess  into  useful  fields. 

« 

i^Adapted  from  the  order  known  by  this  name,  July,  1918. 


28o  CURRENT  ECONOMIC  PROBLEMS 

One  of  the  unanswerable  criticisms  of  the  draft  has  been  that  it 
takes  men  from  the  farms  and  from  all  useful  employments  and 
marches  them  past  crowds  of  idlers  and  loafers  away  to  the  army. 
The  remedy  is  simple — to  couple  the  industrial  basis  with  other 
grounds  for  exemption  and  to  require  that  any  man  pleading  exemp- 
tion on  any  ground  shall  show  that  he  is  contributing  effectively  to 
the  industrial  welfare  of  the  nation. 

124.     Priorities'^ 

BY  ALVIN  JOHNSON 

Priority  must  be  accorded  to  the  services  of  war.  When  an  army 
is  to  be  moved  all  means  of  transport  in  sight  are  commandeered. 
When  an  army  is  to  be  fed,  civilians  protest  in  vain  against  the  seizure 
of  stores.  So  matters  have  stood  since  time  immemorial.  This  is 
why  it  now  seems  merely  common  sense  to  enact  a  law  giving  the 
president  authority  to  claim  priority  in  the  transportation  of  goods 
essential  in  the  prosecution  of  the  war.  Whether  the  output  of  steel 
mills  shall  be  assigned  to  the  building  of  war  ships,  merchant  ships, 
railways,  office  buildings,  or  summer  hotels,  should,  we  all  feel,  be 
determined  by  a  like  principle  of  priority.  If  we  have  as  yet  no  law 
guaranteeing  priority  for  military  requirements  in  the  field  of  pro- 
duction, we  feel  that  this  is  merely  a  gap  in  our  war  arrangements, 
to  be  stopped  for  the  present  by  patriotic  action  on  the  part  of  the 
producers  themselves. 

What  is  novel  in  the  present-day  conception  of  priority  is  rts 
breadth  of  scope.  When  the  whole  industry  of  a  nation  is  mobilized 
behind  the  fighting  line,  it  is  not  merely  finished  munitions  that  must 
be  given  priority  in  transportation,  but  also  the  materials  and  fuel 
for  further  munitions  production.  The  food  supply  of  the  industrial 
population,  as  well  as  that  of  the  army,  has  a  claim  to  priority.  So 
also  have  clothing  supplies,  lumber  for  housing,  and  whatever  else 
is  essential  to  working  efficiency.  In  production  it  would  be  impos- 
sible to  fix  definite  limits  upon  the  application  of  the  priority  principle. 
We  can  not  much  longer  permt  the  free  flotation  of  the  securities  of 
foreign  enterprises,  nor  even  of  the  less  essential  domestic  enterprises, 
so  long  as  national  loans  or  issues  designed  to  finance  railways  or 
industrial  enterprises  of  prime  necessity  are  to  be  floated.  Modem 
warfare,  in  involving  the  whole  national  life,  has  made  inevitable  a 
control  of  business  practically  coextensive  with  the  economic  system. 

The  application  of  the  priority  principle  to  transportation  and 

i^Adapted  from  "What  Priority  Means,"  Neiv  Republic  (June  30,  1917),  P- 
237.    Copyright. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      281 

production  is  quite  in  accord  with  plain  common  sense.  It  is  none  the 
less  revolutionary  in  its  social  economic  implications.  What  it  means 
is  that  necessities  shall  have  right  of  way.  If  we  have  excess  pro- 
ductve  capacity,  the  unessentials  and  luxuries  may  be  provided,  but 
not  otherwise.  And  necessities  are  definable  in  terms  that  take 
account  only  of  physical  requirements.  There  is  no  room  in  the 
definition  for  class  distinctions.  A  new  country  house  may  seem  a 
matter  of  necessity  to  the  man  of  fortune,  but  he  will  persuade  no 
priority  board  to  permit  shipments  of  building  material  while  cars  are 
needed  for  coal  or  wheat.  Nor  will  he  persuade  them  to  let  him  have 
lumber  that  could  be  used  for  ships  or  workingmen's  camps,  or  labor 
that  could  be  employed  to  advantage  in  production  for  more  clearly 
national  and  democratic  needs. 

125.     Industrial  Conscription^^' 

BY  HAROLD  G.    MOULTON 

By  industrial  conscription  the  government  could  transfer  laborers 
from  the  industries  that  are  unimportant  to  the  fields  of  production 
that  are  imperatively  necessary  as  rapidly  as  is  required,  without 
waiting,  possibly  indefinitely,  for  public  economizing  to  force  read- 
justment through  the  decline  of  profits  and  the  closing  of  factory 
doors.  Industrial  establishments  engaged  in  manufacturing  com- 
modities that  are  unnecessary  for  war  purposes  could  by  industrial 
conscription  be  forced  to  convert  themselves  at  once  into  factories 
for  the  manufacture  of  munitions  and  other  war  materials.  New 
construction  that  is  not  necessary  for  war  purposes  could  be  halted 
and  the  energy  engaged  therein  diverted  to  the  channels  where  im- 
peratively demanded.  Such  a  system  would  reduce  to  a  minimum 
the  social  loss  of  time  and  energy  incident  to  the  transition  period. 
Wisely  administered  (note  the  qualification)  upon  a  basis  of  what 
may  be  called  selective  industrial  conscription  it  would  eliminate  a 
great  part  of  the  confusion,  disruption,  and  maladjustment  incident 
to  the  ordinary  financial  method  of  readjustment. 

Not  only  are  the  social  losses  involved  in  the  transition  less  than 
under  the  method  of  gradual  readjustment,  but  the  direct  losses  to 
capitalists  are  almost  certain  to  be  less.  Assume  that  time  permits  a 
gradual  transition  covering  a  period  of  two  or  three  years.  Would 
the  losses  through  gradual  readjustment  by  means  of  the  financial 
machinery  be  less  than  through  direct  commandeering?  The  former 
method  means  vainly  struggling  along  in  present  lines  with  lower 

^^Adapted  from  "Industrial  Conscription,"  Journal  of  Political  Economy, 

XXV  (1917),  917-45. 


282  CURRENT  ECONOMIC  PROBLEMS 

margins  of  profits  and  heavy  losses  as  reduced  sales  gradually  de- 
velop ;  it  is  likely  to  mean  with  any  given  establishment  months  of  loss 
before  bankruptcy  and  then  a  considerable  interval  of  no  business  at 
all  while  attempting  to  fit  itself  into  newer  lines  of  production.  Only 
in  cases  where  the  rehabilitation  of  factories  is  a  simple  process  can 
the  conversion  be  made  without  heavy  losses.  Even  in  these  cases, 
however,  the  tendency  will  be  to  delay  the  fatal  step  as  long  as  pos- 
sible, and  this  means  until  the  pinch  of  declining  profits  is  no  longer 
tolerable.  Under  the  method  of  industrial  conscription,  however,  the 
conversion  could  be  forced  before  the  decline  in  profits  threatens 
insolvency.  And,  moreover,  the  losses  attending  the  entrance  into 
the  new  lines  of  industry  could  be  reduced  to  a  minimum  by  directing 
capital  to  the  places  of  greatest  need.  It  is  a  method,  substantially 
speaking,  of  carefully  planned  adjustment  by  a  board  of  experts 
acquainted  with  the  entire  situation,  as  against  the  slow  and  uncertain 
method  of  trial  and  error  by  business  men  who  hope  and  believe  that 
business  will  continue  as  usual,  and  who,  when  eventually  forced  from 
present  lines  of  activity,  find  themselves  only  partially  or  inaccurately 
acquainted  with  the  government's  requirements. 

But  aside  from  all  this  it  must  be  emphasized  that  the  method 
of  industrial  conscription  saves  what  is  at  present  more  precious 
than  gold  itself — it  saves  time.  If  selective  conscription  of  men  may 
be  justified  on  the  ground  that  the  volunteer  system  is  hopelessly  slow 
and  uncertain  where  speed  and  certainty  are  indispensable,  may  not 
conscription  of  industry  be  justified  on  the  same  grounds?  If  ships, 
munitions,  and  food  rather  than  soldiers  are  to  render  our  greatest 
service  to  our  Allies,  why  resort  to  the  method  of  efficiency  in  the 
raising  of  armies  and  the  method  of  inefficiency  and  uncertainty  in 
the  raising  of  crops  and  supplies? 

Shall  we  answer.  Because  conscription  of  industry  is  un-American, 
because  it  places  autocratic  power  in  the  hands  of  a  democratic  gov- 
ernment and  strikes  at  the  very  foundation  of  our  institutions — 
private  property,  vested  interests,  free  initiative,  individual  liberty, 
competition,  and  all  the  rest  ?  A  similar  answer  may  be,  and  has  been, 
made  with  reference  to  military  conscription,  but  we  have  overruled 
that  objection  mainly  on  the  ground  that  the  time  element  is  so 
tremendously  important  that  ordinary  peace-time  principles  and  ideals 
have  to  give  way.  Much  as  we  may  dislike  the  principle  and  method 
of  conscription,  do  we  not  dislike  and  fear  the  alternative — the  in- 
definite eclipse  of  democratic  institutions — more? 

In  one  important  respect  industrial  conscription  is  incomparably 
less  objectionable  than  military  conscription.    The  man  who  is  com- 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      283 

pelled  to  serve  in  the  army  is  forced  to  offer  life  itself  in  the  cause 
for  which  he  is  enlisted  ;  the  man  who  is  compelled  to  close  his  factory 
or  convert  it  to  different  uses,  the  man  who,  as  a  laborer,  is  compelled 
to  change  his  employment,  at  best  offers  but  his  services  for  a  smaller 
remuneration.  It  is  the  old  question  of  life  versus  property.  The 
nation  which  protests  and  believes  that  there  is  all  difference  between 
a  prize  court  and  a  submarine — between  temporary  detention  of  our 
ships  and  their  cargo  and  legally  determined  compensation  after  the 
war  and  the  sinking  of  our  ships  and  citizens  without  a  warning — can 
make  so  far  as  justice  is  concerned  only  one  decision  on  the  question 
of  industrial  versus  military  conscription. 

The  method  of  industrial  conscription  obviously  raises  enormous 
problems  of  its  own.  How  shall  we  provide  the  machinery  necessary 
to  its  successful  administration?  Who  shall  be  given  the  power  to 
decree  life  or  death  for  industrial  establishments  in  the  exercise  of  the 
selective  requirements  of  the  plan?  Who  shall  decide  what  industries 
are  important  to  keep  alive  in  war  time — for  recreational  and  cultural 
purposes  as  well  as  for  physical  and  military  requirements?  What 
man  or  what  body  of  men  can  be  found  with  the  necessary  omnis- 
cience, with  the  requisite  prevision,  for  such  a  method  of  industrial 
reorganization  ?  I  have  spoken  of  a  board  of  experts,  but  a  friend  of 
mine  remarks :  "We  may  call  them  experts  but  that  does  not  make 
them  really  expert ;  they  would  be  sure  to  make  no  end  of  mistakes ; 
they  are  not  in  a  position  to  determine  in  anything  approaching  a 
scientific  manner  what  lines  of  human  endeavor  count  for  most." 
That  there  is  point  to  such  contentions  in  piping  times  of  peace  I 
would  be  the  last  to  deny,  but  in  time  of  war  the  problem  is  profoundly 
changed.  An  administrative  board  giving  its  entire  time  to  the  study 
of  the  situation  could,  it  seems  to  me,  determine  and  guide  with  con- 
siderable wisdom  the  apportionment  of  our  national  energy.  The 
insistent  demands  of  the  War  Department  for  ships,  for  munitions, 
for  supplies  furnishes  abundant  evidence  of  the  things  that  are  needed 
most;  the  demand  side  of  the  problem  certainly  has  no  insuperable 
obstacles.  The  determination  of  what  particular  commodities  shall 
be  dispensed  with  is  perhaps  not  so  simple  a  task.  But  could  not  any 
of  us  upon  reflection  think  of  a  score  of  commodities  that  are  less  im- 
portant for  war  purposes  than  shells,  than  food,  than  shovels,  than 
airships?  We  need  not  look  for  100  per  cent  efficiency  in  order  to 
justify  the  effort.  Any  percentage  of  efficiency  would  be  a  net  gain 
over  the  present  method  of  sheer  inefficiency. 


284  CURRENT  ECONOMIC  PROBLEMS 

D.     MOBILIZATION  IN  LIBERAL  COUNTRIES 
126.     The  Penalty  of  Taking  the  Lead^* 

BY   THORSTEIN   VEBLEN 

An  industrial  system  which,  like  the  English,  has  been  long  en- 
gaged in  a  course  of  improvement,  extension,  innovation,  and  speci- 
lization  will  in  the  past  have  committed  itself,  more  than  once  and 
in  more  than  one  connection,  to  what  was  at  the  time  an  adequate 
scale  of  appliances  and  schedule  of  processes  and  time  adjustments. 
Partly  by  its  own  growth  and  by  force  of  technological  innovations 
designed  to  enlarge  the  scale  or  increase  the  tempo  6f  production  or 
service,  the  accepted  correlations  in  industry  and  in  business,  as  well 
as  the  established  equipment,  are  thrown  out  of  date.  Yet  it  is  by 
no  means  an  easy  matter  to  find  a  remedy;  more  particularly  is  it 
difficult  to  find  a  remedy  that  will  approve  itself  as  a  sound  business 
proposition  to  a  community  of  conservative  business  men  who  have 
a  pecuniary  interest  in  the  continued  working  of  the  received  system, 
and  who  will  not  be  endowed  with  much  insight  into  technological 
matters  anyway.  So  long  as  the  obsolescence  in  question  gives  rise 
to  no  marked  diflferential  advantage  of  one  or  a  group  of  these 
business  men  as  against  competing  concerns,  it  follows  logically  that 
no  remedy  will  be  sought.  An  adequate  remedy  by  detail  innovation 
is  not  always  practicable ;  indeed,  in  the  more  serious  conjectures  of 
the  kind  it  is  virtually  impossible,  in  that  new  items  of  equipment 
are  necessarily  required  to  conform  to  the  specifications  already 
governing  the  old. 

So,  e.g.,  it  is  well  known  that  the  railways  of  Great  Britain,  like 
those  of  other  countries,  are  built  with  two  narrow  a  gauge,  but  while 
this  item  of  "depreciation  through  obsolescence"  has  been  known  for 
some  time,  it  has  not  even  in  the  most  genial  speculative  sense  come 
up  for  consideration  as  a  remediable  defect.  In  the  same  connection 
American,  and  latterly  German,  observers  have  been  much  impressed 
with  the  silly  little  bobtailed  carriages  used  in  the  British  goods 
traffic ;  which  were  well  enough  in  their  time,  before  American  or 
German  railway  traffic  was  good  for  anything  much,  but  which  have 
at  the  best  a  playful  air  when  brought  up  against  the  requirements  of 
today.  Yet  the  remedy  is  not  a  simple  question  of  good  sense.  The 
terminal  facilities,  tracks,  shunting  facilities,  and  all  the  ways  and 
means  of  handling  freight  on  this  oldest  and  most  complete  of  railway 
systems  are  all  adapted  to  the  bobtailed  car.  So,  again,  the  roadbed 
and  metal,  as  well  as  the  engines,  are  well  and  substantially  con- 
structed to  take  care  of  such  traffic  as  required  to  be  taken  care  of 

^^Adapted  from  Imperial  Germany  and  the  Industrial  Revolution,  pp. 
124-28.    Copyright,  1915.    Published  by  B.  W.  Huebs       New  York. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      285 

when  they  first  went  into  operation,  and  it  is  not  easy  to  make  a 
piecemeal  adjustment  to  later  requirements.  It  is  perhaps  true  that, 
as  seen  from  the  standpoint  of  the  community  at  large  and  its  material 
interest,  the  out-of-date  equipment  and  organization  should  prof- 
itably be  discarded — "junked,"  as  the  colloquial  phrase  has  it — and 
the  later  contrivances  substituted  throughout ;  but  it  is  the  discretion 
of  the  business  men  that  necessarily  decides  these  questions,  and  the 
whole  proposition  has  a  different  value  as  seen  in  the  light  of  the 
competitive  pecuniary  interest  of  the  business  men  in  control. 

This  instance  of  the  British  railway  system  and  its  shortcomings  in 
detail  is  typical  of  the  British  industrial  equipment  and  organization 
throughout,  although  the  obsolescence  will  for  the  most  part  perhaps 
be  neither  so  obvious  nor  so  serious  a  matter  in  many  other  directions. 
Towns,  roadways,  factories,  harbors,  habitations,  were  placed  and 
constructed  to  meet  the  exigencies  of  what  is  now  in  a  degree  an 
obsolete  state  of  the  industrial  arts,  and  they  are,  all  and  several, 
"irrelevant,  incompetent,  and  impertinent"  in  the  same  degree  in 
which  the  technological  scheme  has  shifted  from  what  it  was  when 
these  appliances  were  installed.  They  have  all  been  improved,  "per- 
fected," and  adapted  to  meet  changing  requirements  in  some  passi- 
ble fashion;  but  the  chief  significance  of  this  work  of  improvement, 
adaptation,  and  repair  in  this  connection  is  that  it  argues  a  fatal 
reluctance  or  inability  to  overcome  this  all-pervading  depreciation 
by  obsolescence. 

All  this  does  not  mean  that  the  British  have  sinned  against  the 
canons  of  technology.  It  is  only  that  they  are  paying  the  penalty  of 
having  been  thrown  into  the  lead  and  so  having  shown  the  way.  At 
the  same  time  it  is  not  to  be  imagined  that  this  lead  has  brought 
nothing  but  ^ains  and  penalties.  The  shortcomings  of  this  British 
industrial  situation  are  visible  chiefly  by  contrast  with  what  the 
British  might  be  doing  if  it  were  not  for  the  restraining  dead  hand  of 
their  past  achievement,  and  by  further  contrast,  latterly,  with  what 
the  new-come  German  people  are  doing  by  use  of  the  English  tech- 
nological lore.  As  it  stands,  the  accumulated  equipment,  both  mate- 
rial and  immaterial,  both  in  the  way  of  mechanical  appliances  in 
hand  and  in  the  way  of  technological  knowledge  ingrained  in  the 
population  and  available  for  use,  is  after  all  of  very  appreciable  value ; 
though  the  case  of  the  Germans  should  make  it  plain  that  it  is  the 
latter,  the  immaterial  equipment,  that  is  altogether  of  first  conse- 
quence rather  than  the  accumulation  of  "production  goods"  in 
hand.  These  "production  goods"  cost  nothing  but  labor ;  the  imma- 
terial equipment  of  technological  proficiency  costs  age-long  exper- 
ience. 


286  CURRENT  ECONOMIC  PROBLEMS 

127.     Social  Customs  and  Efficiency  in  War^^ 

BY   HAROLD  G.   MOULTON 

In  Anglo-Saxon  and  Latin  countries  women  are  traditionally 
home-keepers.  In  the  Teutonic  nations  they  are  traditionally  co- 
workers with  their  men  in  the  work  of  the  world.  This  difference  in 
social  custom  is  proving  at  the  present  time  one  of  the  powerful 
factors  in  the  world-war. 

The  information  has  been  disclosed  that  the  allies  were  out- 
numbered on  the  western  front  in  the  spring  and  early  summer  of 
1918.  It  has  seemed  impossible  to  many  people  that  this  could  be 
true;  for — leaving  America  out  of  consideration  at  this  period — is 
not  the  population  of  Great  Britain,  Canada,  Australia,  France  and 
Italy  greater  than  that  of  the  Central  Powers  ?  It  has  seemed  incred- 
ible that  the  Allies  could  be  outnumbered  in  face  of  the  indisputable 
population  statistics. 

Numerous  explanations  have  been  offered  for  the  enigma.  The 
one  most  frequently  given  is  the  dissipation  of  British  forces  in 
consequence  of  the  necessity  of  keeping  troops  in  Mesopotamia, 
Egypt,  and  Saloniki ;  the  maintenance  of  a  large  naval  force,  etc. 
Another  explanation  is  the  more  effective  utilization  by  Germany  of 
her  prisoners  of  war,  including  civilian  populations  from  conquered 
territories,  the  number  of  such  prisoners  employed  on  farms  and  in 
industrial  establishments  in  Germany  being  estimated  in  1917  at  one 
million  two  hundred  thousand.  Still  another  explanation  is  that  the 
German  organization  has  more  effectively  mobilized  the  man  power 
of  the  country  in  consequence  of  a  more  rigid  curtailment  of  non- 
essential production.  Not  so  many  men  are  required  back  of  the 
lines  in  Germany  relatively  to  the  number  engaged  at  the  front  as 
in  the  allied  countries,  particularly  in  England,  where  many  are  still 
engaged  in  pursuits  which  are  relatively  unimportant.  The  most 
important  factor  in  the  situation,  however,  appears  to  be  the  part 
that  women  play  in  industry.  It  has  been  estimated  that  there 
were  one  million  five  hundred  thousand  women  engaged  in  British 
industry  in  the  spring  of  1918.  The  English  have  derived  great 
satisfaction  from  this  remarkable  showing  and  it  has  given  rise  to 
numerous  volumes  and  scores  of  articles.  Under  the  circumstances, 
that  is,  in  view  of  the  age-old  tradition  against  women  in  industry, 
the  British  women  have  done  extremely  well.    Their  spirit,  in  the  face 

i^Adapted  from  an  article  with  the  foregoing  caption  in  Clark,  Hamilton, 
and  Moulton,  Readings  in  the  Economics  of  War,  pp.  155-57.  Copyright  by 
the  University  of  Chicago,  1918. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      287 

of  a  most  cherished  heritage,  coupled  with  powerful  opposition  from 
British  trades  unions,  is  admirable.  But  in  contrast  with  the  part 
women  are  playing  in  the  Central  Powers  this  showing  could  in  the 
spring  of  1918  cause  only  anxiety  as  to  the  outcome  of  the  struggle. 
The  German  woman's  participation  in  agriculture  is  proverbial, 
and  the  war  has  of  course  necessitated  an  even  heavier  carrying  of  the 
burden  of  agricultural  production  by  female  labor.  This  is  equally 
true  in  Austria,  Bulgaria,  and  Turkey.  But  it  is  not  only  in  agri- 
culture that  the  German  women  are  playing  a  tremendously  important 
role.  Even  before  the  war  there  was  a  steadily  increasing  flow  of 
women  into  industrial  pursuits  in  Teutonic  countries.  While  the 
complete  statistics  for  women  in  industry  in  Germany  at  the  present 
time  are  not  available,  it  was  reported  that  as  early  as  the  middle  of 
1 916  there  were  more  women  than  men  employed  in  the  great  metal 
industries  of  the  Berlin  region,  and  on  March  i,  1917,  it  is  reported 
that  there  were  3,973,457  women  insured  in  the  sick-benefit  funds  of 
Germany.  Inadequate  as  these  data  are,  they  clearly  show  an  enor- 
mously greater  participation  of  women  in  essential  production  in 
Germany  than  in  England.  Between  the  ages  of  eighteen  and  forty- 
five  there  are  in  the  neighborhood  of  11,000,000  women  in  Germany, 
and  it  is  probably  a  conservative  estimate  that  three-quarters  of  these 
are  effectively  employed  in  the  creation  of  the  basic  necessities  for 
modern  warfare.  With  8,000,000  German  women  in  industry  as 
against  1,500,000  women  in  English  industry  it  means  a  release  of 
6,500,000  men,  roughly  speaking,  for  the  military  establishment. 
Nor  do  knitting  and  other  forms  of  household  manufacture  take  the 
place  of  machine  production ;  they  may  reduce  the  above  difference, 
but  they  do  not  eliminate  them.  The  German  organization  is  thus 
enabled  to  place  a  much  larger  percentage  of  the  man  power  of  the 
nation  in  the  army  than  it  has  been  possible  for  the  Allies  to  do. 
Possibly,  in  view  of  Anglo-Saxon  social  sanctions,  it  is  the  best  that 
we  can  hope  that  at  the  end  of  four  years  of  war  1,500,000  British 
women  should  be  engaged  in  industry.  If  so,  we  must  set  it  down  as 
one  of  the  serious  economic  liabilities  of  the  Allies,  a  liability  which 
can  be  offset  only  by  such  a  marked  superiority  of  man  power  as  the 
entrance  of  America  into  the  conflict  affords.  It  is  important  to  re- 
member, however,  that  without  America's  entrance  into  the  war  the 
Allies  would  quite  obviously  have  had  to  succumb  through  defeat  on 
the  western  front,  a  defeat  made  possible  because  the  "economic 
position  of  women"  in  the  Central  Powers  is  such  that  they  have 
been  enabled  to  place  a  larger  percentage  of  their  man  power  in  the 
active  military  establishment  than  have  the  Entente  nations. 


288  CURRENT  ECONOMIC  PROBLEMS 

128.     A  Nation  of  Amateurs^* 

BY  LEON  C.  MARSHALL 

The  problems  which  faced  our  national  leaders  upon  our  entry 
into  the  war  were  literally  staggering.  A  nation  whose  whole  tra- 
dition was  one  of  peace  was  to  be  placed  in  the  physical  and  mental 
attitude  to  wage  war.  Its  human  and  industrial  resources  were  to 
be  reorganized  to  meet  the  drains  of  war.  For  the  direction  of  these 
tasks  there  was  a  pitifully  inadequate  staff  of  officials — inadequate 
in  numbers,  in  training,  in  outlook,  and  in  authority — who  had  not 
even  had  in  proper  measure  the  advantages  flowing  from  preliminary 
planning. 

Under  the  circumstances,  it  is  not  surprising  that  much  industrial 
confusion  attended  our  efforts.  Conditions  in  the  Ordnance  Depart- 
ment may  be  taken  as  an  example  of  the  difificulties  involved.  At  the 
outbreak  of  the  war  this  department  had  on  duty  nine  commissioned 
officers  at  Washington  and  a  total  of  ninety-seven  in  the  entire 
country.  Its  peace-time  expenditures  had  been  about  $13,000,000 
per  annum.  From  this  nucleus  there  was  developed  in  one  year  a 
staff  at  Washington  consisting  of  3,000  officers,  1,700  enlisted  men, 
and  9,200  civilians,  with  a  total  of  5,000  officers  in  this  country  and 
abroad.  This  mushroom  staff  had  charge  of  direct  appropriations 
and  contract  authorizations  amounting  to  several  billions  of  dollars ; 
it  set  up  the  mechanism  for  controlling  the  production  of  this  quantity 
of  material  (for  of  course  it  could  not  be  procured  on  the  open  market 
and  its  production  had  to  be  supervised)  ;  it  provided  the  adminis- 
trative forces  for  storing  and  handling,  both  in  this  country  and 
abroad,  the  material  when  it  had  been  produced  and  delivered.  The 
enterprise  was  conducted  in  a  fashion  that  was,  upon  the  whole, 
admirable.  Men  could  not  be  trained  overnight,  but  able  engineers 
and  business  executives  were  called  into  the  service,  assigned  to  duties 
in  the  various  divisions  of  the  work,  given  a  considerable  range  of 
authority,  and  held  responsible  for  results. 

Admirable  as  was  the  approach  of  our  higher  officials  to  the 
problem  placed  before  them,  defects  in  operation  resulted  from  insuf- 
ficient planning  and  from  the  impossibility  of  training  subordinates 
properly  in  the  time  available.  It  would  be  an  unpardonable  injustice 
to  assert  that  the  programs  of  the  production  departments  were 
carried  out  with  little  planning.  No  one  who  came  into  contact  with 
the  overburdened  officials  responsible  for  the  execution  of  these  pro- 
grams would  make  such  an  assertion.    It  is  true,  however  (through 

i^Adapted  from  "The  War  Labor  Program  and  Its  Administration," 
Journal  of  Political  Economy,  XXVI  (May,  1918),  425-28. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      289 

little  fault  of  theirs),  that  their  planning  was  hastily  done  and  was  not 
well  co-ordinated.  Each  production  department  and  indeed  each 
subdivision  of  each  production  department  plunged  into  the  execution 
of  the  task  assigned  to  it,  knowing  little,  and  often  caring  less,  how 
its  actions  would  affect  the  execution  of  the  programs  of  others.  The 
officers  in  charge,  particularly  the  subordinates,  saw  no  other  course 
open  to  them.  They  had  been  trained  in  our  school  of  individualistic 
enterprise  where  "results"  counted — "results,"  however,  which  did 
not  depend  upon  national  team  work,  since  the  projects  involved  did 
not  demand  the  effective  utilization  of  all  the  resources  of  the  nation. 
The  country  demanded  "results."  In  the  absence  of  co-ordinatmg 
supervision  at  the  top  it  seemed  clear  to  the  average  production  officer 
that  his  patriotic  mission,  to  say  nothing  of  his  chances  of  preferment 
and  promotion,  began  and  ended  in  his  "pushing  his  own  program 
through."  And  he  had  a  reputation  as  a  "pusher."  He  was  the 
veritable  "he-man"  so  popular  in  Washington  dispatches.  He  had 
superlative  contempt  for  the  "super-co-ordinator"  who  dared  ask 
whether  the  nation's  interests  did  not  require  studies  in  priority  and 
carefully  balanced  production.  Furthermore,  this  "pusher"  was 
almost  certain  to  have  accepted  the  prevailing  fallacy  that  the  expendi- 
ture of  dollars  rather  than  materials  would  win  the  war.  He  accord- 
ingly placed  his  emphasis  on  grinding  out  contracts  for  vast  quantities 
of  materials — an  emphasis  which  the  contractors  themselves  were  not 
averse  to  stimulating.  Under  such  conditions  one  can  well  believe 
that  carloads  of  hull  paint  were  delivered  at  shipyards  where  the  ways 
had  not  yet  been  laid  on  which  the  hulls  were  to  be  constructed.  The 
nation's  resources,  unadjusted  as  they  were,  could  not  adequately 
meet  such  haphazard  demands. 

The  conclusion  resulting  from  the  apotheosis  of  the  Great  Amer- 
ican Pusher  was  accentuated  by  difficulties  arising  from  another  quar- 
ter. Since  there  was  little  or  no  guidance  from  the  top,  since  the  in- 
dustries and  labor  resources  of  the  country  had  never  been  effectively 
catalogued  and  classified  for  military  purposes,  since  war  contracts 
of  European  nations  had  been  centered  in  certain  districts,  and  since 
the  successful  business  managers  and  engineers  called  into  the  gov- 
ernment service  came  mainly  from  the  industrial  districts  of  the 
country,  the  outcome  of  the  zeal  of  the  contracting  officers  was  a  tre- 
mendous concentration  of  contracts.  When  stock  could  be  taken  of 
the  situation  it  was  discovered  that,  aside  from  the  contracts  of  the 
Shipping  Board,  one-fourth  of  all  the  government  contracts  for  war 
purposes  had  been  located  in  the  state  of  New  York  alone,  one-half 
in  three  states  (New  York,  Pennsylvania,  and  Ohio),  and  three- 
fourths  in  seven  states   (New  York,  Pennsylvania,  Ohio,  Massa- 


290         CURRENT  ECONOMIC  PROBLEMS 

chusetts,  Illinois,  New  Jersey,  and  Connecticut).  A  greater  disper- 
sion existed  in  the  case  of  the  Shipping  Board  contracts  because  the 
vessels  themselves  were  to  be  built  all  along  our  deep  waterways. 
It  is  not  improbable,  however,  that  the  contracts  for  accessories 
needed  in  shipbuilding  showed  a  somewhat  similar  concentration, 
and  the  general  belief  is  that  the  contracts  of  our  Allies  were  quite 
as  heavily  concentrated. 

The  war-industry  districts  arising  from  this  concentration  of 
contracts  rapidly  extended  existing  plants  and  built  new  ones.  They 
reached  out  to  the  rest  of  the  nation  for  materials,  money,  and  men, 
They  required  that  scores  of  thousands  of  workers  be  transferred  to 
them  from  districts  where  war  work  was  not  being  done.  Then 
followed  a  tremendous  congestion  of  transportation  facilities — a. 
congestion  that  was  later  to  play  its  part  in  causing  the  issuance  of  a 
so-called  fuel  order  which  was  really  an  order  to  relieve  an  "in- 
dustrial jam." 

129.     The  Consumer's  Dilemma 

a)     The  Appeal  to  Spend" 

DON'T  BE  A  BUSINESS  SLACKER 

Right  now  the  man  who  allows  fear  to  paralyze  the  hand  he  writes 
checks  with  is  just  as  dangerous  to  his  country  as  the  deliberate 
crank  who  throws  a  bomb. 

The Motor  Corporation  believes  that  the  business  slacker 

here  at  home  is  our  one  real  enemy — far  more  of  an  enemy  than  the 
Kaiser,  because  the  Kaiser  cannot  get  at  us. 

If  you  cannot  thrust  a  bayonet,  you  can  at  least  drive  your  busi- 
ness harder  than  you  have  ever  driven  it  before  and  thus  help  create 
the  imperative  prosperity  with  which  alone  this  war  can  be  won. 

It  betrays  weak-mindedness  to  think  of  driving  headlong  into  the 
period  of  panic,  penance,  abject  fear  and  hysterical  economy. 

The  man  who  sneaks  down  and  buys  a  marriage  license  life- 
preserver  is  not  the  worst  breed  of  slacker.  Conscription  will  take 
care  of  him.  But  for  the  business  slacker  there  is  no  law  but  his  own 
conscience.  The  man  who  destroys  business  takes  bread  out  of  the 
mouths  of  thousands. 

No  matter  what  comes — 

Don't  be  a  business  slacker. 

Right  now  is  an  almighty  good  time  to  take  the  bull  by  the  horns 
and  look  him  square  in  the  eye.    America  is  at  war.    It  is  a  big  war — a 

I'^An  advertisement  appearing  in  the  New  York  Times,  May  15,  1917. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      291 

very  big  war.  It  may  be  a  long  war,  and  when  we  try  to  imagine 
what  may  happen  no  one  can  blame  us  for  looking  serious. 

But  there  is  absolutely  no  reason  for  being  scared,  or,  in  a  busi- 
ness way,  even  aprehensive. 

We  cannot  avoid  the  firing  line — we  can  avoid  the  bread  line. 

War  is  transient — the  United  States  is  permanent. 

The  demands  on  us  will  be  great — but  our  resources  are  in- 
exhaustible. The  United  States  today  has  the  larger  part  of  all  the 
real  money  in  the  world.  But  money  is  just  like  rnen — if  it  is  inactive 
it  is  useless.  While  we  are  talking  about  making  our  factories  and 
our  farms  produce,  let's  not  forget  to  keep  our  money  producing. 
We  will  encounter  serious  problems,  but  American  ingenuity  and 
inventive  genius  is  equal  to  any  emergency. 

We  are  going  to  win  this  fight  because  we  are  on  the  side  of 
right — and  when  we  come  out  of  it  we  are  going  to  be  a  real  honest-to- 
God  nation. 

Meanwhile,  what  about  business? 

The  real  barometers  of  America's  business  are  the  smokestacks 
of  her  factories — her  dinner  pails — and  the  mouths  of  her  one 
hundred  millions, 

America  is  going  full  speed  ahead — don't  let  anybody  talk  you 
out  of  that. 

Even  if  America  desired  hard  times,  the  world  would  refuse  her 
the  wish.  We  have  been  conscripted  as  the  world's  kitchen,  the 
world's  shipyard,  the  world's  bank — the  world's  general  business 
manager — carte  blanche. 

America  is  bound  to  be  prosperous.  That's  her  part  in  the  war. 
Someone  must  keep  wealthy  enough  to  meet  this  war's  pay-roll. 
That's  our  job.  As  a  result,  the  great  mass  of  men,  women,  and 
children  in  this  country  can  no  more  avoid  getting  money  out  of  this 
present  emergency  than  a  lily  in  the  rain  can  avoid  getting  wet. 

Get  these  facts  through  your  head,  for  they  are  the  only  true 
facts  on  which  you  can  base  your  business  plans. 

America  has  taken  what  amounts  to  a  seven  thousand  million 
dollar  order. 

Mind  you,  this  is  only  the  first  of  many  such  orders.  Seven 
thousand  million  dollars'  worth  of  shoes,  guns,  munitions  and  what 
not  must  be  manufactured  and  delivered. 

Who  gets  the  seven  billion? 

If  you  are  a  merchant,  every  customer  on  your  books  will  get  a 
piece  of  it.  If  you  are  a  manufacturer  or  mechanic,  you  yourself 
will  get  your  part  of  it. 


292  CURRENT  ECONOMIC  PROBLEMS 

There  is  going  to  be  no  non-productive  labor  or  capital  in  this 
country.  Everybody  must  produce — which  means  that  everybody 
must  be  on  somebody's  pay-roll. 

For  at  least  three  years  America  cannot  avoid  being  the  most 
prosperous  nation  the  world  ever  saw. 

America's  wealth  is  about  to  be  redistributed  and  put  in  the  hands 
of  our  people. 

— not  in  the  hands  of  the  hoarding  few.  When  our  people  get 
money  they  have  the  courage  to  spend  it. 

So  look  out  for  big  business — tremendous  and  inevitable  big 
business — and  get  ready  to  take  care  of  it  when  it  comes. 

We  assure  you  that  the Motor  Corporation,  for  one,  pro- 
poses to  keep  right  on  building  and  selling  and  creating  its  share  of 
the  wealth  with  which  this  war  must  be  fought,  and  we  have  reason 
to  believe  that  the  whole  motor  car  industry  feels  exactly  the  same 
way  about  it. 

The  biggest  week ever  had  was  last  week — our  biggest  day 

so  far  was  yesterday. 

— and  it  looks  now  as  if  we  had  only  started — proving  that  honest 
merit  still  wins.  ,  with  its  unheard-of  advantages  and  its  un- 
questioned quality,  constitutes  real  economy  at  $1985. 

If  you  have  thought  of  buying  a  car  this  year,  go  ahead  and  buy  it. 

Meanwhile  remember  that  the  man  who  allows  fear  to  paralyze 
the  hand  he  writes  checks  with  is  as  dangerous  to  his  country  as  the 
deliberate  crank  who  throws  a  bomb. 

Motor  Corporation. 

b)     Practical  Patriotism  ^® 

HOTEL 

ST. BROADWAY ST. 

Tables  Are  Now  Being  Reserved  for  New  Year's  Eve. 
$4.00  Per  Cover 

Elaborate  preparations  are  being  made  to  make  this  a  thoroughly 
patriotic  American  and  Allied  introduction  to  191 8.  Special  orchestra 
and  leading  singers  have  been  engaged  to  carry  out  a  program  of 
international  and  topical  songs  and  music. 

Orchestra 
"Soldier  Boy"  Souvenirs 

Reservations  May  Be  Made  by  Telephone,  Columbus  

i^An  advertisement  appearing  in  the  New  York  Times,  December  28,  1917. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      293 
c)     Consumptive  Slackers'^^ 

BY  THOMAS  NIXON  CARVER 

If  I  were  to  stand  on  the  street  corner  or  some  other  public  place 
and  lift  up  my  voice  in  impassioned  oratory  to  persuade  men  to  stay 
out  of  the  army  and  the  war  industries,  saying  to  them,  "Don't 
enlist !  Don't  go  into  the  shipyards !  Don't  go  into  the  munition 
factories !  Don't  go  into  the  coal  mines !  Don't  work  for  the  rail- 
roads !  Don't  go  onto  the  farms  to  help  produce  food !" — I  should 
certainly  be  mobbed,  if  the  police  did  not  take  me  to  jail,  and  I  should 
deserve  all  the  rough  treatment  that  I  should  receive. 

There  are  other  and  more  effective  ways  than  street  oratory  of 
persuading  men  to  stay  out  of  the  industries  which  are  essential  to 
the  running  of  this  war.  Street  oratory  seldom  accomplishes  any- 
thing, and  the  street  orator  who  tries  to  keep  men  out  of  the  war 
industries  is  not  a  very  serious  menace,  though  he  ought  clearly  to 
be  abated  as  a  public  nuisance.  If  I  really  wanted  to  accomplish 
such  a  disloyal  purpose  as  to  keep  men  out  of  the  war  industries,  I 
should  spend  as  much  money  as  I  could  for  nonessentials  and  should 
advise  everyone  else  to  do  the  same.  I  should  publish  articles  advis- 
ing against  too  much  economy  and  should  do  all  in  my  power  to  get 
people  to  spend  their  money  for  nonessentials.  I  should  advertise 
nonessentials  in  as  alluring  forms  as  I  could  invent.  Every  dollar 
which  is  spent  for  these  things  will  hire  someone  to  make  and  sell 
them,  and  the  more  these  things  are  bought  the  more  man  power  will 
be  hired  to  stay  in  the  nonessential  and  out  of  the  essential  industries. 
That  is  a  much  more  effective,  as  well  as  a  much  safer,  way  of  keeping 
men  out  of  the  war  industries. 

I  am  not  a  believer  in  mob  violence,  but  if  there  is  anyone  who 
deserves  to  be  mobbed,  it  is  not  these  poor  simpletons  who  make 
ineffective  speeches  against  working  in  the  war  industries,  though 
they  are  bad  enough :  it  is  rather  those  respectable  people,  some  of 
them  in  positions  of  high  authority,  who  still  persist  in  advising  people 
that  they  must  continue  spending  their  money  freely  for  things  which 
they  do  not  need,  in  order  that  business  may  not  be  disarranged. 

130.     The  Curtailment  of  Nonessentials-" 

The  Council  of  National  Defense  recently  undertook  an  investiga- 
tion to  determine  whether  purchases  by  civilians  in  the  United  States 
have  been  increasing  or  decreasing  during  the  war  period.    One  of 

^^From  the  New  York  Evening  Post,  February  11,  1918. 

2oAdapted  from  "Progress  in  Curtailment  of  Nonessentials,"  in  the  Fed- 
eral Reserve  Bulletin"  (September  i,  1918),  pp.  852-55. 


294  CURRENT  ECONOMIC  PROBLEMS 

the  most  illuminating  statements  was  furnished  by  a  very  large  busi- 
ness house  deahng  directly  with  consumers  throughout  the  entire 
country.  Because  of  the  diversity  of  the  merchandise  handled  and 
customers  served,  the  business  of  this  firm  may  be  considered  a  rea- 
sonably accurate  barometer  of  comparative  purchasing  activities. 
The  following  conclusions  are  taken  from  the  statement  prepared  by 
the  firm.  Boys'  clothing  shows  a  marked  decrease  in  the  quantity 
purchased  in  the  higher  priced  lines,  while  all  items  of  small  money 
value  show  a  sufficient  increase  to  offset  this.  Work  clothes  show  a 
great  increase,  with  the  percentage  of  value  very  much  larger  than 
the  percentage  of  quantity.  Men's  furnishing  goods  show  the  largest 
decrease  in  quantity  of  all  the  men's  apparel  lines.  Women's  dresses 
alone  show  a  quantity  increase  of  about  32  per  cent.  The  decrease, 
however,  in  suits,  skirts,  and  misses'  dresses  is  sufficient  to  offset  this 
increase  and  brings  the  entire  line  down  to  a  volume  equal  only  to 
that  of  last  year.  In  shoes  the  total  quantity  decrease  is  about  33 
per  cent. 

As  regards  furniture,  the  slight  decrease  in  the  heavier  lines 
shown  in  this  company's  business  may  be  due  as  much  to  congested 
traffic  conditions  discouraging  purchasing  from  a  distance  as  to  a 
decrease  in  demand.  Curtains,  drapes,  and  floor  coverings  show 
about  an  equal  quantity.  In  rugs  there  is  an  unusually  good  demand 
for  the  smaller  sizes,  with  a  considerable  falling  off  in  the  larger. 
Crockery  and  glassware  show  a  marked  increase  in  quantity. 

There  is  a  decided  increase  in  sales  of  small-sized  diamonds  and  a 
falling  off  in  sizes  from  one-half  carat  upward.  Watches  are  in 
great  demand  especially  wrist  watches,  which  have  been  enormously 
popularized  by  the  war.  Fountain  pens  and  stationery  show  a 
decidedly  increased  demand,  for  the  obvious  reason  that  so  many 
men  are  leaving  their  homes.  The  quantity  of  cigars  and  tobacco 
shows  a  noticeable  increase,  which  can  be  accounted  for  by  the  slogan, 
"Smokes  for  the  soldiers."  Face  powders  and  creams  show  an 
increase.  Toilet  articles,  such  as  manicure  and  shaving  sets,  brushes, 
and  combs  show  a  decrease.  There  is  a  great  demand  for  pianos  and 
organs.  The  company  was  unable  to  make  comparisons  about  the 
demand  for  phonographs,  since  it  entered  the  field  in  earnest  only  in 
the  fall  of  1917.  The  increase  in  demand  for  bicycles  and  sundries 
seems  to  come  from  industrial  centers,  indicating  that  workmen  are 
using  them  in  going  to  and  from  their  plants. 

In  general  terms  the  firm  states,  in  the  first  place,  in  merchandise 
for  women's  exclusive  use,  it  is  certain  that  sales  are  increasing. 
This  is  possible  because  thousands  of  women  never  before  employed 
are  now  earning  very  fair  wages,  while  others  previously  employed 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      295 

are  earning  increased  wages.  Luxuries  and  semi-luxuries,  such  as 
musical  instruments,  watches,  jewelry,  and  diamonds,  show  an  in- 
crease in  quantity  as  well  as  in  dollars,  giving  an  impression  of  gen- 
eral prosperity. 

The  company  expresses  the  belief  that  economy  is  being  practiced 
by  well-to-do  persons  and  those  of  moderate  means,  while  the  in- 
creased compensation  received  by  large  numbers  of  people  previously 
somewhat  more  restricted  in  purchasing  power  has  made  it  possible 
for  them  to  buy  more  freely  of  the  articles  considered  luxuries. 

In  terms  of  geographical  location,  the  company  says  that  in  the 
South  especially  in  the  cotton-growing  states,  its  business  is  better 
than  ever  before.  In  the  far  West  the  civilian  population  is  buying 
freely  and  in  greater  quantity  than  in  previous  years.  In  the  northern 
states  of  the  Middle  West  buying  is  more  conservative  and  more 
restricted  to  staples  and  necessities,  but  the  volume  is  at  least  equal 
to  the  average.  In  the  East  there  is  a  rather  marked  decrease  in  the 
quantity  of  purchases,  especially  in  nonessentials ;  in  fact  it  is  quite 
noticeable  even  in  essentials. 


E.     GETTING  OUT  OF  WAR 
131.     The  Rate  of  Demobilization^! 

A  problem  of  moment  is  the  rapidity  with  which  demomilization  is 
to  be  effected.  How  speedily  the  whole  process  moves  is,  perhaps,  an 
affair  of  no  great  moment,  except  as  it  involves  losses  in  human  and 
material  resources  through  delay  in  getting  them  back  into  ordinary 
uses.  It  is  much  more  important  that  the  two  principal  movements, 
flow  into  the  labor  market  and  re-employment,  should  go  on  at  the 
same  rate.  To  determine  what  conscious  control  of  the  rate  of  de- 
mobilization is  possible  we  must  separate  it  into  its  elements  and 
enumerate  the  contingencies  upon  which  each  depends. 

The  flow  of  labor  into  the  market  for  employment  will,  during 
the  demobilization  period,  be  made  up  of  five  principal  streams. 
These  are:  (i)  demobilized  men  now  under  arms  abroad;  (2)  de- 
mobilized men  now  under  arms  in  the  United  States;  (3)  workers 
involuntarily  discharged  from  munitions  industries;  (4)  immigrants; 
and  (5)  young  people  coming  upon  the  labor  market  for  the  first 
time.  The  rate  at  which  each  of  these  streams  comes  into  the  market 
is  more  or  less  subject  to  control.    Since  the  governing  factors  vary 

-^Adapted  from  an  anonymous  article  entitled  "The  Problem  of  De- 
mobilization," Journal  of  Political  Economy,  XXVI,  923-29.  Copyright  by  the 
University  of  Chicago,  1918. 


296  CURRENT  ECONOMIC  PROBLEMS 

from  group  to  group,  each  of  these  rates  will  have  to  be  discussed 
separately. 

I.  The  rate  of  release  of  men  under  arms  abroad  depends  upon 
a  combination  of  military  and  industrial  considerations.  Of  these  the 
most  important  are  military  expediency  and  shipping. 

Military  expediency  is  of  importance  both  for  determining  the 
time  at  which  demobilization  is  to  begin  and  for  affecting  its  rate. 
Men  cannot  be  released  so  long  as  the  military  situation  requires 
their  presence  under  arms ;  and,  when  release  begins,  they  can  be 
spared  only  as  the  passing  of  military  necessity  dictates.  Since 
actual  hostilities  against  an  armed  enemy  are  over,  the  first  check 
upon  the  rate  of  release  lies  in  the  terms  of  the  armistice  which 
requires  the  presence  for  some  months  of  large  forces  upon  the 
frontier.  A  second  check  lies  in  the  necessity  of  using  men  for 
police  purposes  even  after  peace  in  what  were  recently  the  Central 
Empires,  in  Russia,  and  in  the  Balkans, 

It  is  more  likely  that  shipping  will  prove  to  be  the  limiting  factor 
in  the  release  of  over-seas  men.  The  rate  at  which  they  can  be  re- 
turned can  be  ascertained  only  by  estimating  the  tonnage  available 
for  transport  service  during  the  period  of  need.  This  inquiry  resolves 
itself  more  specifically  into  the  following  matters  of  fact  and  policy. 

The  amount  of  American  shipping  at  the  end  of  the  war  must 
be  determined.  A  reasonably  accurate  anticipation  of  this  at  any 
future  time  may  be  had  in  terms  of  prospective  building.  An  esti- 
mate must  be  made  of  the  rail  increase  in  transport  facilities  which 
can  now  be  effected  through  a  reorganization  of  shipping.  This 
will  include  the  addition  of  vessels  now  used  for  transport  purposes 
and  of  cargo  ships  converted  into  transports.  It  will  also  include 
gains  in  tonnage  from  the  discontinuance  of  circuitous  routing  and 
from  a  separation  in  the  direction  of  the  movement  of  supplies  and 
men,  both  of  which  during  the  war  went  in  the  same  direction. 
Lastly,  the  amount  of  shipping  available  for  transport  as  against 
trade  purposes  must  be  determined. 

The  availability  of  foreign  ships  for  the  transport  of  American 
soldiers  is  still  undetermined.  We  relied  heavily  upon  British  and 
neutral  tonnage  to  get  our  soldiers  to  France;  but  it  is  not  certain 
that  they  can  now  be  relied  upon  to  get  them  back.  Britain  will 
be  under  obligations  to  give  preference  to  the  troops  of  her  own 
colonies.  In  addition,  there  will  be  an  insistent  mercantilist  demand 
for  immediate  use  of  her  ships  in  foreign  trade.  Whether  German 
vessels,  now  tied  up  in  her  own  and  neutral  ports,  will  be  available 
is  still  undecided.  A  chance  to  use  them  may  come  from  their  con- 
fiscation, from  accepting  their  use  as  part  payment  of  an  indemnity 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      297 

to  the  Allies,  or  from  an  understanding  with  the  successors  of  our 
erstwhile  enemy.  These  uncertainties  involve  so  large  a  percentage 
of  possible  tonnage  as  seriously  to  affect  the  rate  at  which  soldiers 
can  be  brought  home. 

The  assumption  above  has  been  that  men  are  to  be  mustered  out 
of  service  as  rapidly  as  the  military  situation  and  transportation 
facilities  permit.  American  sentiment  demands  the  return  of  hus- 
bands and  sons  with  the  utmost  dispatch.  The  belief  is  universal 
that  if  they  are  returned  faster  than  they  can  be  absorbed  into  in- 
dustry it  is  better  to  stimulate  employment  than  to  retard  demobiliza- 
tion. But  the  possibility  of  equalizing  employment  with  discharge 
by  checking  the  rate  at  which  men  are  mustered  out  of  service  is  an 
alternative  that  must  be  considered. 

2.  The  rate  of  release  of  men  under  arms  in  the  United  States 
is,  perhaps  more  than  any  of  the  other  rates,  subject  to  control.  It 
may  be  decided  to  speed  discharge  or  to  delay  discharge  according 
to  the  amount  of  available  employment.  But  in  view  of  the  popular 
sentiment  demanding  a  return  of  kindred,  and  of  political  pressure 
to  reduce  the  national  budget  with  the  utmost  dispatch,  it  is  doubtful 
whether  discharge  of  these  men  can  be  long  delayed.  In  addition  it 
seems  much  wiser,  as  a  matter  of  public  policy,  if  the  men  cannot  be 
reabsorbed  into  industry,  to  utilize  their  labor  effort  upon  public 
work  of  permanent  value  than  to  allow  it  to  go  to  waste.  An  alterna- 
tive that  will  doubtless  be  considered  is  training  them  and  sending 
them  overseas  to  take  the  place  of  men  longest  in  service  abroad.  If 
transport  is  the  limiting  factor  in  the  discharge  of  the  army  abroad, 
such  a  plan  merely  accentuates  the  problem.  But  if  military  need 
controls  demobilization,  men  going  abroad  make  possible  a  more 
rapid  discharge  of  the  army  in  Europe.  In  this  event  the  question 
ceases  to  affect  the  rate  of  demobilization  and  becomes  one  of 
personnel. 

3.  The  most  troublesome  factor  in  the  problem  is  the  rate  of 
release  of  workers  in  war  industries.  The  rate  of  discharge  of  sol- 
diers is  subject  to  the  direct  control  of  a  single  authority,  that  of  war 
workers  to  many.  Public  opinion,  too,  is  much  more  concerned  with 
finding  positions  for  returning  soldiers  than  with  avoiding  the  un- 
employment of  men  and  women  at  present  engaged  in  industries  with 
a  frail  hold  on  life.  In  addition  it  is  by  no  means  improbable  that  to 
those  discharged  from  war  industries  must  be  added  a  host  from  non- 
war  industries  where  places  have  been  given  to  soldiers.  Thus  one 
employment  problem,  instead  of  being  solved,  may  be  translated 
into  another.  It  is  more  likely  that,  because  of  imperfect  control, 
the  war  workers  will  be  turned  loose  to  flood  the  market  and  that. 


298  CURRENT  ECONOMIC  PROBLEMS 

later,  soldiers  will  be  discharged  into  a  market  already  gutted  with 
surplus  labor.  Even  before  the  armistice  was  signed  many  laborers 
were  discounting  discharge  by  returning  to  non-war  employment. 
The  change  can  be  avoided  and  the  rate  can  be  controlled  only  by 
the  establishment  of  a  central  agency  for  the  clearance  of  all  con- 
tracts and  a  policy  for  their  gradual  cancellation.  Even  at  best  this 
will  provide  a  very  uncertain  check  upon  the  rate  of  flow  of  ex-war 
workers  into  the  labor  market. 

4.  The  rate  of  immigration  is  subject  to  control  both  by  conscious 
decision  and  by  the  physical  fact  of  shipping.  If  we  choose  we  may 
prohibit  all  immigration  so  long  as  there  appears  to  be  danger  of  an 
oversupply  of  labor.  Or,  instead,  we  may  prohibit  the  coming  of  cer- 
tain types  of  immigrants  most  likely  to  interfere  with  employment 
here.  In  fact,  the  present  law  imposes  serious  handicaps  upon  the 
entrance  of  unskilled  labor  into  this  country.  In  addition  it  is  more 
than  possible  that  many  European  countries  will  impose  restrictions 
upon  emigration,  despite  the  desires  of  many  people  of  the  war- ridden 
countries  to  come  to  America.  If  the  discharge  of  men  overseas  were 
to  start  at  once  the  limited  supply  of  shipping  would  prove  an  effective 
check  upon  immigration  until  the  army  is  demobilized.  If  it  is  to 
be  delayed  for  some  months,  despite  the  poverty  of  Europe,  there 
is  a  prospective  flood  of  immigrants  to  be  faced  and  an  immigra- 
tion policy  to  be  framed. 

5.  In  addition  the  stream  of  young  men  and  women  seeking 
employment  for  the  first  time  will  flow  on  as  usual  during  the 
demobilization  period.  The  shorter  the  period  of  demobilization 
the  fewer  of  them  there  will  be  to  be  reckoned  with.  But  while  their 
numbers  add  to  the  seriousness  of  the  problem,  it  does  not  follow 
that  demobilization  should  be  effected  slowly  merely  in  order  to  pre- 
vent the  problem  from  being  complicated  by  large  numbers  of  the 
industrially  uninitiated. 

Together  these  factors  determine  the  rate  at  which  workers  are 
to  flow  into  the  labor  market.  Together  they  determine  the  rate 
at  which  employment  must  be  found  for  them.  Some  of  the  con- 
siderations mentioned  above  can  be  reduced  to  definite  statement  by 
securing  facts  more  or  less  accessible.  Others  depend  upon  future 
policy  which  can  be  anticipated  with  fair  precision.  Still  others  rest 
upon  events  and  judgments  still  too  uncertain  for  anything  more 
than  a  guess.  While  such  uncertainties  prevent  an  accurate  state- 
ment of  the  rate  of  discharge,  it  is  obvious  that  the  wider  the  range 
of  information  and  the  more  accurate  its  character,  the  more  fear- 
lessly and  intelligently  can  the  problem  of  controlling  the  rate  of  dis- 
charge from  the  army  be  met. 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      299 
132.     Keeping  Production  Up^^ 

BY  DAVID  FRIDAY 

The  most  important  and  difficult  task  just  ahead  is  to  maintain  the 
productive  level  of  w^hich  we  found  ourselves  capable  during  the  •wa.r. 
We  have  increased  our  output  of  products  from  25  to  30  per  cent  over 
the  pre-war  period  through  the  complete  utilization  of  our  natural 
resources,  our  plant  and  machinery,  and  our  labor.  If  production  is 
allowed  to  return  to  the  pre-war  level  output  will  slump  off  by  20  per 
cent.  This  would  mean  a  corresponding  waste  of  productive  resources 
and  a  decrease  of  $i4,ooo,ooo,ooo  per  annum  in  our  national  income 
as  measured  by  the  present  price  level.  In  view  of  the  magnitude  of 
this  waste  the  government  can  well  afford  to  spend  several  billions  of 
dollars  per  annum  if  need  be  to  maintain  the  level  of  productive  out- 
put. The  essence  of  the  process  would  be  that  we  would  waste  two 
billion  dollars  of  our  productive  capacity  in  order  to  keep  ten  to  four- 
teen billion  dollars'  worth  of  resources  from  running  to  waste  because 
of  unemployment.  The  result  is  a  net  addition  of  ten  billion  dollars  to 
our  national  income.  The  alternatives  presented  by  this  situation  are 
not  government  expenditure  of  this  amount  as  against  private  ex- 
penditure ;  they  are  government  expenditure  of  several  billions  as 
against  a  waste  of  productive  resources  many  times  as  large. 

A  decline  of  the  high  level  we  have  reached  during  the  last  two 
years  will  bring  about  a  lowering  of  the  standard  of  living  which  our 
laboring  classes  have  attained  during  the  war.  It  will  prevent  the 
possibility  of  that  improvement  in  the  standard  which  we  should 
realize  now  that  we  have  ceased  wasting  a  large  part  of  our  output 
on  war.  It  will  mean  a  decline  by  half  in  the  volume  of  annual  sav- 
ings which  we  have  made  during  1916,  191 7,  and  1918.  During  the 
war  the  excess  of  production  over  consumption  has  grown  from  six 
and  a  half  billions  in  191 3  to  over  twenty  billions  in  1918 ;  it  has  made 
possible  the  furnishing  of  thirteen  billion  dollars  of  capital  to  foreign 
nations,  the  addition  of  over  one  billion  dollars  to  our  stock  of  gold, 
an  enormous  extension  of  our  plant  equipment,  and  the  prosecution 
of  eighteen  months  of  war  without  any  appreciable  diminution  of  the 
standard  of  living  of  our  people.  Finally,  such  a  decline  will  have  as 
its  concomitant  a  period  of  widespread  unemployment. 

It  is  relevant  here  to  recognize  the  dependence  of  employment  and 
industrial  output  upon  the  state  of  business  enterprise.  Considered 
as  a  problem  in  business  psychology  the  task  is  that  of  maintaining  the 
exuberant  spirit  which  has  characterized  business  during  the  last 

22Adapted  from  "Maintaining  Productive  Output— A  Problem  in  Re- 
construction," Journal  of  Political  Economy,  XXVII,  117-26.  Copyright  by 
the  University  of  Chicago,  1919. 


300  CURRENT  ECONOMIC  PROBLEMS 

three  years.  If  this  spirit  can  be  maintained,  it  is  safe  to  presume  that 
our  labor,  our  natural  resources,  and  our  plant  and  machinery  will  be 
fully  employed ;  that  our  productive  output  will  be  large ;  and  that 
the  fund  available  for  taxation  will  be  ample  to  meet  the  needs  of  the 
federal  government  as  easily  as  they  have  been  met  during  the  past 
fiscal  year.  In  fact,  the  problem  of  unemployment,  of  the  main- 
tenance of  productive  output,  and  of  fostering  business  enterprise  are 
at  bottom  one  and  the  same  problem. 

The  fundamental  fact  that  demand  and  production  are  interde- 
pendent and  that  therefore  domestic  demand  is  determined  primarily 
by  the  state  of  domestic  employment  is  the  first  great  lesson  to  be 
grasped.  The  demand  for  goods  will  depend  primarily  upon  the 
purchasing  power  of  the  masses,  and  the  volume  of  production  can 
be  maintained  only  through  the  complete  employment  of  labor.  This 
means  that  the  business  men  as  a  whole  have  in  their  hands  the  size 
and  scope  of  the  combined  demand  presented  by  the  markets  of  the 
country.  From  the  standpoint  of  national  enterprise  the  problem  is, 
not  so  much  how  to  capture  the  markets  that  exist  at  the  end  of  the 
war,  but  rather  how  to  keep  the  various  markets  co-ordinated  in  such 
a  manner  that  the  sellers  in  one  group  of  markets  will  be  steady  buy- 
ers of  the  things  which  other  markets  offer. 

Our  business  men  and  legislators  must  be  shown  that  the  great 
mass  of  demand  for  American  goods  must  come  from  American 
buyers  and  not  from  foreign  trade.  There  is  much  misunderstanding 
on  this  point.  There  seems  to  be  a  general  impression  that  with  our 
huge  added  capacity  we  should  have  to  add  almost  all  the  world's 
trade  to  our  own  for  consumption  to  equal  our  present  capacity.  An 
elucidation  of  principles  and  a  collection  of  facts  which  would  suc- 
ceed in  turning  the  attention  of  the  American  business  man  to  the 
development  of  regulatory  machinery  for  the  control  of  the  business 
cycle,  rather  than  the  control  of  imports  and  exports,  would  be  a  great 
attainment. 

If  entrepreneurs  are  to  enter  upon  an  active  program  of  con- 
verting plants  and  producing  goods  they  must  have  a  credit  situa- 
tion which  will  put  them  in  possession  of  the  necessary  funds.  Here 
the  government's  policy  in  settling  claims  arising  out  of  the  cancella- 
tion of  war  contracts  will  play  an  important  part.  If  these  are  set- 
tled promptly,  entrepreneurs  will  have  available  bank  credit;  if  not, 
they  will  have  undertaken  claims  against  the  government  which  will 
be  settled  only  after  years  of  litigation.  The  effect  of  prompt  settle- 
ment upon  the  resumption  of  productive  activity  should  be  ascer- 
tained with  some  degree  of  quantitative  definiteness.  The  govern- 
ment can  then  determ-'re  the  results  which  will  flow  from  a  prompt 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      301 

settlement  of  these  claims.  A  saving  of  four  or  five  hundred  millions 
of  dollars  in  settling  might  result  in  a  waste  of  productive  resources 
of  ten  times  this  amount  because  of  idleness.  This  would  be  a  penny- 
wise  pound-foolish  policy. 

If  the  business  interests  of  the  country  grasp  clearly  this  prin- 
ciple, and  if  the  government  gives  proper  aid  by  way  of  statistical 
information  and  the  formulation  of  policy,  it  will  aid  materially  in 
maintaining  the  productive  level.  But  the  most  sanguine  of  us  hardly 
imagine  that  it  will  maintain  the  flow  of  products  that  we  witnessed 
during  the  war.  The  best  that  can  be  done  is  to  prevent  a  depression 
which  will  carry  our  productive  activity  below  normal.  This  normal, 
as  we  knew  it  before  the  war,  will  still  be  far  below  the  maximum  that 
we  have  recently  attained. 

It  seems  that  somewhere  in  the  present  industrial  process  there 
is  a  factor  of  retardation  which  is  only  occasionally  cast  out  by  such 
a  holocaust  as  war.  What  is  the  secret  of  its  casting  out,  even  for 
the  space  of  three  years?  If  this  secret  can  be  discovered,  we  may 
indulge  the  hope  of  institutionalizing  it  and  adding  permanently  ten 
billion  dollars  to  our  annual  national  output.  We  could  then  realize 
the  high  standard  of  living  of  which  reformers  have  dreamed,  and 
could  increase  our  national  wealth  at  a  rate  equal  to  that  of  half  of 
the  civilized  world  outside.  The  usual  view  of  the  matter  is  that 
business  lags  in  normal  times  because  of  a  failure  of  demand;  that 
during  the  war  there  was  an  extraordinary  demand,  at  first  from  the 
European  governments  and  then  from  our  own  in  addition.  It  was 
this  additional  demand  that  moved  entrepreneurs  to  produce  to  full 
capacity.  Now  that  the  war  demand  has  fallen  off,  it  seems  to  most 
people  obvious  that  production  cannot  go  on  at  its  former  pace.  "If 
it  did,  where  would  we  find  our  market  ?"  they  ask.  The  fundamental 
fallacy  lurking  in  this  analysis  is  obvious.  Production  creates  demand 
in  ordinary  times.  It  is  an  old  maxim  of  political  economy  that  wants 
are  insatiable.  This  is  still  true,  even  in  a  country  where  the  average 
of  productive  output  is  as  high  as  our  own. 

Not  more  than  10  per  cent  of  the  families  of  the  United  States 
have  incomes  of  $3,000  or  more.  With  such  a  situation  there  is  still 
an  immense  amount  of  unsatisfied  demand  which  depends  for  its 
appearance  in  the  actual  market  upon  nothing  more  than  the  oppor- 
tunity to  work  and  produce.  To  say  that  production  lags  because 
demand  is  not  forthcoming  starts  with  the  assumption  that  produc- 
tion has  already  lagged  and  so  has  reduced  demand.  The  secret  of  the 
thing  must  be  sought  elsewhere. 

A  more  fundamental  explanation  is  that  low  profits,  or  even 
ordinary  profits,  are  not  sufficient  to  tempt  business  men  to  high 


302  CURRENT  ECONOMIC  PROBLEMS 

productive  activity.  Modern  business  is  carried  on  for  profit.  When 
large  profits  are  in  prospect,  therefore,  production  goes  on  at  a  fever- 
ish rate.  It  is  doubtful  whether  this  explanation  of  the  matter  is 
quite  adequate.  Most  business  men  are  perfectly  willing  to  produce 
for  low  profits,  especially  when  no  opportunity  presents  itself  to 
make  high  ones.  The  fundamental  reason  why  production  is  retarded 
when  only  low  profits  are  in  sight  is  that  a  situation  which  yields  small 
profits  is  one  in  which  the  prices  of  products  and  the  prices  of  cost 
goods  are  close  together.  The  risk  that  a  fall  in  the  former  or  a  rise 
in  the  latter  shall  completely  absorb  the  margin  of  profit  is  increased 
as  these  two  sets  of  prices  approach  each  other  and  is  lessened  as 
the  margin  between  them  widens.  If  the  prices  of  the  labor  and 
material  come  to  exceed  the  price  of  the  product,  the  entrepreneur 
faces  loss  and  ruin.  During  the  last  three  years  prices  for  products 
have  risen  at  an  enormous  rate,  and  while  it  was  certain  that  the  price 
of  cost  goods  would  rise  also,  the  margin  between  the  two  which  the 
entrepreneur  foresaw  was  so  great  as  to  minimize  his  risk.  In  this 
situation  he  was  willing  to  produce  to  the  full  capacity  of  his  plant. 

The  factor  that  prevents  a  full  realization  of  our  productive 
capacities  is  this  risk  of  loss.  If  it  could  be  minimized  or  eliminated 
the  nation  could  have  a  high  level  of  productive  output  even  with 
normal  profits.  It  is  pertinent,  therefore,  to  inquire  into  the  pos- 
sibility of  decreasing  industrial  risk  through  formal  organization. 
Thus  far  the  most  successful  institution  which  has  been  developed 
for  the  elimination  of  individual  risk  is  the  institution  of  insurance. 
In  essence  this  is  a  pooling  of  the  particular  risk  involved.  Houses 
burn ;  the  building  of  houses  would,  in  the  absence  of  insurance,  be 
a  venture  fraught  with  risk,  and  the  supply  of  houses  would  there- 
fore be  restricted  and  of  poorer  quality.  But  by  pooling  the  risk 
through  fire  insurance,  one  can  be  relieved  of  the  risk  of  loss  by 
fire  for  a  small  payment.  One  can  then  proceed  to  make  his  plans 
for  building  as  though  no  risk  of  such  loss  existed.  Cannot  a  similar 
principle  be  applied  to  the  risk  of  industrial  loss  with  beneficial  re- 
sults? If  it  were  possible  to  guarantee  every  entrepreneur  at  least 
his  operating  expenses,  including  depreciation,  the  risk  of  loss  could 
be  minimized.    This  would  unquestionably  stimulate  production. 

Such  guaranty  could  be  made  only  by  the  government,  for  it  only 
can  exercise  the  taxing  power  necessary  to  take  from  the  more 
fortunate  industries  those  fortuitous  profits  which  are  the  obverse 
of  the  losses  incident  to  the  modern  industrial  process.  It  would 
not  do  away  with  the  right  of  private  property  or  with  individual 
initiative,  nor  would  it  in  any  wise  lessen  the  incentive  to  prudence 
and  efficiency.     Neither  would  it  induce  anyone  to  put  his  capital 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      303 

into  an  unwise  venture.  There  would  still  be  the  same  incentive  to 
exercise  care  in  the  direction  of  production,  and  to  attain  proficiency 
in  its  prosecution,  for  without  these  no  adequate  rate  of  profit  could 
be  realized. 

This  would  not  be  socialism,  because  the  entire  industrial  equip- 
ment of  the  country  would  still  remain  private  property,  and  the 
profits  of  industry  would  belong  to  the  owner.  They  would,  of 
course,  be  subject  to  taxation,  and  the  tax  system  would  have  to 
be  adjusted  in  such  a  manner  as  to  take  from  certain  enterprises  the 
amount  needed  to  cover  the  insured  losses  arising  from  the  risks  of 
modern  business.  Production  would  still  be  directed  by  individuals 
who  would  decide  what  should  be  made  and  would  choose  the  method 
of  production.  The  right  of  private  property  in  the  means  of  produc- 
tion would  probably  have  imposed  upon  it  a  new  function.  If  the 
government  assumed  part  of  the  risk  of  industrial  loss  it  would  no 
longer  allow  an  owner  to  keep  plants  standing  idle  when  idleness 
caused  unemployment.  Any  scheme  of  this  sort  would  involve  an 
examination  and  approval  of  the  costs  of  labor  and  material  before 
insuring  them,  otherwise  the  process  might  easily  be  open  to  fraud. 
But  after  an  experience  of  the  last  eighteen  months  this  task  cer- 
tainly is  not  an  impossible  one. 

133.     The  Fetish  of  Reconstruction" 

No  word  is  more  in  vogue  just  now  than  "reconstruction."  Its 
popularity  is  equaled  only  by  the  variety  of  meaning  which  clothes  it. 
Its  use  is  indicative  of  a  praiseworthy  hope  of  a  better  society  to  come 
out  of  the  war.  Its  popular  appeal  is  suggestive  of  the  loose  and 
nebulous  ideas  with  which  most  minds  surround  it.  If  we  are  to 
find  out  what  "getting  out  of  the  war"  means,  we  must  inquire  as 
specifically  as  we  can  into  this  popular  term,  even  though  we  are  will- 
ing to  admit  in  advance  that  we  can  reduce  it  to  specific  statement 
only  after  a  decade  has  gone  by  and  the  fact  of  accomplishment  is  at 
hand  to  give  evidence. 

I.  In  common  speech  the  word  "reconstruction"  is  a  shibboleth 
for  the  establishment  of  a  new  and  perfect  social  order.  The  mind 
which  coined  the  word  supplied  a  cosmic  term  that  is  almost  mean- 
ingless. In  truth  few  expressions  have  given  such  genuine  satisfac- 
tion to  such  an  assortment  of  minds.  To  the  exporter  it  means  for- 
eign markets ;  to  the  politician,  more  offices ;  to  the  gild  socialist,  at 
least  industrial  councils ;  to  the  single  taxer,  the  single  tax ;  and  to 
social  workers,  "betterment."  The  Weeks  Bill,  robbed  by  the  armistice 

23 An  editorial  (1919). 


304  CURRENT  ECONOMIC  PROBLEMS 

of  its  chance  to  provoke  senatorial  oratory,  meant  by  "reconstruc- 
tion" what  any  banker  would  mean  by  it.  The  British  Ministry  of 
Reconstruction,  in  the  likeness  of  which  many  would  have  created  an 
American  commission,  resolved  the  matter  into  more  than  one  hun- 
dred inquiries,  ranging  from  the  constitutionalization  of  industry  to 
the  demobilization  of  mules.  At  a  minimum  it  seems  to  mean  the 
return  to  ordinary  uses  of  the  men  and  materials  displaced  by  the  war. 
As  a  maximum  it  connotes  an  attempt  to  take  advantage  of  the  general 
state  of  flux  to  arrange  elements  into  a  more  pleasing  social  order. 

2.  The  crisis  caused  by  the  war  makes  it  necessary  to  consider  at 
this  time  a  very  large  number  of  social  problems.  These  problems 
are  alike  old  and  new.  The  issues  they  present  are  among  the  most 
venerable  which  each  age  inherits  from  its  predecessor.  How  can  the 
industrial  system  be  organized  to  include  all  of  its  resources  in  ma- 
terials and  men?  Upon  what  terms  shall  capital  and  labor  combine 
their  efforts  in  supplying  society  with  the  comforts  and  vanities  of 
life?  How  can  each  instrument  be  assured  such  a  return  as  will 
enable  it  fitly  to  perform  its  allotted  task?  What  use  shall  society 
make  of  the  surplus  of  wealth  which  it  produces  over  and  above  the 
necessities  of  its  members?  Shall  it  be  spent  upon  education  and 
scientific  experimentation,  competitive  armaments,  the  maintenance 
of  higher  living  standards,  or  the  satisfaction  of  the  whims  of  those 
who  by  effort,  talent,  guile,  or  accident  chance  upon  it?  But  such 
questions  are  also  new.  Each  of  them  has  its  place  in  the  immediate 
return  of  a  vast,  intricate,  and  delicate  industrial  system  to  the  service 
of  a  people  at  peace.  As  the  process  runs  its  course  each  must  receive 
at  least  a  passing  solution  in  terms  of  immediate  readjustments.  H 
times  were  less  stirring  and  the  current  of  change  ran  shallow,  a 
reluctant  people  might  let  them  pass.  But  the  depths  have  been  stirred 
and  the  floods  are  loose.  They  have  become  too  imperative  and  too 
explicit  to  be  denied. 

3.  These  problems  cannot  be  solved,  even  for  the  moment,  by  a 
return  to  the  pre-war  scheme  of  things.  The  task  ahead  is  not  one 
of  restitution ;  it  cannot  be  accomplished  by  reversing  the  processes 
which  created  the  machinery  of  war ;  it  is  no  matter  of  formulas  and 
manipulations.  The  wheels  of  the  draft  machinery  could  not  run 
backward  if  they  would.  Old  jobs  are  gone  or  are  held  by  efficient 
women  who  do  not  wish  to  be  dispossessed.  Merchant  and  manu- 
facturer cannot  find  his  old  market.  The  accommodation  of  laborers 
to  new  working  conditions  canot  be  forgotten.  The  impress  which 
the  war  has  left  upon  the  minds  of  the  people  cannot  be  ironed  out. 
The  depreciation  of  physical,  material,  and  human  resources  which 
has  followed  in  the  wake  of  war  cannot  be  rubbed  from  the  social 


PROBLEM  OF  ECONOMIC  ORGANIZATION  FOR  WAR      305 

balance  sheet.  Men  and  machines  must  be  adjusted,  not  to  old,  but 
to  new  conditions. 

4.  The  problem,  therefore,  becomes  one  of  the  conscious  guid- 
ance of  social  and  industrial  development  through  a  grave  crisis.  In 
this  crisis  the  problems  which  make  up  the  larger  whole  will  have 
to  be  taken  up  specifically.  Each  of  them  has  a  history  of  its  own. 
Each  has  associated  with  it  peculiar  factors  an  understanding  of 
which  is  necessary  to  its  successful  handling.  Each  will  demand  a 
share  of  our  attention  far  in  excess  of  what  we  can  allot  to  it.  Since 
each  of  these  issues  is  a  mere  aspect  of  an  economic  problem  which 
has  a  history  back  of  it  and  is  current  in  something  of  an  eternal  sense, 
each  must  be  discussed  in  its  own  specific  place.  The  bundle  of  issues 
dubbed  "reconstruction"  must  be  distributed  to  the  established  prob- 
lems to  which  they  belong. 

But,  in  our  zeal  for  such  a  distribution,  we  must  not  forget  that 
while  the  problems  of  reconstruction  are  many,  they  are  yet  one. 
Together  they  resolve  themselves  into  the  larger  question  of  the  guid- 
ance of  social  development.  The  problem  is  the  problem  of  the  decade 
before  the  war,  of  the  war,  and  of  many  a  decade  to  come.  It 
differs  from  the  older  problem  only  in  that  the  issues  are  more 
complex  and  more  imperative.  The  larger  problem  and  the  ques- 
tions which  make  it  up  must  receive  their  tentative  answers  in 
terms  of  the  ideals  of  the  society  which  addresses  itself  to  them.  It 
is  the  question  of  ends  which  make  these  problems  one.  In  contrast 
with  this  larger  problem  of  organizing  a  nation's  energies  for  peace, 
the  matter  of  preparation  for  war  is  simplicity  itself.  In  war  the  end 
to  be  achieved  is  simple  and  definite.  A  nation  has  a  limited  amount 
of  labor,  materials,  equipment,  and  other  resources.  Its  task  is  to 
divert  as  large  a  part  as  possible  into  a  surplus  that  can  be  used  to  arm, 
equip,  and  hurl  upon  the  enemy  a  force  large  enough  to  overcome  it. 
But  the  end  of  a  reorganization  for  peace  has  no  such  simplicity.  It 
is  not  to  turn  out  the  largest  aggregate  of  goods  useful  for  a  single 
purpose.  On  the  contrary,  it  is  bound  up  with  a  clash  between  the 
immediate  interests  of  individuals  and  of  groups,  between  the  present 
and  the  future  interests  of  these  groups,  and  between  the  desires  of 
the  groups  and  what  is  best  for  society  as  a  whole. 

But  the  importance  of  the  question  of  ends  cannot  be  escaped. 
It  might  be  easy  to  settle  the  matter  by  producing  the  largest  aggre- 
gate of  wealth  measured  in  pecuniary  terms  or  physical  output.  Un- 
fortunately, however,  there  are  no  units  for  such  measurements. 
Besides  the  problem  involves  the  kinds  of  goods  produced  as  well  as 
their  quantity ;  it  must  attend  to  the  uses  to  which  they  are  put  as 
well  as  to  their  volume;  it  must  keep  in  view  their  distribution  as 


3o6  CURRENT  ECONOMIC  PROBLEMS 

well  as  their  place  in  the  statistics  of  income.  It  involves  a  social 
accountancy  in  which  human  values  and  costs  are  assessed  and  meas- 
ured. The  end  of  it  all  may  at  best  be  only  approximated,  but  its 
vague  character  makes  all  the  more  necessary  an  attempt  to  come  by 
it  intelligently.  With  it  something  is  at  hand  to  give  at  least  a  sem- 
blance of  unity  to  a  program  which  otherwise  can  be  nothing  more 
than  a  jumbled  heap  of  fragments. 


VII 
THE  PROBLEM  OF  INTERNATIONAL  TRADE 

Problems  come  and  go,  but  the  tariff  seems  to  be  a  permanent  American 
institution.  In  a  country  where  "every  man  is  his  own  poHtical  economist"  it 
possesses  a  perennial  freshness.  It  has,  time  and  again,  been  proved  guilty  at 
the  polls  of  raising  and  lowering  the  standard  of  living,  of  increasing  and 
decreasing  wages,  of  creating  and  destroying  monopoly,  of  abetting  and  dis- 
couraging immigration,  of  producing  crises  and  causing  prosperity.  In  part 
this  has  been  due  to  an  easy  association  of  the  question  with  sentiments  of 
nationalism;  the  absence  of  grave  social  problems,  such  as  are  found  in  more 
mature  societies ;  and  the  popular  idea  that  it  is  a  simple  and  manageable  piece 
of  mechanism.  But,  in  part  at  least,  its  popular  hold  has  been  legitimate.  It 
has  been  intimately  associated  with  the  development  of  the  country^  and  it  has 
served  as  an  instrument  for  controlling  our  development. 

However  particular  tariff  questions  may  be  stated,  the  real  issue  lies  in  the 
antithesis  between  protection  and  free  trade,  which  are  the  ends  of  the  tenden- 
cies underlying  particular  programs. 

The  theory  of  free  trade  is  "a  mere  corollary  to  the  principle  of  the  division 
of  labor."  Foreign,  like  domestic,  trade,  "allows  increased  specialization,"  and 
consequently  "increases  the  aggregate  of  wealth."  A  study  of  the  mechanism 
of  exchange  shows  that  "goods  are  paid  for  with  goods."  "Foreign  trade  fixes 
its  own  limits."  The  tariff,  if  used,  should  have  as  its  object  the  raising  of 
revenue;  it  should  leave  "industrial  conditions  as  it  finds  them."  The  argu- 
ment implies  a  conception  of  industrial  society  in  static  terms,  is  an  aspect 
of  the  general  theory  of  laissez-faire,  and  rests  upon  a  belief  in  the  efficacy 
of  price  as  an  organizing  force. 

The  strength  of  protection  lies  in  a  mercantilist  spirit  as  old  as  society. 
Tradesmen  have  always  been  willing  to  use  agencies  of  social  control  to  in- 
crease their  sales.  This  disposition  is  revealed  in  the  inhibitions  against  buying 
goods  out  of  town,  supported  by  custom  or  opinion ;  in  the  attempts  of  legis- 
latures to  exempt  manufacturing  establishments  from  taxation;  and  in  duties 
placed  upon  imported  goods. 

Nevertheless,  there  is  a  social  theory  of  protection.  It  rests  upon  the 
concept  of  a  developing  society,  the  necessity  of  social  direction  of  that 
development,  and  the  possibility  of  determining,  partially  at  least,  its  course 
by  assessing,  raising,  lowering,  and  removing  duties  upon  imported  goods. 
It  implies  a  constant  adaptation  of  the  "tariff  policy"  to  the  changing  condi- 
tion of  the  country.  This  theory  reveals  itself  in  the  arguments  that  protec- 
tion can  transform  an  agricultural  into  an  industrial  society,  develop  a  nation 
strong  in  arms,  add  industry  after  industry  to  the  national  wealth,  and  "scat- 
ter plenty  o'er  a  smiling  land"  by  piling  up  huge  aggregates  of  capital. 

All  of  these  things,  it  is  asserted,  it  has  accomplished  for  American  so- 
ciety. Unfortunately  we  have  no  trustworthy  evidence  of  the  role  it  has  played 
in  the  transformation  of  our  system.  The  histories  of  the  tariff  are  largely 
records  of  what  has  happened  to  it  rather  than  of  what  it  has  done.  The 
argument  "from  experience"  has  failed  to  disentangle  the  influence  of  the 
tariff  from  the  vast  complex  of  "forces"  which  together  have  made  our  system 
what  it  is.  Yet  it  is.  quite  evident  that  the  tariff  has  played  its  part  in  the 
creation  of  our  highly  pecuniary,  industrial,  and  urban  culture.  The  develop- 
ment of  manufacturing  and  mining,  upon  which  the  structure  so  largely  rests, 
would  have  come  without  protection ;  for  our  abundant  natural  resources  could 
not  be  ignored;  but  a  highly  accelerated  movement  necessitated  high  prices, 
increasingly  large  quantities  of  cheap  labor,  and  larger  and  larger  aggregates 

307 


3o8  CURRENT  ECONOMIC  PROBLEMS 

of  capital.  Protection  promised  high  prices ;  the  open  door  to  immigration 
offered  cheap  labor ;  either  would  have  sufficed.  But  to  make  assurance  doubly 
sure  we  chose  both.  Protection,  with  other  agents,  has  transformed  resources 
into  stupendous  incomes,  out  of  which  large  aggregates  of  capital  have  been 
saved  and  reinvested.  Thus  it  has  been  an  active  factor  in  our  "prosperity." 
It  need  not  be  said  that,  in  view  of  changed  conditions,  its  potency  in  the  past 
is  no  guaranty  that  in  future  it  can  play  an  identical  role. 

But  our  social  scheme  has  proved  too  complex  for  it  to  accomplish  just 
the  industrial  effects  it  was  intended  to  accomplish  and  no  more.  With  com- 
plementary factors,  it  has  induced  a  gigantic,  clumsy,  feverish  development  of 
manufacturing  and  mining;  it  has  caused  a  headlong  "lunge"  in  a  particular 
direction.  But  it  has  induced  the  inevitable  attendants  of  this  growth—urban 
life,  city  comforts,  luxury,  slums,  poverty,  and  vice;  greater  concentration  of 
wealth  and  more  pronounced  class  differences;  a  medley  of  races  and  a  babel 
of  tongues;  a  clash  of  political  and  ethical  systems;  a  vast  array  of  bewil- 
dering problems.  It  has  been  responsible  for  development  in  ethics,  politics, 
and  social  life,  though  it  has  been  impotent  to  direct  this  development.  It 
has  made  the  attention  to  these  aspects  of  social  life  more  imperative  than 
ever,  though  the  "prosperity"  which  it  has  induced  has  served  to  delay  our 
attention  to  the  question  of  whether  the  older  institutional  system  is  adequate 
for  the  newer  industrial  life.  In  short,  it  has  induced  growth,  faster  than  we 
have  been  able  or  willing  to  perfect  means  for  controlling  that  growth.  Its 
results,  too,  have  been  accompanied  by  prodigious  waste.  That  its  "good"  is 
so  conspicuous  is  due  largely  to  our  enjoyment  of  gains  from  the  exploitation 
— the  oz'^r-utilization — of  our  natural  resources  and  our  passing  of  the  costs 
to  succeeding  generations. 

Aside  from  the  theoretical  difficulties,  the  method  of  its  use  prevents  pro- 
tection from  being  an  adequate  means  of  social  control.  Since  a  legislative 
body  is  depended  upon  for  tariff  laws,  we  may  well  say,  "Protection  is  all 
right  in  theory,  but  it  will  not  work  in  practice."  Did  you  ever  hear  of  Con- 
gress, when  considering  a  tariff  bill,  giving  attention  to  the  "end"  to  be  reached, 
noting  carefully  the  larger  social  as  well  as  the  purely  industrial  results  of 
anticipated  duties,  carefully  calculating  gains  against  costs,  and  on  this  basis 
fixing  duties  for  periods  just  long  enough  to  secure  the  desired  results?  Or 
have  you  rather  noted  that,  without  attention  to  general  principles  and  the 
relation  of  particular  duties  to  these,  a  tariff  bill  is  evolved  through  an  aggre- 
gation of  compromises  between  particular  interests? 

But  the  tariff  is  still  our  heritage.  At  present  there  is  some  disposition 
to  treat  it  as  a  "moral  issue"  intimately  connected  with  the  fact  of  class  and 
the  distribution  of  income.  There  is  a  demand,  perhaps  waning  but  still 
strong,  for  a  "scientific  revision."  This  finds  its  source,  partly  in  a  protest 
against  the  way  in  which  Congress  draws  a  tariff  bill,  and  partly  in  a  super- 
stitious reverence  for  whatever  wears  the  label  "scientific."  Its  weakness  is 
that  it  fails  to  see  that  science  can  furnish  only  a  mechanism,  and  that  the 
nature  of  the  tariff  depends  largely  upon  the  theory  underlying  legislation. 
There  is  a  cry  for  "freer  trade"  from  many  men  with  many  minds.  Now  that 
the  war  is  over  the  practical  manufacturer  who  sees  in  foreign  markets  the 
salvation  of  domestic  production,  the  patriotic  American  who  contemplating 
our  large  and  newly  acquired  merchant  marine,  beholds  our  industrial  future 
"beyond  the  seas,"  and  the  cosmic  idealist  who  visualizes  in  the  coming  league 
of  nations  "a  world  lapt  in  universal  law,"  unite  in  a  cry  for  an  unhampered 
trade.  Yet,  with  it  all,  there  still  lingers,  less  vocal  than  of  old,  but  still  loud 
enough  to  be  heard  in  legislative  halls,  the  perennial  cry  for  higher  duties  and 
more  of  them. 

But,  most  important  of  all,  there  is  reason  for  believing  that  the  limita- 
tions of  the  tariff  for  good  or  bad  are  being  more  cle.arly  seen,  and  that  in 
the  future  it  will  be  supplemented  by  other  and  more  delicate  instruments 
of  control  which  together  can  impart  to  social  life  a  more  symmetrical 
development. 


PROBLEM  OF  INTERNATIONAL  TRADE 


309 


A.     THE  BASIS  OF  INTERNATIONAL  TRADE 
134.     International  Co-operation^ 

BY  CHARLES  GIDE 

It  is  Strange  that  the  advantages  of  international  trade  have  been 
considered  from  two  precisely  opposite  points  of  view.  The  classical 
economists  consider  only  imports.  They  regard  importation  as  the 
object  of  international  trade.  Exportation  is  but  a  means — the  only 
means — by  which  a  nation  can  procure  the  goods  it  imports.  Ex- 
ports, in  other  words,  are  the  price  paid  for  imports.  The  less  we 
give  in  exchange  for  what  we  want — so  reason  the  classical  econo- 
mists— the  more  profitable  is  the  transaction. 

According  to  the  protectionists  and  current  public  opinion  the 
advantages  of  international  trade  must  be  considered  from  the  view- 
point of  exports.  Exports,  it  is  held,  constitute  the  real  profits  of 
international  trade.  Imports  are  thus  regarded  only  as  a  necessary 
evil  to  which  a  nation  must  submit  whenever  it  cannot  produce  all 
that  it  needs ;  but  a  nation  should  strive  to  reduce  its  imports  to  the 
lowest  possible  amount.  Exportation  means  increased  wealth,  the 
receipt  of  money  in  payment  for  goods  sold  abroad.  Importation, 
on  the  other  hand,  means  expense,  the  payment  of  money  to  foreign 
nations. 

Both  of  these  opposite  points  of  view  are  false.  Both  are  based 
upon  the  mistaken  assumption  that  a  nation  may  be  regarded  in  the 
same  light  as  an  individual.  A  great  country  cannot  be  likened  to 
a  person  carrying  on  trade  solely  as  a  means  of  procuring  what  he 
needs.  A  nation  does  not  export  goods  merely  to  import  them,  but 
because  exportation  furnishes  advantages  that  are  peculiar  to  itself. 

Inversely,  the  second  point  of  view,  which  likens  a  great  nation 
to  a  storekeeper  who  buys  only  to  sell  again,  and  whose  profit  con- 
sists of  the  excess  of  the  selling-price  over  the  purchase  price,  is  no 
less  erroneous.  What  a  singvilar  idea  it  is  to  measure  the  benefits 
of  exchange  and  commerce  among  nations  just  as  one  would  measure 
the  profits  of  merchants.  If  merchants  and  traders  made  no  profit 
at  all,  exchange  would  be  none  the  less  beneficial ;  nay,  it  would  even 
be  more  beneficial. 

The  advantages  of  international  trade  are  not  susceptible  of 
arithmetical  calculation.  They  are  too  complex  for  such  simple 
methods,  and  are  found  on  both  the  side  of  imports  and  that  of 
exports. 

^Adapted  from  Principles  of  Political  Economy  (2d  American  cd.),  pp. 
301-7.  Translated  by  C.  William  A.  Veditz.  Copyright  by  D,  C.  Heath  & 
Co.,  1903. 


3IO  CURRENT  ECONOMIC  PROBLEMS 

The  following  are  the  advantages  of  importatiom 

I.  Additional  well-being  is  imparted  by  the  imported  goods  which 
a  country,  because  of  its  resources  or  climate,  could  not  have  produced 
within  its  own  borders.  For  example,  without  international  com- 
merce, Holland  could  have  no  building  stone,  Switzerland  no  coal, 
England  little  lumber  and  no  wine,  France  no  copper  and  the  United 
States  no  tea  or  coffee. 

II.  Economy  of  labor  is  realized  when  wealth  is  imported  that 
could  be  produced  at  home  only  at  a  higher  cost  than  abroad.  France 
could  make  good  machinery,  but  it  is  more  profitable  to  import  it 
from  the  United  States,  which  is  better  provided  with  coal,  iron  and 
facilities  for  manufacturing.  To  realize  this  advantage  it  is  not 
necessary  that  the  importing  nation  be  inferior  in  the  production  of 
the  good  it  receives  from  abroad.  It  may  be  to  its  advantage  to  import 
goods  which  it  might  produce  under  even  more  favorable  conditions 
than  the  country  which  sends  them.  Cuba,  for  example,  might  be 
able  to  produce  wheat  more  advantageously  than  the  United  States, 
but  also  to  produce  sugar  even  more  advantageously.  In  this  case  it 
will  be  more  profitable  for  Cuba  to  raise  sugar  and  import  wheat, 
despite  her  advantage  over  the  United  States  in  the  production  of 
wheat ;  for  thus  she  can  purchase  through  sugar  what  otherwise  would 
have  cost  her  more  labor  to  produce.  Thus  it  may  happen  that  a 
country  in  all  points  superior  to  its  neighbor  will  find  it  profitable  to 
import  goods  from  them. 

An  allied  advantage  is  that  whenever  an  accident  of  any  sort 
unexpectedly  reduces  the  productivity  of  one  country,  it  may  depend 
upon  others  to  remedy  this  accident,  which,  in  the  absence  of  inter- 
national commerce,  might  have  disastrous  consequences.  Thus  in- 
ternational commerce  provides  a  kind  of  insurance  against  famines 
and  against  the  severe  stress  of  national  panics  and  depressions. 

Although  a  nation  could  perhaps  produce  a  sufficient  quantity  of 
many  commodities  which  at  present  it  imports,  the  quantity  at  home 
could  be  increased  only  at  a  very  great  cost  in  labor  and  capital  and 
a  consequent  increase  in  prices.  The  United  States,  for  example, 
imports  a  large  quantity  of  lead.  If  imports  were  cut  off,  it  would 
be  necessary  to  work  poorer  mines,  and  incur  the  necessarily  greater 
costs,  which,  in  higher  prices,  will  obviously  fall  upon  the  consumers 
of  lead. 

As  for  exportation,  the  following  are  its  advantages : 

I.  It  utilizes  natural  resources  and  productive  forces  which,  if 
there  were  no  foreign  outlet,  would  be  superabundant,  and  there- 
fore partially  useless.  Were  it  not  for  exportation,  Peru  would  not 
know  what  to  do  with  her  nitrates,  Australia  with  her  wool,  Spain 


PROBLEM  OF  INTERNATIONAL  TRADE 


311 


with  her  wines,  Pennsylvania  with  her  iron  and  steel,  nor  the  South 
with  its  cotton. 

II.  It  develops  a  nation's  industry.  It  is  well  known  that  the 
extent  of  the  division  of  labor  and  the  progress  of  large-scale  pro- 
duction are  proportionate  to  the  size  of  the  market.  Division  of 
labor  cannot  be  at  all  detailed  when  the  market  is  small,  whereas  with 
every  extension  of  the  market  a  more  elaborate  division  of  labor 
and  the  introduction  of  more  expensive  but  in  the  long  run  more 
productive  processes  and  machinery  becomes  possible.  International 
trade,  by  creating  world-wide  markets  for  goods,  tends  to  develop 
the  division  of  labor ;  it  leads  to  a  fuller  utilization  of  the  possibilities 
of  the  soil  and  the  population,  to  a  completer  development  of  acquired 
aptitudes,  and  hence  to  a  great  increase  of  the  productive  energy  of 
humanity.  England  could  never  have  become  the  great  manufactur- 
ing nation  it  now  is,  did  it  not  export  to  all  parts  of  the  world.  The 
possession  of  an  extensive  market  made  it  possible  for  her  to  make 
immediate  and  profitable  use  of  the  latest  inventions  and  improve- 
ments in  manufacturing. 

135.     The  Law  of  Comparative  Costs- 

BY  FRED  M.  TAYLOR 

Here  is  a  lawyer  who  very  likely  can  mow  his  lawn,  cultivate  his 
garden,  and  take  care  of  his  furnace  much  better  than  the  persons 
whom  he  hires  to  do  these  things.  But  what  he  does  is  to  devote 
himself  to  his  profession,  and  buy  the  services  named  from  other 
people ;  and  of  course  he  acts  wisely  in  so  doing.  It  is  clear  that  he 
gains  most  by  devoting  himself  to  the  thing  for  which  he  is  best 
fitted.  He  is  not  interested  in  the  fitness  or  unfitness  of  his  neighbor 
as  compared  with  himself,  but  rather  in  the  superiority  of  his  own 
fitness  in  one  line  as  compared  with  his  fitness  in  another  line.  So 
long  as  he  can  find  a  market  for  his  output,  it  is  better  for  him  to 
devote  his  time  to  doing  the  things  for  which  he  is  pre-eminently 
fitted,  and  get  his  supplies  of  other  things  from  his  neighbors,  even 
though  he  can  make  those  other  things  better  than  they. 

It  is  evident  that  in  this  respect  the  case  of  the  community  or  the 
nation  is  like  that  of  the  individual.  The  upper  peninsula  of  Michigan 
produces  little  but  copper  and  iron,  getting  most  other  goods  through 
exchange  with  other  communities.  Yet  it  would  be  easy  to  prove  that 
this  section  is  really  better  fitted  to  produce  some  of  the  things  which 
it  buys  than  the  sections  from  which  it  buys  them.    The  explanation 

^Adapted  from  Principles  of  Economics  (2d  ed.),  pp.  75-77.  Copyright 
by  the  author.    Published  by  the  University  of  Michigan,  1913. 


312  CURRENT  ECONOMIC  PROBLEMS 

is  to  be  found  in  what  has  long  been  known  as  the  law  of  comparative 
costs.    It  may  be  stated  as  follows : 

Ignoring  cost  of  transportation,  two  communities  find  it  profitable 
to  specialize  respectively  in  the  production  of  two  commodities  and  to 
exchange  those  commodities  each  for  the  other,  provided  the  com- 
parative real  costs  of  the  two  commodities  in  one  community  are  dif- 
ferent from  their  comparative  real  costs  in  the  other  community. 

Let  us  illustrate.  Letting  labor  represent  all  real  costs,  suppose 
that  in  England  the  cost  of  a  ton  of  iron  is  25  days'  labor  and  the 
cost  of  a  yard  of  broadcloth  is  5  days'  labor;  while  in  America  the 
cost  of  iron  is  16  days'  labor  and  that  of  broadcloth  4  days'  labor. 
These  costs  may  be  expressed  in  the  following  proportions : 

Eng.  cost  iron :  Eng.  cost  cloth : :  25  15 
Amer.  cost  iron:  Amer,  cost  cloth::  16:4 

Since  in  England  a  ton  of  iron  costs  five  times  as  much  as  a  yard 
of  cloth,  it  will  naturally  tend  to  be  worth  the  same  as  five  yards 
of  cloth ;  under  which  conditions  England  can  aflford  to  give  iron 
for  cloth  if,  and  only  if,  she  can  get  more  than  five  yards  per  ton ; 
or  trade  cloth  for  iron  if,  and  only  if,  she  can  get  it  with  less  than 
five  yards  per  ton.  In  America,  on  the  other  hand,  a  ton  of  iron 
tends  to  be  worth  four  yards  of  cloth ;  under  which  conditions 
America  can  afford  to  trade  iron  for  cloth  if,  and  only  if,  she  can  get 
more  than  four  yards  per  ton ;  or  to  trade  cloth  for  iron  if,  and  only 
if,  she  can  get  it  with  less  than  four  yards.  But  the  first  hypothesis 
for  England  and  the  second  for  America  are  plainly  shut  out.  Eng- 
land cannot  get  more  than  five  yards  of  cloth  for  iron,  since  in  America 
it  is  worth  only  four  yards.  So  America  cannot  buy  with  less  than 
four  yards  of  cloth  since  it  is  worth  five  yards  in  England.  On  the 
other  hand,  the  second  hypothesis  for  England  and  the  first  for 
America  fit  each  other  perfectly.  England  can  get  iron  for  less  than 
five  yards,  since  it  is  worth  only  four  in  America ;  and  America  can 
sell  iron  for  more  than  four  yards  of  cloth,  since  it  is  worth  five  in 
England.  Accordingly,  under  the  conditions  supposed,  an  exchange 
of  English  cloth  for  American  iron  would  be  profitable. 

It  goes  without  saying  that  if  one  nation  is  absolutely  inferior  to 
its  neighbor  in  respect  to  the  production  of  one  commodity  and  abso- 
lutely superior  in  respect  to  the  production  of  another,  then,  obviously, 
the  comparative  costs  of  these  commodities  in  one  country  are  differ- 
ent from  their  comparative  costs  in  the  other,  and  so  exchanging  them 
will  pay. 

But,  as  the  argument  above  has  shown,  it  is  equally  clear  that 
if  a  nation  is  absolutely  superior  to  another  in  the  production  of  each 


PROBLEM  OF  INTERNATIONAL  TRADE 


313 


of  two  commodities,  it  will  produce  the  one  in  which  its  superiority 
is  the  greater,  and  will  import  the  latter.  Likewise,  if  a  nation  is  in- 
ferior to  its  neighbor  in  each  of  two  commodities,  it  will  produce  the 
one  in  which  its  inferiority  is  less,  and  import  the  other. 


A 


136.     The  Theory  of  Free  Trade^ 

The  theory  of  free  trade  is  nothing  else  than  a  deduction  from 
the  advantages  of  foreign  trade,  or  rather,  of  trade.  The  industrial 
policy  of  a  people  is  concerned,  not  with  the  welfare  of  classes  or 
the  productive  profits  of  particular  individuals,  but  with  securing 
for  the  people  as  a  whole  from  the  limited  social  resources  at  their 
command  the  largest  amount  of  material  wealth.  This  involves  a 
problem  of  economic  organization.  This  problem  can  be  solved  in 
two  ways,  logically  antithetical,  as  well  as  in  innumerable  intermediate 
ways  which  combine  the  two  primary  solutions. 

The  one  is  the  resolution  of  the  economic  world  into  a  large  num- 
ber of  infinitely  small  districts.  In  each  district  there  is  a  body  of 
people,  a  fund  of  accumulated  capital,  and  land  possessed  of  definite 
productive  powers.  The  people,  capital,  and  products  of  each  dis- 
trict are  to  be  kept  clearly  within  the  confines  of  the  district.  Com- 
mercial intercourse  and  personal  movement  from  district  to  district 
are  to  be  prohibited.  Thus  each  district  is  called  upon  to  solve  its 
own  problem  in  economic  organization.  It  must  directly  satisfy  the 
wants  of  its  own  people ;  to  that  end  it  is  compelled  to  make  the  best 
possible  accommodation  of  its  labor  and  capital  to  its  natural  re- 
sources. It  need  not  he  said  that  under  such  a  system  of  small  self- 
sufficient  units,  few  wants  could  be  satisfied ;  little  capital  could  be 
accumulated ;  the  advantages  of  specialization  would  be  lost ;  little 
natural  skill  could  be  developed  ;  and  only  limited  potentialities  of  the 
natural  resources  could  be  utilized. 

The  alternative  is  the  treatment  of  the  economic  world  as  a  single 
industrial  unit.  Population  and  capital  are  to  be  allowed  freely  to 
move  wherever  they  please ;  there  is  to  be  no  barrier  to  the  free 
exchange  of  goods.  The  problem  of  economic  organization  is  to  be 
worked  out  for  the  economic  world  as  a  single  entity.  Under  freedom 
from  interference,  population  and  capital  will  gravitate  towards  those 
places  where  they  can  get  the  largest  returns,  or  where  they  can  best 
utilize  nature's  contributions.  Where  they  go,  industries  will  be  estab- 
lished. The  goods  produced  will  not  have  to  be  consumed  in  the 
region  in  which  they  are  produced ;  they  will  likewise  naturally  seek 
the  places  where  they  can  command  the  highest  prices.    Under  this 

3 An  editorial  (1915). 


314  CURRENT  ECONOMIC  PROBLEMS 

system  the  people  of  any  territory  do  not  seek  directly  to  supply  all 
their  own  wants.  They  produce  surpluses  of  the  goods  in  the  making 
of  which  natural  resources  or  acquired  skill  make  them  pre-eminently 
fit,  and  exchange  them  for  similar  surpluses  produced  by  their  neigh- 
bors, far  or  near.  Such  an  economic  organization  is  nothing  else  than 
a  territorial  division  of  labor.  It  makes  industry  more  efficient 
through  the  better  utilization  of  natural  resources,  through  the  devel- 
opment of  specialized  skill,  and  through  the  larger  volume  of  capital 
accumulated  out  of  the  larger  earnings.  The  expenses  of  trade  are  a 
tax  upon  this  system ;  but  the  exchange  which  trade  makes  possible 
pays  at  least  its  own  expenses.  If  it  failed  to  do  so,  it  could  not  be 
carried  on.  In  the  majority  of  cases  it  yields,  in  addition,  a  surplus  to 
both  parties. 

Neither  of  these  alternatives  can  be  perfectly  realized.  The  former 
cannot  be,  because  it  is  practically  impossible  to  find  a  unit  of  terri- 
tory logically  small  enough.  The  latter  cannot  be,  because  of  the 
expenses  of  transportation.  The  cost  entailed  by  distance  will  always 
involve  the  element  of  a  scattering  over  wide  territories  of  the  estab- 
lishments producing  many  separate  goods.  It  will  permit  only  a  few 
localized  industries  to  satisfy  world-wide  demands.  But  distance  is 
to  be  looked  upon,  not  as  a  friend,  but  an  enemy,  to  material  progress. 
Every  invention  in  transportation  which  reduces  the  costs  of  carriage 
is  to  be  regarded  as  a  means  to  greater  social  economy,  and  as  an 
effective  device  for  extending  still  further  the  market,  specializing 
more  narrowly  in  production,  and  swelling  the  volume  of  material 
goods.  On  the  contrary,  everything  which  increases  costs  must  be 
looked  upon  as  a  device  tending  to  break  society  up  into  smaller 
groups,  decrease  the  area  of  the  market,  and  reduce  the  amount  of 
material  wealth.  Protection  is  a  system  of  taxes  the  object  of  which 
is  to  cause  industrial  society  to  be  organized  in  a  smaller  group  than 
otherwise  it  would  be.  It  is  nothing  else  than  an  increase  in  the  costs 
of  carrying  goods  from  place  to  place.  Consequently  its  interference 
with  the  establishment  of  a  natural  economic  organization  prevents 
the  fullest  utilization  of  limited  social  resources  and  leads  to  the  pro- 
duction of  a  smaller  volume  of  goods  than  would  be  attained  through 
free  trade. 

The  theory  of  free  trade  is  premised  upon  the  proposition  that  a 
trade  yields  an  advantage,  not  to  one,  but  to  both  parties  to  the 
transaction.  Since  society  is  an  aggregate  of  individuals,  trade  in 
aggregate  yields  a  corresponding  advantage.  Political  lines  are  arti- 
ficially drawn.  Their  presence  cannot  affect  either  the  nature  or  the 
advantages  of  trade.  Therefore  the  way  to  fullest  national  prosperity, 
not  for  particular  individuals  or  industries,  but  for  society  as^  a,jwhole^ 
is  through  the  policy  of  untrammeled  commerce. 


PROBLEM  OF  INTERNATIONAL  TRADE  315 

137.     The  Favorable  Balance  of  Trade 

BY  THOMAS   MUN  * 

Although  a  kingdom  may  be  enriched  by  gifts  received,  or  by  pur- 
chases taken  from  some  other  Nations,  yet  these  are  things  uncertain 
and  of  small  consideration  when  they  happen.  The  ordinary  means 
therefore  to  increase  our  wealth  and  treasure  is  by  Foreign  Trade, 
wherein  wee  must  ever  observe  this  rule;  to  sell  more  to  strangers 
yearly  than  wee  consume  of  theirs  in  value.  For  suppose  that  when 
this  Kingdom  is  plentifully  served  with  the  Cloth,  Lead,  Tinn,  Iron, 
Fish,  and  other  native  commodities,  we  doe  yearly  export  the  over- 
plus to  foreign  Countries  to  the  value  of  twenty-two  hundred  thou- 
sand pounds  by  which  means  we  are  able  beyond  the  Seas  to  buy  and 
bring  in  foreign  wares  for  our  use  and  Consumptions  to  the  value  of 
twenty  hundred  thousand  pounds:  By  this  order  duly  kept  in  our 
trading,  we  may  rest  assured  that  the  Kingdom  shall  be  enriched 
yearly  two  hundred  thousand  pounds,  which  must  be  brought  to  us 
in  so  much  Treasure ;  because  that  part  of  our  stock  which  is  not  re- 
turned to  us  in  wares  must  necessarily  be  brought  home  in  treasure. 

For  in  this  case  it  cometh  to  pass  in  the  stock  of  a  Kingdom,  as 
in  the  estate  of  a  private  man ;  who  is  supposed  to  have  one  thou- 
sand pounds  yearly  revenue  and  two  thousand  pounds  ready  money 
in  his  Chest:  If  such  a  man  through  excess  shall  spend  one  thou- 
sand five  hundred  pounds  per  annum,  all  his  ready  money  will  be 
gone  in  four  years ;  and  in  like  time  his  said  money  will  be  doubled 
if  he  take  a  Frugal  course  to  spend  but  five  hundred  pounds  per 
annum,  which  rule  never  faileth  likewise  in  the  Commonwealth. 

BY  CHARLES  W.  FAIRBANKS^ 

The  history  of  our  foreign  trade  during  the  sixteen  years  fol- 
lowing the  Cleveland  administration  shows  that  our  commerce  con- 
tinually expanded  under  the  protective  policy.  One  of  the  fine  things 
about  it  was  that  our  exports  far  exceeded  our  imports;  that  is  to 
say,  we  sold  abroad  more  than  we  bought  abroad,  and  as  a  result 
there  was  a  substantial  trade  balance  in  our  favor.  The  excess  of  our 
domestic  exports  over  imports  in  the  sixteen  years  ending  March  i, 
191 3,  was  $7,348,942,251.  The  magnitude  of  this  addition  to  our 
national  wealth  may  be  more  fully  realized  when  we  reflect  that  the 
total  net  balance  to  our  credit  upon  our  foreign  commerce  from 

^Adapted  from  England's  Treasure  by  Foreign  Trade,  or  The  Balance 
of  Our  Foreign  Trade  Is  the  Rule  of  Our  Treasure  (1664),  chap.  ii. 

^Adapted  from  an  address  entitled  "Let  Us  Now  Unite  in  the  Old  Faith," 
delivered  before  the  Indiana  Republican  State  Convention  at  Indianapolis, 
April  23,  1914. 


3i6  CURRENT  ECONOMIC  PROBLEMS 

George  Washington's  first  term  to  William  McKinley's  first  term  was 
less  than  $400,000,000. 

Our  free-trade  friends  seem  to  ignore  the  wisdom  of  keeping  our 
money  at  home  so  far  as  we  reasonably  can  by  buying  at  home. 
Whether  we  send  abroad  a  hundred  millions  of  dollars  more  or  less 
to  pay  for  commodities  produced  by  foreign  labor  is  a  matter  of  slight 
importance  to  them.  We  who  hold  to  the  protective  system  conceive 
it  to  be  sound  policy  to  patronize  our  home  producers  where  possible, 
and  keep  the  money  in  our  own  midst.  If  it  goes  abroad,  it  is,  of 
course,  withdrawn  from  our  pockets,  but  if  it  remains  at  home  it 
goes  into  the  circulation  of  our  own  trade  and  our  countrymen — 
laborers  and  farmers,  merchants  and  manufacturers^ — have  a  chance 
to  get  it  sooner  or  later. 

/l38.     The  Mystery  of  the  Balance  of  Trade^ 

BY  HARTLEY  WITHERS 

The  statistics  published  by  our  Board  of  Trade  show  that  for 
1912,  which  is  a  typical  year,  our  net  imports,  including  bullion, 
amounted  to  £702,000,000,  while  our  exports,  including  bullion, 
reached  only  £552,000,000.  This  gives  a  net  excess  of  imports  over 
exports,  including  gold  shipped  both  ways,  of  approximately  £150,- 
000,000. 

Now  this  huge  excess  of  imports,  which  is  much  bigger  in  the 
case  of  England  than  In  that  of  any  other  country,  is  often  very 
terrifying  to  people  who  have  not  thought  much  about  the  subject. 
It  is  commonly  called  an  adverse  balance  of  trade,  a  phrase  which 
has  an  uncomfortable  sound,  as  if  there  was  something  chronically 
rotten  in  the  state  of  our  commerce,  and  it  is  sometimes  used  as  a 
proof  that  other  countries  are  continually  pouring  goods  in  to  us  and 
taking  nothing  from  us  in  return,  and  that  this  is  a  state  of  things 
which  ought  immediately  to  be  stopped  in  the  interests  of  the  national 
welfare.  If  this  were  true,  it  would  seem,  on  consideration,  to  be 
rather  a  comfortable  state  of  affairs.  Any  individual  who  could 
arrange  his  commercial  relations  with  his  fellows  on  these  lines  would 
be  likely  to  wax  very  fat.  To  be  always  consuming  more  than  he  pro- 
duced is  just  the  sort  of  life  that  would  have  been  thoroughly  agreea- 
ble to  the  economic  man.  With  a  nation,  likewise,  it  would  seem  to 
tend  to  the  enjoyment  of  plenty  with  little  effort. 

But,  in  fact,  these  things  do  not  happen.  The  other  countries  of 
the  world  have  not  conspired  together  to  kill  England  with  kindness 

^Adapted  from  Money-Changing :  An  Introduction  to  Foreign  Exchange, 
PP-  51-^3,  78-82.    Copyright  by  E.  P.  Dutton  &  Co.  and  Smith.  Elder  &  Co.,  1913. 


PROBLEM  OF  INTERNATIONAL  TRADE  317 

and  give  us  £150,000,000  worth  of  goods  every  year  for  nothing. 
Goods  are  never  sent  anywhere  unless  there  is  a  reasonable  certainty 
that  the  country  to  which  they  are  sent  will  be  able  to  pay  for  them. 
The  foreign  seller  of  goods  expects  to  be  paid  in  money  of  his  own 
country  by  selling  his  claim  through  the  machinery  of  exchange.  But 
if  the  importing  country  were  always  buying  more  than  it  sold,  the 
supply  of  claims  on  it  would  be  continually  greater  than  the  demand 
for  them  and  the  exchanges  would  be  steadily  going  against  it,  and  it 
would  either  have  to  export  gold  or  export  promises  to  pay  as  long 
as  it  could  finance  itself  on  Mr.  Micawber's  principles. 

Now  it  is  certain  that  we  are  not  exporting  gold.  Year  in  and 
year  out  we  import  more  gold  than  we  export.  It  is  also  certain  that 
we  are  not  on  balance  exporting  promises  to  pay,  either  our  own  or 
other  people's.  If  we  were  doing  the  former,  we  should  be  raising 
loans  abroad  or  exporting  or  selling  our  securities  abroad,  neither  of 
which  things  we  are  doing.  If  we  were  exporting  other  people's 
promises  to  pay,  it  would  mean  that  we  were  selling  to  foreigners 
out  of  our  holdings  of  foreign  securities.  But  this  is  not  happening 
to  any  great  extent.  Nor  do  rates  of  exchange  move  steadily  against 
us,  as  they  must  if  we  were  really  leading  the  profligate  life  of  com- 
mercial dissipation  that  a  glance  at  the  figures  might  lead  the  unwary 
to  infer. 

It  is  thus  clear  that  the  big  gap  between  our  recorded  exports 
and  imports  of  goods  is  filled  by  unrecorded,  and  so  usually  called 
"invisible,"  exports  of  various  kinds  of  services,  and  that  there  is 
no  need  to  be  frightened  about  it.  England  does  about  one-half  of 
the  carrying  trade  of  the  world.  It  is  quite  evident  that  these  carry- 
ing services  do  not  themselves  pass  through  custom-houses,  and  hence 
are  "invisible."  And  it  is  evident  that  a  large  part  of  our  surplus 
of  imports  consists  of  payments  for  these  services  which  we  are  per- 
forming for  foreigners. 

In  addition  to  this  there  is  an  equally  elusive  factor  in  the  shape 
of  the  import  and  export  of  securities  and  interest  on  capital.  Almost 
every  country  in  the  world  is  a  lender  or  a  borrower.  The  borrower 
exports  securities,  or  promises  to  pay,  and  takes  in  return  the  goods 
or  services  it  requires.  Later  on,  when  interest  payments  fall  due, 
the  lender  has  coupons  to  export,  and  the  borrower  has  to  ship  goods 
to  meet  them.  When  Russia  raises  a  loan  in  France  it  exports  its 
bonds  or  promises  to  pay,  and  sells  them  to  thrifty  French  investors. 
Thereafter  French  investors  export  coupons  every  half-year  to  Rus- 
sia, representing  claims  of  interest  due.  Thus  the  exportation  of 
securities  and  the  subsequent  exportation  of  coupons  by  the  lender 
both  tend  to  produce  the  same  result,  a  balance  of  visible  imports. 


3i8  CURRENT  ECONOMIC  PROBLEMS 

Consequently  we  find  that  this  adverse  balance — or  excess  of  visi- 
ble imports — is  a  feature  in  the  trade  figures,  both  of  the  young  and 
go-ahead  countries  that  are  habitual  borrowers  and  are  always  export- 
ing securities,  and  of  the  old  established  nations  that  have  plenty  of 
accumulated  capital  to  spare  and  have  placed  blocks  of  it  abroad, 
and  so  always  have  plenty  of  coupons  to  export.  In  both  of  these 
cases  there  is  an  invisible  export,  in  one  case  of  securities,  in  the  other 
of  coupons,  which  usually  has  to  be  met  by  visible  imports  of  goods, 
which  thus  create  a  so-called  adverse  trade  balance.  The  so-called 
favorable  trade  balance,  under  which  a  country  shows  more  goods 
going  out  than  coming  in,  is  chiefly  shown  by  those  nations  which 
have  reached  the  stage  of  being  in  a  position  to  pay  interest  on  bor- 
rowed capital  out  of  their  own  productions,  without  having  to  borrow 
more  from  their  creditors  in  order  to  meet  interest.  The  United 
States  is  typical  of  the  last  class,  Canada  and  England  of  the  first. 
The  actual  import  of  securities,  then,  should  tend  to  produce  an  excess 
of  exports,  and  an  export  of  coupons  to  secure  a  surplus  of  imports. 

But  there  are  other  invisible  items  that  get  into  the  total.  Every 
American  who  goes  forth  with  his  Baedeker  to  widen  his  mental 
horizon  in  England  brings  with  him  a  supply  of  notes.  These  have 
been  bought  for  gold  in  New  York,  and  consist  of  claims  on  London 
merchants  created  by  the  importation  of  American  goods.  Conse- 
quently his  notes  pay  for  the  beefsteaks  which  he,  an  American,  con- 
sumes under  English  skies,  and  for  the  invisible  culture  which  he 
takes  back  to  his  native  land.  The  goods  which  he  consumes  in  Eng- 
land are  properly  to  be  regarded  as  English  exports. 

Another  streamlet  which  sometimes  swells  into  a  respectable  tor- 
rent IS  made  by  the  many  drops  poured  in  by  poor  immigrants  into 
new  countries,  who  send  home  to  their  kinsmen  such  small  sums  as 
they  can  spare.  In  this  respect  Italy  is  believed  to  score  heavily. 
The  Italians  seem  to  take  with  them  the  home-grown  power  of  living 
largely  on  sunshine  and  good  humor,  and  the  sums  they  send  home  are 
an  important  cause  of  the  power  shown  by  Italy  to  maintain  a  so- 
called  adverse  trade  balance,  without  the  assistance  of  investments 
abroad  or  the  profits  of  a  big  carrying  trade.  Ireland  is  another  coun- 
try that  takes  toll  of  the  rest  of  the  world  through  the  filial  piety  of 
her  sons  who  have  gone  abroad  to  seek  their  fortunes  in  lands  where 
thews  and  sinews  find  a  better  market  than  at  home. 

Another  class  of  emigrant  in  another  way  helps  the  older  coun- 
tries by  causing  a  drain  on  the  country  of  its  origin.  This  class  is 
formed  by  the  wealthy  American  heiresses  who  find  English  and 
European  husbands  and  draw  year  by  year  large  surns  from  the 
United  States  in  the  shape  of  dowries,  so  that  this  item  in  the  trade 


PROBLEM  OF  INTERNATIONAL  TRADE  319 

balance  is  usually  called  the  "dowry  drain."  In  this  case  Europe 
and  England  can  balance  against  the  excess  of  imports  the  exporta- 
tion of  conjugal  affection  and  social  prestige. 

The  presence  of  these  items,  which  escape  customs  statistics, 
shows  that  after  all  our  exports  and  our  imports  balance  each  other, 
and  that  there  is  no  real  balance  of  trade. 


B.    THE  PERENNIAL  ARGUMENT  FOR  RESTRICTION 
139.     Keeping  Trade  at  Home' 

"A  dollar  spent  in  Auburn  gives  you  another  chance  at  it ;  but, 
if  it  is  spent  out  of  town,  it's  'Good-bye  Mary.' " 

"Down  with  the  parcels  post.  No  more  diabolical  device  was 
ever  perfected  by  the  big  cities  for  stripping  the  small  towns  and 
country  districts  of  all  their  surplus  cash.  Let  the  rich  mail-order 
houses  wax  fat  with  the  dollars  that  are  the  property  of  local  mer- 
chants." 

"Everything  bought  from  the  city  takes  just  so  much  money  out 
of  town." 

"The  summer  boarders  are  a  great  blessing  to  our  little  village ; 
they  put  into  circulation  a  lot  of  money  which  means  at  least  tempo- 
rary prosperity." 

"If  I  were  mayor,  and  had  my  way,  I  would  place  a  fine  of  one 
hundred  dollars  on  every  man  who  ordered  goods  from  a  mail-order 
house." 

"The  individual  can  get  rich  only  by  selling  more  than  he  buys. 
Likewise  a  community  can  prosper  only  by  selling  to  other  communi- 
ties more  than  it  buys  from  them." 

"Brethren,  let  me  call  your  atention  to  the  fact  that  Brother  Hiram 
Johnson,  who,  this  week,  is  opening  a  new  grocery  store  on  Main 
Street,  is  a  member  of  this  church.  If  you  patronize  him,  you  will 
not  only  contribute  to  the  prosperity  of  an  excellent  grocer,  but  you 
will  be  helping  a  fellow  Christian  and  Methodist." 

"The  European  war  will  in  a  way,  too  often  overlooked,  contribute 
vastly  to  the  prosperity  of  the  Pacific  Coast.  Americans  annually 
have  been  spending  more  than  $200,000,000  in  foreign  travel.  No 
sane  man  can  for  a  moment  doubt  that  practically  every  dollar  of 
this  is  lost  to  the  home  circulation.  Now  it  will  be  spent  in  travel 
to  the  Pacific  Coast.    California  will  get  the  largest  share  of  it.    This 

'  It  seems  unnecessary  to  give  a  specific  reference  to  the  source  of  each 
of  the  excerpts  given  below.  The  reader  by  a  little  attention  to  local  papers 
can  easily  duplicate  it.  The  editor  is  indebted  to  Taylor,  Principles  of  Eco- 
nomics, for  several  of  these  excerpts. 


320  CURRENT  ECONOMIC  PROBLEMS 

money  will  spell  prosperity  for  every  one  of  the  state's  industries. 
But,  we  must  remember  the  duty  we  owe  our  state.  We  can  profit 
by  this  increase  in  wealth  only  if  we  keep  clearly  in  mind  the  precept 
that  it  must  be  spent  for  things  produced  at  home.  Let  us  see  to  it 
that  the  dollars  thus  given  us  do  not  find  their  way  out  of  the  state." 

"When  I  came  to  Marblehead  they  had  their  houses  built  by 
country  workmen  and  their  clothes  made  out  of  town,  and  supplied 
themselves  with  beef  and  pork  from  Boston,  which  drained  the  town 
of  its  money." 

"The  annual  influx  of  students  and  other  outsiders  into  our  fruit 
belt  to  engage  in  fruit-picking  and  packing  is  an  abuse  that  should  be 
stopped  at  once.  These  people  consume  very  little,  saving  their 
money  to  take  back  to  Ann  Arbor,  Madison,  Champaign,  and  other 
places  from  which  they  come.  Thus,  while  making  large  sums  off 
us,  they  give  little  or  nothing  in  support  of  our  industries." 

"The  county  commissioners  should  be  promptly  impeached  and 
removed  from  office  for  their  action  of  last  Monday,  We  under- 
stand that  the  contract  for  the  building  of  the  new  courthouse  was 
let  to  the  Knoxville  firm  only  because  their  bid  was  $i,8oo  under 
that  of  our  fellow-citizen  James  R.  Robertson.  Robertson,  as  we  are 
all  aware,  is  an  expert  at  this  line  of  work,  and  was  well  equipped 
to  do  a  handsome  job.  The  only  excuse  which  the  commissioners  give 
is  the  $i,8oo.  But,  against  this  must  be  set  down  the  $32,000  which 
will  be  paid  to  the  Knoxville  gang.  Think  of  it !  Sending  $32,000 
out  of  town  to  save  a  paltry  $1,800." 

"The  Gazette  has  always  been  outspoken  in  favor  of  education. 
Our  stand  in  favor  of  university,  college,  and  school  cannot  be  ques- 
tioned. We  do  not  wish  to  question  the  wisdom  of  our  fellow-citizens 
who  are  sending  their  children  away  to  school.  But  we  do  wish  to 
remind  them  of  a  duty  which  they  owe  it  to  the  town  not  to  neglect. 
They  should  see  to  it  that  their  sons  and  daughters  are  supplied  with 
clothes  and  all  other  necessary  articles  before  they  leave  home  for 
their  schools.  Our  citizens  owe  nothing  to  the  merchants  of  the 
communities  in  which  these  colleges  are  located.  But  they  do  owe  a 
debt  to  the  town  which  gives  them  homes.  And  they  should  see  to 
it  that  the  money  spent  for  necessary  articles  is  kept  here  as  far  as 
possible." 

"'Now  look  here.  Doc,'  said  the  dollar  to  the  dentist,  'if  you'll 
only  let  me  stay  in  this  town,  and  won't  send  me  to  Roars,  Sawbuck 
&  Co.'s  in  Chicago  for  that  shaving  mug,  I'll  circulate  around  and 
do  you  a  lot  of  good.  You  buy  a  big  beefsteak  with  me,  and  the 
butcher  will  buy  groceries,  and  the  grocer  will  buy  dry  goods,  and 
the  dry  goods  merchant  will  pay  his  doctor's  bill  with  me,  and  the 


PROBLEM  OF  INTERNATIONAL  TRADE  321 

doctor  will  give  me  to  the  farmer  for  oats  with  which  to  feed  his 
horse,  and  the  farmer  will  buy  fresh  beef  from  the  butcher,  and 
the  butcher  will  come  around  to  you  and  get  his  tooth  mended.  In  the 
long  run  you  see  I  will  be  more  useful  to  you  here  at  home  than  if 
you  send  me  away  forever.' " 

"The  recent  cold  spell,  which  caused  a  large  number  of  water 
pipes  to  burst,  has  been  a  bonanza  for  business.  Few  things  in  the 
last  year  have  caused  so  many  people  to  dig  down  into  their  jeans 
and  cough  up  the  cartwheels  that  spell  prosperity." 

140.     Gold  and  Wealth^ 

BY  MARTIN  LUTHER 

Gold  has  brought  us  Germans  to  that  pitch  that  we  must  needs 
scatter  our  gold  and  silver  in  foreign  lands,  and  make  all  the  world 
rich  and  ourselves  remain  beggars.  England  should  indeed  have 
less  gold,  if  Germany  left  her  her  cloth ;  and  the  king  of  Portugal  also 
would  have  less  if  we  left  him  his  spices.  Reckon  thou  how  much 
money  is  taken  out  of  German  land  without  need  or  cause  in  one 
Frankfort  fair,  then  wilt  thou  wonder  how  it  comes  that  there  is  a 
penny  left  in  Germany.  Frankfort  is  the  silver-and-gold  hole  through 
which  everything  which  sprouts  and  grows  among  us,  or  is  coined 
and  stamped,  runs  out  of  German  lands.  If  this  hole  were  stopped, 
we  would  perchance  not  hear  the  complaint  how  on  all  hands  there 
is  naught  but  debts  and  no  money,  and  all  provinces  and  cities  are 
burdened  and  exhausted  by  interest-paying. 

141.     The  Production  of  Prosperity^ 

BY  DANIEL  DEFOE 

Trade  encourages  manufacture,  prompts  invention,  employs 
people,  increases  labor,  and  pays  wages :  As  the  people  are  employed, 
they  are  paid,  and  by  that  pay  are  fed,  clothed,  kept  in  heart,  and 
kept  together ;  that  is,  kept  at  home,  kept  from  wandering  in  foreign 
countries  to  seek  business,  for  where  the  employment  is,  the  people 
will  be. 

This  keeping  the  people  together  is  indeed  the  sum  of  the  whole 
matter,  for  as  they  are  kept  together,  they  multiply  together;  and 

^Adapted  from  the  address  on  "Trade  and  Usury,"  Open  Court,  XI  (1524), 
18.    Translated  by  W.  H.  Carruth.    Copyright. 

^Adapted  from  A  Plan  of  the  English  Commerce  (1730),  pp.  8-10,  33-34,  in 
A  Select  Collection  of  Scarce  and  Valuable  Tracts  on  Commerce,  edited  by 
J.  R.  McCulloch. 


322  'CURRENT  ECONOMIC  PROBLEMS 

the  numbers,  which  by  the  way  are  the  wealth  and  strength  of  the 
nation,  increase. 

As  the  numbers  of  the  people  increase,  the  consumption  of 
provisions  increases ;  as  the  consumption  increases,  the  rate  of  value 
will  rise  at  market;  and  as  the  rate  of  provisions  rises,  the  rents  of 
land  rise :  So  the  gentlemen  are  with  the  first  to  feel  the  benefit  of 
trade,  by  the  addition  to  their  estates. 

As  the  consumption  of  provisions  increases,  more  lands  are  cul- 
tivated ;  waste  grounds  are  inclosed,  woods  are  grubbed  up,  forests 
and  common  lands  are  tilled,  and  improved ;  by  this  more  farmers 
are  brought  together,  more  farmhouses  and  cottages  are  built,  and 
more  trades  are  called  upon  to  supply  the  necessary  demands  of 
husbandry.  In  a  word,  as  land  is  employed,  the  people  increase,  of 
course,  and  thus  trade  sets  all  the  wheels  of  improvement  in  motion ; 
for  from  the  original  of  business  to  this  day  it  appears,  that  the 
prosperity  of  a  nation  rises  and  falls,  just  as  trade  is  supported  or 
becomes  decayed. 

As  trade  prospers,  manufactures  increase;  as  the  demand  is 
greater  or  smaller,  so  also  is  the  quantity  made ;  and  so  the  wages  of 
the  poor,  the  rate  of  provisions,  and  the  rents  and  value  of  the  lands 
rise  or  fall,  as  I  said  before.  And  here  the  very  power  and  strength 
of  the  nation  is  concerned  also,  for  as  the  value  of  the  lands  rises 
or  falls,  the  taxes  rise  and  fall  in  proportion. 

Trade  furnishes  money,  money  pays  taxes,  and  taxes  raise 
armies;  and  so  it  may  truly  be  said  of  trade,  that  it  makes  princes 
powerful,  nations  valiant,  and  the  most  effeminate  people  that  can- 
not fight  for  themselves,  if  they  have  but  money,  and  can  hire  other 
people  to  fight  for  them,  become  as  formidable  as  any  of  their 
neighbors. 

Seeing  trade  then  is  the  fund  of  wealth  and  power,  we  cannot 
wonder  that  we  see  the  wisest  princes  and  states  anxious  and  con- 
cerned for  the  increase  of  the  commerce  and  trade  of  their  subjects, 
and  of  the  growth  of  the  country,  anxious  to  propagate  the  sale  of 
such  goods  as  are  the  manufacture  of  their  own  people;  especially 
such  as  keep  the  money  of  their  dominions  at  home,  and  on  the  con- 
trary, for  prohibiting  the  exportation  from  abroad,  of  such  things 
as  are  the  products  of  other  countries,  and  of  the  labor  of  other 
people,  as  which  carry  money  back  in  return. 

Nor  can  we  wonder  that  we  see  such  princes  and  states  endeavor- 
ing to  set  up  such  manufactures  in  their  own  countries,  which  they 
see  are  successfully  and  profitably  carried  on  by  their  neighbors,  and 
to  endeavor  to  procure  the  materials  for  setting  up  those  manufac- 
tures by  all  just  and  profitable  methods  from  other  countries. 


PROBLEM  OF  INTERNATIONAL  TRADE  323 

142.    The  Ten  Commandments  of  National  Commerce^*' 

1.  Never  lose  sight  of  the  interests  of  your  compatriots  or  of 
the  fatherland. 

2.  Do  not  forget  that  when  you  buy  a  foreign  product,  no  mat- 
ter if  it  is  only  a  cent's  worth,  you  diminish  the  fatherland's  wealth 
by  so  much. 

3.  Your  money  should  profit  only  German  merchants  and  work- 
men. 

4.  Do  not  profane  German  soil,  a  German  house,  or  a  German 
workshop  by  using  foreign  machines  and  tools. 

5.  Never  allow  to  be  served  at  your  table  foreign  fruits  and 
meat,  thus  wronging  German  growers,  and,  moreover,  compromising 
your  health  because  foreign  meats  are  not  inspected  by  German 
sanitary  police. 

6.  Write  on  German  paper  with  a  German  pen  and  dry  the  ink 
with  German  blotters. 

7.  You  should  be  clothed  only  with  German  goods  and  should 
wear  only  German  hats. 

8.  German  flour,  German  fruits,  and  German  beer  alone  make 
German  strength. 

9.  If  you  do  not  like  the  German  malted  coffee,  drink  coffee 
from  the  German  colonies.  If  you  prefer  chocolates  or  cocoa  for 
the  children,  have  a  care  that  the  chocolate  and  cocoa  are  of  exclu- 
sively German  production. 

10.  Do  not  let  foreign  boasters  divert  you  from  these  sage 
precepts.  Be  convinced,  whatever  you  may  hear,  that  the  best 
products,  which  are  alone  worthy  of  a  German  citizen,  are  German 
products. 

143.     The  Test  of  Faith^^ 

BY  ROSWELL  A.  BENEDICT 

Q.     What  is  Protection? 

A.  It  is  a  principle.  It  holds  that  home  producers  alone  make, 
and  therefore  alone  own,  the  home  market. 

Q.     What  is  Free  Trade f 

A.  Also  a  principle.  It  holds  that  producers  abroad  should  be 
allowed  to  compete  for  the  home  market. 

Q.     Who  are  the  Protectionists? 

A.     Home  producers  standing  by  their  title  to  the  home  market. 

loAdapted  from  a  circular  widely  circulated  in  Germany  in  1910. 
^^Adapted  from  "A  Tariflf  Catechism,"  American  Economist,  III  (1914),  62. 


324  CURRENT  ECONOMIC  PROBLEMS 

Q.     Who  are  the  Free  Traders? 

A.  Importers  and  their  pals  stealing  the  home  market  from  its 
lawful  owners. 

Q.  Wherein  does  the  work  of  the  Protectionists  and  the  Free 
Traders  differ? 

A.  The  Protectionists  make  and  defend  while  the  Free  Traders 
attack  and  destroy  home  civilization. 

Q.     How  do  Free  Traders  destroy  home  civilization? 

A.  They  destroy  home  production  which  employs  the  people, 
and  so  substitute  violence  for  industry  as  a  breadwinning  craft. 

Q.  After  all,  are  not  those  zvho  pass  Free  Trade  laws  merely 
scholars,  high  minded  and  pure,  moved  solely  by  pride  in  the  com- 
mon weal? 

A.  No.  It  is  not  pride  but  price  that  moves  them  to»sell  the 
home  market  to  the  Market  Robber.  Under  whatever  color  or  cover, 
it  is  still  the  Market  Robber's  silver  paid  to  these,  our  Judases,  by 
which  we  are  betrayed. 

Q.     Who  is  the  Market  Robber? 

A.  The  importer  who  robs  it  of  its  power  to  employ  home  pro- 
ducers in  the  market  made  and  owned  by  them. 

Q.     What  is  the  secret  of  the  Market  Robber's  power? 

A.  Market-robbing  booty.  His  competitor,  the  home  producer, 
is  lucky  to  get  6  per  cent  a  year  from  his  mine,  forest,  farm,  factory, 
or  fishery,  while  the  Market  Robber's  booty  may  be  loo  per  cent, 
big  enough  to  bribe  his  way  into  any  market. 

Q.  Why  did  the  Market  Robber  fight  so  hard  to  break  into  our 
market? 

A.     To  steal  billions  in  wages  from  our  home  laborers. 

144.     The  Seen  and  the  Unseen^^ 

BY  FREDERIC  BASTIAT 

Have  you  ever  had  occasion  to  witness  the  fury  of  the  honest 
burgess,  Jacques  Bonhomme,  when  his  scapegrace  son  has  broken 
a  pane  of  glass?  If  you  have,  you  cannot  fail  to  have  observed  that 
all  the  bystanders,  were  there  thirty  of  them,  lay  their  heads  together 
to  offer  the  unfortunate  proprietor  this  never-failing  consolation, 
that  there  is  good  in  every  misfortune,  and  that  such  accidents  give 
a  fillip  to  trade.  Everybody  must  live.  If  no  windows  were  broken, 
what  would  become  of  the  glaziers?    Now,  this  formula  of  condo- 

^^Adapted  from  the  essay  The  Seen  and  the  Unseen,  quoted  in  Walker, 
Political  Economy  (1850),  pp.  321-23. 


PROBLEM  OF  INTERNATIONAL  TRADE  325 

lence  contains  a  theory  which  it  is  proper  to  lay  hold  of  in  this  very 
simple  case,  because  it  is  exactly  the  same  theory  which  unfortu- 
nately governs  the  greater  part  of  our  economic  institutions. 

Assuming  that  it  becomes  necessary  to  expend  six  francs  in 
repairing  the  damage,  if  you  mean  to  say  that  the  accident  brings 
in  six  francs  to  the  glazier,  and  to  that  extent  encourages  his  trade, 
I  grant  it  fairly  and  frankly,  and  admit  that  you  reason  justly. 

The  glazier  arrives,  does  his  work,  pockets  the  money,  rubs  his 
hands,  and  blesses  the  scapegrace  son.    That  is  what  we  see. 

But,  if  by  way  of  deduction,  you  come  to  conclude,  as  is  too  often 
done,  that  it  is  a  good  thing  to  break  windows — that  it  makes  money 
circulate — and  that  encouragement  to  trade  in  general  is  the  result, 
I  am  obliged  to  cry.  Halt !  Your  theory  stops  at  what  you  see,  and 
takes  no  account  of  what  we  don't  see. 

We  don't  see  that  since  our  burgess  has  been  obliged  to  spend  his 
six  francs  on  one  thing,  he  can  no  longer  spend  them  on  another. 

We  don't  see  that  if  he  had  not  this  pane  to  replace,  he  would 
have  replaced,  for  example,  his  shoes,  which  are  down  at  the  heels ; 
or  have  placed  a  new  book  on  his  shelf.  In  short,  he  would  have  em- 
ployed his  six  francs  in  a  way  in  which  he  cannot  now  employ  them. 
Let  us  see.  then,  how  the  account  stands  with  trade  in  general.  The 
pane  being  broken,  the  glazier's  trade  is  benefited  to  the  extent  of  six 
francs.    That  is  zvhat  we  see. 

If  the  pane  had  not  been  broken,  the  shoemaker's  or  some  other 
trade  would  have  been  encouraged  to  the  same  extent  of  six  francs. 
This  is  what  zve  don't  see.  And  if  we  take  into  account  what  we 
don't  see,  which  is  a  negative  fact,  as  well  as  what  we  do  see,  which 
is  a  positive  fact,  we  shall  discover  that  trade  in  general,  or  the  aggre- 
gate of  national  industry,  has  no  interest,  one  way  or  another, 
whether  windows  are  broken  or  not. 

Let  us  see  again  how  the  account  stands  with  Jacques  Bonhomme. 
On  the  last  hypothesis,  that  of  the  pane  being  broken,  he  spends  six 
francs,  and  gets  neither  more  nor  less  than  he  had  before,  namely,  the 
use  of  a  pane  of  glass.  On  the  other  hypothesis,  namely,  that  the 
accident  had  not  happened,  he  would  have  expended  six  francs  on 
shoes,  and  would  have  had  the  enjoyment  both  of  the  shoes  and  the 
pane  of  glass. 

Now,  as  the  good  burgess,  Jacques  Bonhomme,  constitutes  a 
fraction  of  society  at  large,  we  are  forced  to  conclude  that  society, 
taken  in  the  aggregate,  and  after  all  accounts  of  labor  and  enjoyment 
have  been  squared,  has  lost  the  value  of  the  pane  of  glass  which  has 
been  broken. 


326  CURRENT  ECONOMIC  PROBLEMS 

/  C.     THE  CARE  FOR  PROTECTION 
y     145.     America's  Allegiance  to  Protection^* 

BY  ALBERT  J.  LEFFINGWELL 

I  intend  to  state  a  few  propositions,  which,  as  generally  accepted 
facts,  appear  to  me  to  influence  very  largely  the  national  acquies- 
cence of  America  in  the  protective  policy.  Perhaps  they  may  be 
heard  with  more  patience  from  one  who  has  never  had  the  slightest 
conection  with  the  manufacturing  interest ;  who  ought  apparently 
to  clamor  for  the  cheapest  market,  but  who  is  nevertheless,  for  the 
following  reasons,  a  firm  adherent  to  the  protective  system : 

I.  No  country  of  modern  times,  which  is  without  manufactures, 
which  exports  raw  products  for  foreign  made  goods,  and  the  inhab- 
itants of  which  are  almost  wholly  engaged  in  cultivating  the  soil, 
has  succeeded  in  obtaining  wealth,  prosperity,  and  power  as  a  na- 
tion. This  simple  fact  is  recognized  by  every  civilized  government 
in  the  world.  Free  trade  at  the  present  day  is  either  an  English 
or  a  barbarous  practice.  Even  English  colonies  perceive  that  they 
must  build  up  their  home  industries  if  they  are  ever  to  gain  essential 
prosperity.  Just  so  far  as  free  trade  contributes  to  the  supremacy 
of  British  manufactures,  it  is  a  means  towards  the  maintenance  of 
national  wealth  and  power.  If  it  shall  ever  cease  to  do  this,  it  will 
be  abandoned. 

2.  If,  during  the  past  fifty  years,  America  had  permitted  a  sys- 
tem of  unrestricted  trade  with  all  the  world,  she  could  never  have 
reached  the  development  of  her  manufactures  which  has  rendered 
her  independent ;  but  would,  today,  be  little  more  than  a  huge  agri- 
cultural colony,  exchanging  the  produce  of  her  fields  for  the  manu- 
factures and  fabrics  of  Europe.  To  be  a  nation  of  farmers,  to  ex- 
cell  in  sheep-raising  and  in  agriculture — this  is  the  English  ideal 
of  what  America  ought  to  content  herself  with  being.  If  there  ex- 
isted between  the  United  States  and  England  a  perfectly  free  and 
open  trade,  a  distribution  of  industry  unfettered  by  tariflFs,  England 
would  be  the  manufacturing  member,  and  the  United  States  the 
agricultural  member  of  the  partnership. 

3.  Under  the  system  of  protection  America  has  been  able  to, 
develop  Tier  boundless  mineral  resources,  to  encourage  the  growth 
of  her  manufacturing  industries,  until,  today,  she  is  not  merely  inde- 
pendent and  able  to  supply  her  own  wants,  but  she  exports  to  for- 
eign nations,  and  has  begun  to  compete  with  England  for  the  mar- 

^^Adapted  from  an  article  in  the  London  Contemporary  Review,  XXXVIII 
(1880),  56-68. 


PROBLEM  OF  INTERNATIONAL  TRADE  327 

jcets  of  the  world.     Conclusive  evidence  of  this  exists  on  all  sides. 
1  he  caretul  observer  can  not  escape  it. 

4.  _A^  protective  tariff  has  been  the  most  important,  and,  indeed, 
the  essential  agent,  in  the  development  of  the  manufacturing  indus- 
tr res"  of  the  United  States.  This  proposition  can  hardly  be  seriously 
denied  at  the  present  time.  Through  the  enhanced  prices  paid  at 
first  by  consumers,  manufactures  have  been  created  and  fostered. 
Perhaps  for  a  while  they  have  been  very  costly  to  the  nation.  But 
of  the  result  the  country  can  well  be  proud.  It  has  made  them  inde- 
pendent of  other  nations  for  their  supplies.  And,  in  the  end,  with 
growth  and  improvements,  goods  have  fallen  in  price,  greatly  to  the 
benefit  of  the  American  consumer. 

5.  The  working  class  in  the  United  States,  under  a  system  of 
protection,  enjoy  a  greater  degree  of  prosperity  than  the  working 
classes  of  England  under  a  system  of  free  trade.  No  test  can  be 
more  satisfactory  and  practical  than  to  compare  the  position  of  the 
laborer  in  one  country  with  his  position  in  another ;  and,  however 
difficult  it  may  seem  at  first  thought  to  weigh  in  the  balances  privi- 
lege, opportunity,  comfort,  and  general  prosperity,  certain  financial 
facts  and  statistics  afford  us  a  tolerably  safe  method  for  arriving  at 
sound  conclusions.  That  the  working  man  here,  if  thrifty,  has  a 
far  better  chance  for  improving  his  condition,  for  educating  his  fam- 
ily, for  acquiring  landed  property  than  is  the  case  with  his  brother 
in  Europe  is  generally  admitted.  It  could  not  well  be  otherwise 
where  one  may  so  easily  exchange  the  forge  or  loom  for  the  settler's 
cabin  and  the  plow.  The  great  mass  of  the  American  working  people 
are  better  housed,  better  fed,  better  clothed,  and  in  all  respects  better 
situated  than  the  working  millions  of  the  nations  whose  ports  are 
open  to  the  world. 

These  are  some  of  the  reasons  which  appear  to  me  to  largely  de- 
termine the  persistent  allegiance  to  the  doctrine  of  Protection  by  the 
people  of  the  United  States.  Of  the  ultimate  adoption  by  nations  of 
the  principles  of  absolute  free  trade  I  have  as  little  doubt  as  the 
most  sanguine  disciple  of  Adam  Smith.  But  it  is  a  dream  of  the  far- 
distant  future.  It  assuredly  cannot  be  realized  while  the  tramp  of 
armies  is  louder  than  the  din  of  the  workshop.  By  America,  how- 
ever, the  day  of  its  adoption  may  be  much  nearer  our  own  time. 
History  often  repeats  itself.  Like  England,  by  thorough  protection 
of  our  growing  industries,  we  have  laid  the  foundations  of  success 
in  every  branch  of  manufacture.  So  soon  as  our  preeminence  is 
absolutely  assured,  there  will  exist  no  longer  the  necessity  to  pro- 
tect. Of  that  future  we  have  apparently  every  reason  to  hope. 
When  the  production  of  American  skill  and  industry  is  found  in 


328  CURRENT  ECONOMIC  PROBLEMS 

shops  in  Europe  cheaper  than  their  home-made  wares,  it  is  probable 
that  we  shall  then  take  our  turn  in  eulogizing  free  trade,  in  open- 
ing our  ports  to  all  nations,  and  in  preaching  the  blessings  of  unre- 
stricted trade  to  a  reluctant  and  still  doubting  world. 

146.     Protection  and  the  Formation  of  CapitaP* 

BY  ALVIN  S.  JOHNSON 

The  additions  to  the  capital  of  a  nation  must  come  from  the 
annual  income.  That  the  income  of  a  nation  will,  at  any  given  time, 
attain  its  maximum  under  freedom  of  trade  is  a  proposition  that 
admits  of  only  rare  exceptions.  Does  it  not  then  follow  that  the 
capacity  of  a  nation  to  accumulate  capital  will  be  greater  under  free 
trade  than  under  protection?  If  all  classes  in  society  saved  equal 
proportions  of  their  incomes,  it  would  follow  of  necessity  that  what- 
ever tends  to  reduce  the  national  income  must  reduce  the  annual 
addition  to  the  fund  of  capital.  But,  in  fact,  the  disposition  to  accu- 
mulate capital  varies  widely  in  the  different  classes  that  compose  a 
nation ;  and  it  is  the  essence  of  protection  to  alter  the  proportions  in 
which  the  social  income  is  distributed.  We  cannot,  therefore,  accept 
without  further  examination  the  view  that  protection  and  the  conse- 
quent reduction  of  the  social  income  must  necessarily  retard  the  ac- 
cumulation of  capital. 

Apart  from  purely  individual  differences  in  thrift,  the  tendency 
to  save  is  affected  by  general  economic  and  social  conditions  that  en- 
able us  to  divide  the  members  of  society  into  more  or  less  distinct 
thrift  classes.  A  man  is  not  likely  to  save,  if  he  knows  of  no  invest- 
ment attractive  to  him ;  he  is  not  very  likely  to  save  if  the  road  to  the 
esteem  of  his  fellows  lies  through  expenditures  for  consumption. 

The^most  attractive  form  of  investment  is  the  acquisition  of 
tangible  capital  goods  to  be  employed  under  one's  own  control.  Such 
an  investment  gives  visible  evidences  of  economic  efficiency.  Ac- 
cordingly those  who  are  in  a  position  to  make  such  investments  have 
the  strongest  incentive  to  save.  These  persons  are  entrepreneurs 
who  have  not  yet  fully  equipped  their  businesses  with  capital.  Them 
we  may  place  in  our  highest  thrift  class.  We  may  assign  to  a  lower 
thrift  class  those  who  live  upon  salaries  or  returns  from  professional 
service.  They  have  no  ever-present  means  of  investment ;  they  are 
under  the  domination  of  rigid  standards  of  consumption.  They 
must,  however,  make  provision  for  disability  or  superannuation.  In 
a  yet  lower  class  I  should  place  those  who  derive  their  incomes 

i*Adapted  from  an  article  in  the  Political  Science  Quarterly,  XXIII, 
221-41.     Copyright,  1908. 


PROBLEM  OF  INTERNATIONAL  TRADE 


329 


from  rents,  interest  on  mortgages  and  bonds,  dividends  on  stocks, — 
the  tunded  mcome  class7  They  are  in  no  peculiarly  favorable  situa- 
tion to  make  new  investments ;  they  are  subject  to  rigid  standards  of 
consumption ;  and  they  are  under  no  compulsion  to  set  aside  a  por- 
tion of  their  incomes  for  future  needs.  In  the  lowest  class  of  all  I 
place  the  great  mass  of  workingmen,  since  TRey  Have  the  least  favor- 
aliTeappdrtunrfy  tor  investment  and  are  subject  to  the  most  tyrannical 
standards  of  consumption. 

When  an  industry  reaches  the  acme  of  development,  the  position 
of  the  independent  entrepreneur  becomes  assimilated  to  that  of  the 
recipient  of  funded  income.  Accordingly  we  are  justified  in  draw- 
ing a  distinction  between  the  entrepreneur  engaged  in  an  industry 
which  quickly  attains  its  full  development  and  those  engaged  in  an 
industry  of  practically  unlimited  development.  Thus  we  arrive  at 
the  conclusion  that  the  richest  and  most  enduring  sources  of  new 
capital  are  the  interest  and  profits  of  the  manufacturing  entrepre- 
neur class. 

A  practical  tariff  system  cannot  bestow  all  its  benefits  upon  a 
higher  thrift  class  and  impose  all  its  burdens  upon  a  lower  one.  Nev- 
ertheless it  can  hardly  be  denied  that  the  chief  benefits  of  modern 
protectionism  have  been  bestowed  upon  those  engaged  in  capitalistic 
enterprise.  In  the  United  States  protection,  down  to  the  present  day, 
has  meant  fittle  but  the  diversion  of  income  from  all  other  classes 
m  society  to  the  capitalist  manufacturer.  The  farmer  and  wage- 
earner  have  carried  a  net  burden ;  the  manufacturer  alone  has  se- 
cured a  net  gain.  "Here  a  rapidly  developing  agriculture  has  been 
taxed  for  the  benefit  of  rapidly  developing  manufactures.  Although 
under  these  conditions  a  high  thrift  class  has  been  taxed,  agricul- 
ture would  quickly  have  attained  a  state  of  full  development,  and 
thus  would  have  ceased  to  give  large  incentive  to  thrift.  The  im- 
petus given  to  manufactures,  which  under  modern  conditions  pos- 
sess almost  unlimited  power  of  absorbing  capital,  must,  of  itself, 
have  accelerated  accumulation.  It  is  worth  noting  that  in  the  long 
run  protection  in  a  democratic  state  must  tavor  fHeTirgher  thrift 
classes  at  the  expense  of  the  lower.  In  every  state  protection  is 
essentially  a  minority  interest.  The  export  industries  can  gain  noth- 
ing from  the  policy ;  industries  that  supply  a  purely  local  demand  also 
gain  nothing.  These  two  groups  of  industries  outweigh  the  indus- 
tries which  would  suffer  under  competition.  The  number  of  persons 
whose  incomes  are  diminished  by  protection  will  greatly  exceed  the 
number  of  persons  whose  incomes  are  enlarged  by  it. 

If  it  is  true  that  the  general  tendency  of  modern  protection  has 
been  to  divert  income  from  a  lower  to  a  higher  thrift  class  we  are 


330  CURRENT  ECONOMIC  PROBLEMS 

justified  in  saying  that  protective  duties  have  played  a  part  in  equip- 
ing  modern  society  with  the  vast  stock  of  capital  goods  which  it 
now  possesses.  For  proof  of  this  we  must  have  recourse  to  an  analy- 
sis of  the  effects  of  protection  upon  capital  formation  in  concrete 
instances.  Let  us  suppose  that  in  a  country  which  formerly  im- 
ported its  silk  a  heavy  duty  is  levied  with  the  object  of  creating  a 
silk-manufacturing  industry  at  home.  Men,  intending  to  invest 
otherwise,  are  induced  to  go  into  the  silk  business.  At  the  begin- 
ning the  capital  goods  with  which  the  new  industry  is  equipped  rep- 
resent no  net  addition  to  the  productive  wealth  of  the  country.  But 
a  new  industry  is  naturally  speculative  in  character;  and  the  more 
conservative  entrepreneurs  are  slow  to  enter  it.  In  the  nature  of  the 
case  the  industry  will  be  undersupplied  with  capital.  This  means 
that  capital  will  be  more  than  ordinarily  productive  in  the  industry ; 
it  means  further  that  entrepreneurs  will  be  steadily  endeavoring  to 
secure  more  capital  to  expand  their  operations.  Under  these  cir- 
cumstances it  is  inevitable  that  a  large  proportion  of  the  profits  cre- 
ated by  the  industry  will  be  reinvested  in  it.  Here  then  we  have  a 
net  addition  to  the  productive  wealth  of  the  country. 

We  arrive  at  practically  the  same  result  if  we  select  a  commodity 
entering  chiefly  into  the  consumption  of  the  wage-earners.  A  large 
proportion  of  the  wage-earning  class  saves  practically  nothing, 
whether  wages  are  high  or  low.  Standards  of  consumption  tend  to 
absorb  any  surplus  income  that  may  appear.  A  duty  borne  by  the 
wage-earning  class  places  little  check  upon  accumulation.  Thus  the 
main  effect  of  the  duty  is  to  divert  income  from  a  lower  thrift  class 
to  a  higher  one,  and  hence  to  give  an  impetus  to  the  formation  of 
capital. 

In  answer  to  this  line  of  argument  it  is  alleged  that  a  tariff  con- 
structed in  such  a  way  as  to  equalize  costs  of  production  at  home  and 
abroad  would  not  permit  the  surplus  profits  out  of  which  capital  is 
built.  This  is  true.  But  one  may  safely  challenge  all  the  economists 
in  the  world  to  point  to  one  instance  of  a  "scientific"  tariff.  In  the 
nature  of  things  there  can  be  no  such  tariff.  What  manufacturers' 
association  would  conduct  political  campaigns,  roll  logs,  and  other- 
wise exert  itself  for  the  mere  privilege  of  being  placed  on  an  equal- 
ity with  the  foreigner?  What  would  be  the  object  in  establishing 
a  new  industry  if  it  were  to  offer  only  profits  that  might  be  secured 
from  industries  already  existing? 

It  is  true  that  if  the  protected  industry  operates  under  great  nat- 
ural disadvantages,  as  in  the  classical  case  of  producing  wine  in 
Scotland,  the  burden  to  the  consumer  will  be  so  much  greater  than 
the  net  gain  of  the  producer  that  the  net  effect  upon  accumulation 


PROBLEM  OF  INTERNATIONAL  TRADE 


331 


will  be  unfavorable.  But  it  is  not  the  practice  of  entrepreneurs  to 
demand,  nor  of  statesmen  to  grant,  protection  for  industries  that 
labor  under  extraordinary  disadvantages.  Rather  the  selection  of 
industries  for  protection  tends  to  be  such  that  a  greater  part  of  the 
tribute  exacted  from  the  consumer  is  bestowed  upon  the  producer  in 
the  form  of  profit  instead  of  being  wasted  in  the  insane  struggle  with 
refractory  natural  conditions. 

What  is  the  test  by  which  it  can  be  determined  whether  the  pro- 
tective system  shall  be  abandoned?  By  the  academic  protectionists, 
duties  should  be  abolished  when  the  protected  industries  are  in  a  po- 
sition to  meet  foreign  competition.  According  to  the  theory  here 
put  forth,  they  should  not  be  removed  until  the  protected  industries 
cease  to  develop  rapidly.  Then  the  duty  should  be  removed  whether 
the  industry  can  meet  foreign  competition  or  not. 

!  147.     The  Economics  of  Protections^ 

The  economic  fallacy  of  free  trade  lies,  not  in  its  logic,  but  in  its 
assumptions.  The  latter  are  part  and  parcel  of  the  static  and  indi- 
vidualistic system  of  thought  of  the  later  eighteenth  century  which 
made  Nature  the  hero  in  the  piece  and  assigned  to  the  state  the  role 
of  villain.  At  the  basis  of  the  argument  for  free  trade  are  the  two 
quite  dissimilar  but  complementary  propositions  that  men  are  guide3 
by  a  supreme  naturalpre-wisdom  to  choose  the  best  lines  of  pro- 
duction, and  that  the  process  of  production  consists  in  juggling 
together  a  certain  number  of  productive  units  from  each  of  three 
great  hoppers,  called  land.  Tabor,  and  capital.  To  make  clear  the 
dependence  of  the  theory  upon  these  underlying  assumptions,  let  us 
strip  it  of  its  verbiage  and  reduce  it  to  its  simplest  terms. 

It  may  best  be  stated  as  a  problem :  Given  a  definite  amount  of 
land,  of  capital,  and  of  labor;  in  what  particular  permutations  shall 
the  three  be  put  up  in  such  a  way  as  to  secure  the  largest  amount  of 
consumptive  goods?  Obviously,  since  labor  and  capital  are  the 
human  factors,  they  must  be  economized;  their  supplies  must  be 
made  to  "go  as  far  as  possible."  This  can  be  done  by  making  Nature 
shoulder  the  largest  possible  amount  of  the  actual  work  of  produc- 
tion. This  last  can  be  achieved  by  having  each  article  produced  in 
the  place  best  fitted  for  its  production,  and  letting  the  peoples  of  the 
various  places  exchange  their  surpluses.  In  other  wOrds,  the  best 
possible  adjustment  of  the  mobile  factors  of  labor  and  capital  must 
be  made  to  the  immobile  factor,  land.  To  illustrate,  an  attempt 
should  not  be  made  to  produce  both  watches  and  oranges  in  Con- 
necticut and  Florida.    With  the  available  but  Hmited  amounts  of  labor 

i^An  editorial  (1915). 


332  CURRENT  ECONOMIC  PROBLEMS 

and  capital  a  larger  quantity  of  both  watches  and  of  oranges,  can 
be  produced,  if  Connecticut  devotes  itself  to  the  production  of  watches 
and  Florida  to  the  cultivation  of  oranges,  than  if  each  tries  to  pro- 
duce for  itself  both  of  these  commodities.  If,  then,  the  government 
does  not  interpose  artificial  restrictions,  a  scheme  of  profits  and 
losses  will  secure  the  localization  of  industries  at  places  best  fitted 
for  them.  Consequently  a  larger  amount  of  consumable  goods  will 
be  produced  under  free  trade  than  under  a  restrictive  system.  The 
theory  might  properly  be  called  the  law  of  the  economic  utilization 
of  labor  and  capital. 

In  view  of  th[s  statement  the  weakness  in  the  assumptions  of  the 
argument  will  quickly  be  noted.  The  first  is  the  preconception  oTthe 
rationality  of  human  judgment  in  the  localization  of  industry.  Tt 
imputes  omniscience  to  that  judgment;  for  the  decision  has  to  be 
made  before  the  industry  is  located;  and  the  evidence  to  guide  that 
judgment,  in  profits  and  losses,  is  not  available  until  much  later.  At 
best,  rational  judgment  can  locate  industries  at  points  where  Nature's 
contribution  can  be  most  fully  utilized  only  after  a  protracted  and 
costly  period  of  experimentation.  It  is  doubtful,  too,  whether  the 
owners  of  natural  resources,  who  have  had  little  experience  with  the 
larger  world  of  affairs,  can  determine  just  what  industries  are 
adapted  to  a  given  locality.  If  they  are  left  alone,  custom  is  likely 
to  ripen  into  the  inertia  that  breeds  stagnation.  Further,  because  of 
the  intricacy  of  the  industrial  cycle  and  the  imperfection  and  lack 
of  availability  of  business  barometers,  it  is  impossible  for  the  average 
business  man  to  look  into  the  future  and  see  all  the  exigencies  which 
converge  to  make  a  business  a  success  or  a  failure.  No  one  expert 
is  sufficient  for  this  task.  Technical  experts  who  know  all  the  po- 
tential productive  capacities  of  a  particular  place  need  to  be  assisted 
by  business  experts  who  are  able  to  forecast  demand  and  general 
business  conditions.  A  group  of  them  should,  by  the  use  of  scientific 
methods,  determine  the  industrial  needs  that  are  most  pressing  and 
the  localities  best  adapted  to  the  production  of  articles  to  satisfy 
these  needs.  Encouragement  should  be  given,  if  conditions  are 
favorable,  to  the  prosecution  of  various  businesses.  Towards  this 
end  the  protective  tariff  should  prove  a  most  useful  device. 

The  second  glaring  error  in  the  assumptions  is  a  conception  of 
potential  resources In^ fixed  terms.  The  elements  out  of  which  useful 
goods  are  made  are  most  variable.  Our  natural  resources  are  what 
they  are,  because  our  industrial  system  is  what  it  is.  Change  the 
system,  and  the  catalogue  of  our  resources  would  be  materially 
altered.  In  a  sense  China's  wealth  is  far  greater  than  Japan's,  yet 
it  lacks  a  certain  almost  indefinable  dynamic  quality.  Labor,  particu- 
larly, defies  expression  in  rigid  calculable  terms.    Man  is  possessed 


PROBLEM  OF  INTERNATIONAL  TRADE  333 

of  many  potential  gifts.  The  majority  of  these  always  remain  latent ; 
some  two  or  three  are  developed.  Take  a  boy  from  a  rural  environ- 
ment, where  possibilities  are  narrowly  circumscribed,  to  a  large  city 
and  watch  unsuspected  talents  develop.  Physically  speaking,  the 
amount  of  land,  capital,  and  labor  may  remain  the  same.  Each  as  it 
is,  as  a  static  thing,  may  be  best  utilized  under  free  trade.  But  the 
important  question  is.  Does  society  under  free  trade  develop  the  most 
important  latent  capacities  ?  Does  free  trade  permit  society  to  utilize 
its  full  capacity  for  development?  The  worst  that  is  said  about 
protection  is  that  for  a  time  it  imposes  higher  prices  upon  consumers' 
goods.  Admit  the  charge.  Its  cost  is  far  more  than  offset  by  its 
transformation  of  society  into  a  more  complex  and  integrated  whole, 
which  offers  a  larger  range  of  opportunity  to  the  individual,  and 
surrounds  him  with  an  atmosphere  surcharged  with  a  spirit  that 
brings  out  his  latent  powers.  Again,  the  fallacy  of  free  trade  is  that 
it  overlooks  the  possibility  of  developing  new  capacities  for  produc- 
tive work. 

The  third  glaring  error  is,  in  a  sense,  of  a  kind  with  the  second. 
R  is  the  assumption  of  a  fixed  quantity  of  each  of  Jhe  productive 
factors.  Our  own  experience  has  demonstrated  quite  clearly  the 
possibility  of  greatly  increasing  two  of  these  factors,  labor  and  capi- 
tal, and  in  a  way  increasing  the  third,  land,  by  the  creation  of  an 
industrial  system  that  allows  a  fuller  utilization  of  natural  resources. 
In  the  argument  above,  labor  was  the  important  factor ;  here  capital 
takes  the  first  place.  The  importance  of  a  definite  increase  in  the 
volume  of  capital  is  not  clearly  enough  appreciated.  Land,  of  course, 
physically  speaking,  is  fixed  in  quantity.  If  a  nation  has  reached 
the  point  of  diminishing  returns,  an  increase  in  numbers  is  attended 
by  a  fall  in  the  standard  of  living.  Material  progress,  then,  is  asso- 
ciated with  an  increase  in  the  quantity  of  capital.  Protection,  as 
Professor  Johnson  has  shown  in  another  reading,  increases  for  pro- 
tected businesses  the  margins  between  costs  and  selling  prices.  A 
large  part  of  the  additional  profits  realized  is  turned  back  into  the 
business  in  the  form  of  reinvested  capital.  The  growth  of  an  in- 
dustry is  closely  dependent  upon  its  control  by  a  permanent  man- 
agement who  have  vast  pecuniary  stakes  in  its  success.  This  is  pos- 
sible only  under  a  system  which  permits  expansion  through  reinvest- 
ment of  profits.  This  protection  makes  possible.  The  alternative, 
involving  the  investment  of  outside  capital  in  the  business,  can  be 
taken  only  at  the  cost  of  a  sacrifice  of  part  of  the  ownership,  and,  con- 
sequently, of  the  control  of  the  enterprise.  Since,  therefore,  material 
progress  is  dependent  upon  the  addition  of  new  increments  to  the 
available  supply  of  capital,  its  debt  to  protection  is  a  large  one. 


334         CURRENT  ECONOMIC  PROBLEMS 

Since  protection  increases  the  amount  of  invested  capital,  it  fol- 
lows that  it  increases  the  incomes  of  the  mass  of  individuals.  The 
argument  is  perhaps  already  evident,  but  let  us  state  it,  at  least  for 
the  most  important  share  in  distribution,  that  of  labor.  As  political 
economists  agree,  the  wages  of  labor  depend  upon  the  marginal  pro- 
ductivity of  the  laborer.  Capital  increases  that  productivity,  and 
consequently  raises  wages.  To  illustrate,  let  us  take  two  countries, 
Denland  and  Norland.  They  possess  the  same  number  of  laborers, 
similar  natural  resources,  the  same  technical  system,  and  the  same 
amount  of  accumulated  capital.  It  is  evident  that  under  our  principle, 
the  real  wages  will  be  the  same  in  the  two  countries.  If,  however, 
Denland  differs  from  Norland  only  in  having  a  larger  amount  of 
accumulated  capital,  then  the  marginal  laborer  in  that  country  is 
working  with  improved  equipment,  and  will  turn  out  a  larger  product 
than  the  marginal  laborer  in  Norland.  Accordingly  wages  will  be 
higher.  Likewise,  an  increase  in  accumulated  capital  in  Norland 
itself  improves  the  facilities  with  which  the  marginal  laborer  works, 
and  consequently  increases  his  product  and  his  wage.  Under  pro- 
tection, therefore,  wages  will  be  higher  than  under  free  trade. 

Protection,  as  a  system,  has  seemed  to  the  economists  to  lack  a 
fundamental  basis  only  because  they  have  insisted  upon  judging  it 
on  the  basis  of  the  static  and  individualistic  assumptions  underlying 
their  own  creeds.  We  must  remember  that  free  trade  is  a  theory  of 
the  proper  utilization  of  definitely  limited  factors  of  production.  Pro- 
tection is  a  theory  of  the  development  out  of  crude  human  stuff  and 
natural  resources  of  the  largest  possible  productive  funds  and  of 
the  best  conservation  of  these  funds.  It  goes  back  of  the  factors  of 
production,  the  starting-point  of  the  free  trader,  and  seeks  to  increase 
their  size  and  intensify  their  force.  When  development  stops,  and 
society  becomes  static,  then  it  will  be  to  our  advantage  to  adopt  the 
free-trade  theory  of  maximum  utilization.  But  so  long  as  industrial 
society  possesses  capacity  for  growth,  we  can  best  profit  by  clinging 
to  the  use  of  the  developmental  theory  of  protection. 

D.     THE  TARIFF  AND  WAGES 
148.     High  Wages  an  Obstacle  to  Manufacture^® 

BY  DANIEL  WEBSTER 

The  present  price  of  iron  at  Stockholm  is  not  far  from  $40.00  at 
the  mines.    Freight,  insurance,  and  duty  make  the  price  of  Swedish 

i^Adapted   from   a   speech   delivered   in  the   House   of   Representatives, 
*  April  I  and  2,  1824. 


PROBLEM  OF  INTERNATIONAL  TRADE  335 

iron  in  our  market  about  $83.00.  We  perceive  by  this  fact  the  cost 
of  the  iron  is  doubled  in  reaching  us  from  the  mine  in  which  it  is 
produced.  Why,  then,  cannot  iron  be  manufactured  at  home?  Our 
ore  is  as  good,  or  better.  Nothing  could  be  more  sure  of  a  constant 
sale.    It  is  an  article  of  absolute  permanent  necessity. 

Sir,  the  true  explanation  seems  to  me  to  lie  in  the  present  prices 
of  labor.  I  think  it  would  cost  us  precisely  that  which  we  could 
worst  afford,  that  is,  great  labor.  The  principal  ingredient  in  the 
cost  of  bar  iron  is  labor.  Of  manual  labor,  no  nation  has  more  than 
a  certain  quantity,  nor  can  it  be  increased  at  will.  As  to  some  opera- 
tions, indeed,  its  place  may  be  supplied  by  machinery ;  but  there  are 
other  services  which  machinery  cannot  perform  for  it,  and  which  it 
must  perform  for  itself.  A  most  important  question  for  every  nation 
is  how  it  can  best  apply  that  quantity  of  labor  which  it  is  able  to 
perform.  Labor  is  the  great  producer  of  wealth ;  it  moves  all  other 
causes.  If  we  call  machinery  to  its  aid,  it  is  still  employed,  not  only 
in  using  the  machinery,  but  in  making  it.  Now,  with  respect  to  the 
quantity  of  labor  different  nations  are  differently  circumstanced. 
Some  need,  more  than  anything,  work  for  hands ;  others  require 
hands  for  work ;  and  if  we  ourselves  are  not  absolutely  in  the  latter 
class,  we  are  still,  most  fortunately,  very  near  it.  I  cannot  find  that 
we  have  idle  hands.  The  price  of  labor  is  a  conclusive  and  unanswer- 
able refutation  of  that  idea;  it  is  known  to  be  higher  with  us  than 
in  any  civilized  state,  and  this  is  the  greatest  of  all  proofs  of  general 
happiness.  Labor  in  this  country  is  independent  and  proud.  It  has 
not  to  ask  the  patronage  of  capital,  but  capital  solicits  the  aid  of  labor. 
This  is  the  general  truth  in  regard  to  the  conditions  of  our  whole 
population.  The  mere  capacity  to  labor  in  common  agricultural  em- 
ployments gives  to  our  young  men  the  assurance  of  independence. 
We  have  been  asked  whether  we  will  allow  the  serfs  of  Russia  and 
Sweden  the  benefit  of  making  iron  for  us?  Those  same  serfs,  sir, 
do  not  make  more  than  seven  cents  a  day,  and  they  work  in  these 
mines  for  that  compensation  because  they  are  serfs.  Have  we  any 
labor  in  this  country  that  cannot  be  better  employed  than  in  a  business 
which  does  not  yield  the  laborer  more  than  seven  cents  a  day  ?  This, 
it  appears  to  me,  is  the  true  question  for  our  consideration.  There 
is  no  reason  for  saying  that  we  will  work  iron  because  we  have  the 
mountains  that  contain  the  ore.  We  might  for  the  same  reason  dig 
among  our  rocks  for  the  scattered  grains  of  gold  and  silver  which 
might  be  found  there. 


336  CURRENT  ECONOMIC  PROBLEMS 

149.     Protection  and  High  Wages^^ 

Not  only  are  wages  ift  the  United  States  twice  or  three  times  the 
average  of  Europe  and  from  ten  to  twenty  times  those  of  Asiatic 
countries,  but  our  hours  of  labor  are  the  fewest  in  the  world. 

So  far  as  can  be  learned  from  a  rough  computation  of  the  aver- 
ages in  the  United  States,  the  American  laborer  now  gets  fully  $2.50 
per  day  in  a  week  of  54  hours'  work.  If  we  should  take  the  average 
of  all  men,  women,  and  children  wage-earners  in  this  country,  it  would 
be  well  beyond  the  dollar-a-day  line. 

The  question  then  follows :  Is  not  the  cost  of  living  proportion- 
ally more  here  than  abroad?  There  is  very  little  difference,  the 
same  things  considered,  but  the  American  lives  much  better  and  his 
needs  are  far  in  excess  of  the  foreigner's  because  of  his  education, 
his  intelligence,  and  his  tastes.  The  American  two-dollar-a-day  man 
not  only  gets  a  better  living  for  himself  and  his  family  than  the 
European  dollar-a-day  man,  but  the  American  has  another  dollar  for 
comforts,  conveniences,  luxuries,  and  pleasures  unknown  to  the 
European  laborer. 

There  must  be  some  reason  for  this  state  of  affairs,  and  this 
reason  is  the  American  system  of  protection.  That  system  tends  to 
make  us  do  practically  all  our  own  work,  keeping  our  money  at  home 
and  in  constant  circulation,  creating  and  sustaining  a  purchasing 
ability  that  demands  more  and  more  production,  the  very  producers 
becoming  greater  consumers  of  each  other's  products. 

We  are  not  an  agricultural  people.  We  are  not  a  manufacturing 
people.  We  are  not  a  mining  people.  Nor  are  we  fishermen  or 
foresters.  We  are  productive  people,  and  our  productions  include 
every  need  of  man  and  nearly  every  luxury.  Our  small  surplus  is 
readily  sold  abroad,  and  to  a  greater  extent  than  our  purchases. 

This  is  the  American  system  of  protection.  This  is  the  reason  for 
American  wages  and  the  cause  of  American  habits  and  ways  of  liv- 
ing. Our  diversification  of  production  is  the  greatest  economic  leaven 
of  our  almost  immeasurable  loaf  of  prosperity.  There  is  only  one 
thing  that  will  permanently  lessen  it — a  reduction  of  wages  made 
necessary  by  a  repeal  of  one  or  more  tariff  schedules  bringing  us  into 
competition  with  the  dollar-a-day  labor  of  Europe  and  the  dime-a-day 
labor  of  Asia.  Nor  does  the  whole  chain  of  interdependent  indus- 
tries have  to  be  broken.  The  breaking  of  a  single  link  will  work 
irreparable  disaster.  We  must  preserve  intact  our  splendid  American 
policy  of  protection  and  its  attendant  high  wages  and  universal  pros- 
perity. 

I'^Adapted  from  "Wages  and  Causes,"  American  Economist,  XXVIII 
(1901),  175. 


PROBLEM  OF  INTERNATIONAL  TRADE  337 

150.     The  Effect  of  Industrial  Changes  on  Wages'^ 

BY  ALVIN  JOHNSON 

A  policy  that  draws  labor  from  the  fields  that  are  of  greater  nat- 
ural productiveness  to  fields  of  lozver  natural  productiveness  tends 
to  reduce  wages. 

In  any  country  wages  are  determined  by  the  marginal  productiv- 
ity of  labor.  We  will  represent  the  various  opportunities  of  employ- 
ment that  a  country  like  the  United  States  affords  by  the  symbols, 
A,  B,  C.  and  D.  A  may  stand  for  a  group  of  industries  in  which 
we  have  exceptional  advantages  over  foreign  countries.  B  stands 
for  a  group  of  industries  in  which  our  advantages  are  less,  C  one 
in  which  they  are  still  less,  and  D  the  group  of  industries  in  which 
they  are  least  of  all.  When  our  population  is  so  small  that  all  our 
labor  can  be  engaged  in  the  group  represented  by  A,  wages  will  be 
at  their  maximum.  When  our  population  increases  so  that  some 
of  the  labor  will  have  to  be  set  to  work  in  group  B,  the  wages  of 
all  labor  must  decline  to  the  level  of  the  productivity  in  that  group. 
We  will  suppose  that  population  has  increased  up  to  a  point  where 
the  opportunities  represented  by  A  and  B  are  fairly  well  manned, 
and  wages  are  determined  by  the  productivity  of  labor  in  B. 

With  wages  thus  determined,  it  is  clear  that  no  employer,  with- 
out governmental  aid,  can  afford  to  hire  labor  to  exploit  the  oppor- 
tunities represented  by  C  and  D.  This  would  necessitate  paying  labor 
in  C  and  D  as  much  as  it  produces  in  B,  and  that  by  hypothesis  is 
more  than  it  produces  in  C  and  D. 

Now  let  us  suppose  that  a  political  party  is  in  power  which  holds 
the  belief  that  we  should  produce  everything  that  we  consume,  that 
is,  that  the  opportunities  represented  by  C  and  D  should  be  exploited 
as  well  as  those  represented  by  A  and  B.  Labor  may  be  drawn  away 
from  A  and  B.  This  involves  the  necessity  of  compensating  en- 
trepreneurs in  some  way  for  the  disadvantages  under  which  they  will 
operate  in  C  and  D.  Either  wages  must  be  reduced  in  A  and  B,  or 
some  form  of  subsidy  must  be  granted  to  C  and  D. 

The  commodities  that  the  industries  composing  C  and  D  will  pro- 
duce have  been  hitherto,  we  assume,  obtained  from  abroad  through 
exchange  for  commodities  produced  by  A  and  B.  The  government 
now  renders  this  difficult  by  placing  high  duties  upon  the  former 
class  of  commodities.  This  means  that  producers  in  the  groups  A  and 
B — both  employers  and  workmen — must  pay  higher  prices  for  what 
they  buy.  They  do  not  receive  higher  prices  for  what  they  sell ;  in 
fact,  they  receive  lower  prices,  as  this,  we  have  seen,  is  the  effect  of 

i^Adapted  from  Introduction  to  Economics,  pp.  359-6i.  Copyright  by  D. 
C.  Heath  &  Co.,  1909. 


// 


338  CURRENT  ECONOMIC  PROBLEMS 

protective  duties  upon  export  industries.  It  appears,  then,  that  part 
of  the  disadvantage  of  producers  in  C  and  D  is  removed  by  reducing 
wages  in  A  and  B. 

After  the  duty  has  gone  into  effect  and  the  prices  of  commodities 
that  can  be  produced  by  C  and  D  have  risen  sufficiently,  enterprisers 
will  be  able  to  hire  labor  at  the  wages  prevailing  in  A  and  B,  and 
establish  industries  in  C  and  D.  So  far  as  the  remaining  laborers  in 
A  and  B  buy  the  products  of  C  and  D,  the  difference  between  the 
price  which  they  pay  for  those  products  and  the  price  that  they  would 
pay  if  they  were  permitted  to  import  those  products  duty-free  is  a 
tax  paid  not  to  the  government,  but  to  the  producers  in  C  and  D, 
to  enable  the  later  to  remain  in  business.  It  is  an  uncompensated 
deduction  from  the  natural  earnings  of  the  laborers  in  A  and  B. 
Their  wages  have  been  reduced.  Nor  are  the  workers  in  C  and  D 
paid  as  much,  estimated  in  purchasing  power,  as  they  would  have 
received  if  they  had  been  allowed  to  remain  in  A  and  B  under  the 
earlier  conditions.  The  net  effect  of  the  imposition  of  the  duty  has 
been  to  saddle  the  self-supporting  industries,  A  and  B,  with  the  sup- 
port of  the  pauper  industries,  C  and  D.  Yet  the  inventors  of  this 
policy  have  the  effrontery  to  tell  laborers  in  A  and  B  that  this  policy 
is  the  bulwark  of  their  high  rate  of  wages  ! 

The  principles  involved  in  the  illustration  may  be  stated  in  the 
following  general  terms :  Wages  in  any  country  will  be  at  the  high- 
est point  when  all  the  labor  of  that  country  is  concentrated  in  the 
industries  in  which  its  relative  advantages  over  other  countries  are 
greatest.  If  there  are  no  protective  duties  whatsoever,  employers  will, 
as  a  rule,  seek  out  the  industries  in  which  their  country  has  the  great- 
est relative  advantages.  Protective  duties  enable  other  industries  to 
exist,  but  only  through  taxing  the  more  productive  industries  for 
their  support.  Protection  as  a  permanent  policy  means  a  slight  reduc- 
tion of  money  wages,  and  a  greater  reduction  in  wages  estimated  in 
purchasing  power. 

E.     TARIFF  POLICY  IN  PROCESS 
151.     A  Half-Century  of  Tariff  History" 

BY  HARRISON  S,  SMALLEY 

A  study  of  the  historical  setting  of  the  current  tariff  problem  need 
not  take  us  back  beyond  the  period  of  the  Civil  War.  True,  the  tariff 
had  played  a  part  in  politics  from  the  beginning,  a  part  out  of  all  pro- 
portion to  its  real  importance.    For  the  first  quarter-century  of  our 

i^Adapted  from  "A  Short  Sketch  of  American  Tariff  History,"  in  Read- 
ings  in  Political  Economy.    Privately  published,  191 1. 


PROBLEM  OF  INTERNATIONAL  TRADE  339 

national  existence  the  idea  of  protection  had  found  but  precarious 
foothold  in  our  tariff  schedules.  However,  the  natural  protection  fur- 
nished by  the  Napoleonic  wars  had  resulted  in  the  establishment  of 
many  manufacturing  industries,  which  had  proceeded  to  make  their 
presence  known  immediately  the  war  was  over.  The  result  had  been 
a  series  of  bills  granting  relatively  high  duties  from  1819  and  1824 
until  1846.  However,  the  South  had  opposed,  and  the  high  level  of 
duties  had,  even  in  those  days,  been  subject  to  many  vicissitudes. 
From  1846  until  the  Civil  War  the  dominant  theory  underlying  tariff 
policy  had  been  that  of  revenue,  but  protective  features  had  not  been 
entirely  abandoned.  However,  as  we  have  said,  the  present  era  prop- 
erly begins  with  the  Civil  War.^** 

The  Morrill  law,  passed  in  1861,  raised  the  level  of  duties  quite 
substantially.  Modifications  in  duties  were  constantly  being  made 
throughout  the  conflict,  and  in  the  end  the  level  of  duties  was  very 
greatly  raised. 

Although  the  idea  of  protection  was  quite  prominent,  the  primary 
reason  for  the  increase  was  the  need  of  revenue.  The  government 
had  adopted  a  most  elaborate  policy  of  internal  taxation,  including 
taxes  on  manufactured  goods.  It  seemed  just,  therefore,  since  Ameri- 
can producers  were  burdened  with  excise  duties  greatly  increasing 
their  costs  of  production,  to  protect  them  by  a  proportionally  higher 
tariff  duty.  In  fact,  had  this  not  been  done,  the  government's  attempt 
to  collect  revenue  in  many  cases  would  have  failed.  Accordingly 
many  "compensating  duties"  were  added  to  the  already  high  rates. 
This  level  was  still  further  raised  through  the  efforts  of  designing 
congressmen,  who  found  it  easy  to  secure  duties  for  favored  indus- 
tries under  the  pretense  of  raising  revenue. 

During  the  war  no  one  imagined  that  the  excessive  duties  would 
be  permanent.  But  the  war  passed,  and  tariffs  have  come  and  gone, 
but  still  we  have  a  general  level  of  duties  about  like  that  which  pre- 
vailed at  the  end  of  the  war.  Soon  after  hostilities  ceased  Congress 
began  to  repeal  the  special  internal  revenue  duties.  But  the  com- 
pensating duties,  made  necessary  by  these,  were  not  taken  off.  So 
today  we  are  still  paying  many  special  duties  designed  to  compensate 
manufacturers  for  duties  which  have  not  been  levied  upon  them  for 
forty  years. 

Several  reasons  may  be  assigned  for  the  failure  of  Congress  to 
reduce  the  war  tariff  after  the  close  of  the  conflict.  Its  attention  was 
largely  drawn  to  the  problems  of  reconstruction  in  comparison  with 
which  the  tariff  was  a  minor  issue.  Again,  southern  opinion,  which 
alone  was  favorable  to  free  trade,  was  not  strong.    Furthermore,  the 

20  Mr.  Smalley  is  not  responsible  for  the  opening  paragraph. 


340  CURRENT  ECONOMIC  PROBLEMS 

tariff  was  in  a  state  of  great  confusion,  and  its  intelligent  revision 
would  have  required  a  great  deal  of  time  and  care.  Still  another 
factor  of  a  political  character  was  probably  of  considerable  conse- 
quence. The  Republican  party  had  been  organized  as  a  protest 
against  the  spread  of  slavery.  With  the  successful  termination  of 
the  Civil  War  its  object  was  accomplished.  Hence  it  was  left  without 
a  special  reason  for  its  continued  existence.  If  the  party  was  to 
remain  a  force  in  politics  it  must  have  a  positive  platform  on  which  to 
stand.  So  the  Republican  leaders  seized  upon  protection  and  made 
it  one  of  their  leading  policies.  But  most  important  of  all,  the  pro- 
tected interests  exerted  in  the  congressional  lobbies  a  powerful  in- 
fluence to  prevent  a  reduction  of  duties.  Indeed,  from  that  time  to 
this  the  pressure  brought  by  protected  producers  upon  Congress  and 
congressmen  has  been  the  most  serious  obstacle  in  the  way  of  tariff 
reform.  For  these  reasons  the  war  tariff  level  was  maintained. 
Within  a  few  years  the  popular  mind  became  accustomed  to  high 
protection  and  more  or  less  adjusted  to  it,  and  the  lobbyists  and 
representatives  of  protected  interests  found  it  relatively  easy  to  secure 
what  they  wanted  from  Congress. 

Readjustments  were,  of  course,  made ;  but  they  were  more  numer- 
ous than  important.  In  1870  under  cover  of  certain  reductions  the 
duties  were  raised  on  a  large  number  of  articles.  In  1872,  because  of 
surplus  revenue,  if  was  thought  expedient  to  make  a  horizontal  reduc- 
tion of  10  per  cent.  Putting  coffee  and  tea  on  the  free  list  evidenced 
the  determination  of  Congress  to  lower  revenue  rather  than  pro- 
tective duties.  In  1875  the  tariff  was  restored  to  its  former  level. 
Because  of  a  popular  demand  and  another  excess  of  revenue  the 
schedules  were  again  revised  in  1883.  The  effort  to  satisfy  the  popu- 
lar demand  and  at  the  same  time  to  save  the  principle  aroused  con- 
siderable protest.  In  1888  Cleveland  came  out  strongly  in  favor  of 
tariff  reduction. 

Viewing  their  victory  at  this  election  as  a  vindication  of  their 
policy,  the  Republicans  proceeded  to  adopt  a  new  tariff,  the  McKinley 
Act,  which  surpassed  in  altitude  all  previous  achievements.  How 
well  the  demand  for  reducing  revenue  without  sacrificing  favors  was 
met  is  evidenced  by  their  action  in  removing  the  duty  on  sugar,  aver- 
aging 2  cents  a  pound,  and  substituting  for  it  a  bounty  of  2  cents  a 
pound  on  all  sugar  produced  in  this  country. 

The  popular  protest  was  immediate.  In  the  election  of  1890  the 
Democrats  captured  the  House,  and  won  the  presidency  and  the 
Senate  two  years  later.  The  panic  of  1893,  which  came  while  the 
McKinley  Act  was  a  law,  and  the  troubles  over  the  coinage  of  silver, 
for  a  time  delayed  revision.    They  also  served  to  destroy  party  unity. 


PROBLEM  OF  INTERNATIONAL  TRADE  341 

A  bill  was  passed  by  the  House  embodying  substantial  reductions. 
This,  however,  was  radically  amended  by  the  Senate,  the  Republicans 
and  a  few  bolting  Democrats  being  responsible  for  the  changes.  The 
bill  as  passed  embodied  a  series  of  duties  lower  than  those  of  the 
McKinley  bill,  but  substantially  higher  than  those  of  the  tariff  of 
1883.  President  Cleveland  was  so  displeased  that  he  allowed  the  bill 
to  become  a  law  without  his  signature. 

The  act  failed  to  relieve  the  depression  following  the  panic  which 
had  been  caused  very  largely  by  the  silver  legislation  of  the  Repub- 
licans. Perhaps  no  tariff  bill  could  have  mended  matters.  Certainly 
there  was  no  threat  to  business  in  the  Wilson-Gorman  bill.  Yet  people 
began  to  blame  the  act  for  the  failure  of  business  to  recover  from  the 
panic.  The  opportune  reappearance  of  the  silver  question  offered  the 
Democrats  a  way  of  sidetracking  the  tariff.  So,  when  Bryan  in  the 
national  convention  of  1896  made  his  "cross  of  gold"  speech,  he  was 
hailed  as  the  new  leader  of  the  party,  and  the  free  coinage  of  silver 
was  declared  to  be  the  paramount  issue. 

Nevertheless,  the  tariff  was  not  by  any  means  lost  from  view. 
The  Republicans,  victorious  in  the  election  of  1896,  felt  authorized  to 
raise  the  tariff  once  more.  In  consequence,  they  passed  the  Dingley 
law  of  1897,  which  was  a  revision  upward,  restoring  the  general  level 
of  the  McKinley  Act. 

By  1900  the  Republicans  had  formulated  an  argument  which 
proved  most  effective.  It  was  :  "From  1894  to  1897  we  had  a  Demo- 
cratic tariff  and  hard  times  ;  from  1897  to  19CX)  we  have  had  a  Repub- 
lican tariff  and  prosperity."  Some  members  of  the  party  went  so  far 
as  to  attribute  the  panic  of  1893  to  the  Wilson-Gorman  bill,  which 
was  not  passed  until  more  than  a  year  later.  It  made  no  difference 
that  the  Democratic  tariff  had  been  a  high  protective  measure.  Nor 
did  it  make  any  difference  that  the  hard  times  and  prosperity  were  due 
to  a  very  large  number  of  other  causes.  Post  hoc  is  propter  hoc.  The 
Democrats  lacked  courage  to  meet  the  issue,  and  attempted  to  use 
Imperialism  as  a  shield. 

By  1904  sentiment  favorable  to  revision  had  again  begun  to  ap- 
pear. The  rise  of  the  trusts,  the  revival  of  the  old  fear  of  monopoly, 
and  the  knowledge  that  these  combinations  had  in  many  cases  been 
able  to  charge  high  prices  because  they  were  protected  from  foreign 
competition  gave  impetus  to  the  movement  for  tariff  reform.  This 
was  increased  by  the  growing  concern  over  the  increase  in  the  cost  of 
living.  By  1908  the  sentiment  was  so  strong  that  the  Republicans 
promised  that,  if  successful  in  the  election,  they  would  revise  the 
tariff.  The  courage  of  the  Democrats  had  returned  and  they  de- 
manded downward  revision  both  in  1904  and  in  1908. 


342  CURRENT  ECONOMIC  PROBLEMS 

The  result  of  the  Republican  victory  was  a  special  session  of 
Congress  in  1909,  at  which  the  Payne-Aldrich  Act  was  passed.  This 
act  decreased  many  duties  but  raised  many  others.  The  general  level 
of  the  Dingley  bill  of  1897  was  maintained.  It  permitted  no  com- 
promising of  the  protective  principle.  As  yet  it  is  not  evident  that 
it  contained  changes  tending  either  to  curb  monopolies  or  to  reduce 
the  cost  of  living. 

152.     Recent  Tariff  History ^^^ 

The  protest  against  the  Payne-Aldrich  bill  was  immediate  and 
outspoken.  At  the  biennial  election  in  1910  the  Democrats  won  con- 
trol of  the  House  by  a  substantial  majority.  Looking  ahead  to  the 
presidential  election  of  191 2,  and  sparring  for  political  advantage,  the 
majority  party  in  the  House  passed  several  bills  amending  parts  of 
the  tariff  act.  These  lowered  duties,  particularly  on  wool  and  prod- 
ucts used  on  the  farm.  A  personal  revolt  against  President  Xaft 
within  his  party  added  enough  votes  to  the  Democratic  minority  to 
secure  the  passage  of  these  bills  through  the  Senate.  But,  as  was 
to  be  expected,  they  were  vetoed  by  the  President. 

In  191 2  the  tariff  again  became  one  of  the  main  issues  in  the 
election.  The  sentiment  for  revision  was  based  upon  a  number  of 
quite  different  considerations.  The  opposition  to  monopoly  and  a 
belief  that  by  legislation  the  government  could  furnish  relief  from 
the  high  cost  of  living  were  perhaps  dominant.  A  belief  that  the  tariff 
was  conferring  "special  favors"  upon  privileged  individuals,  and 
hence  was  contrary  to  the  spirit  of  government,  was  very  widespread. 
In  addition  there  was  a  substantial  demand  from  quite  a  considerable 
contingency  of  manufacturers  and  commercial  men  favorable  to  re- 
vision. This  demand  was  to  a  considerable  extent  due  to  the  changed 
industrial  position  of  the  country.  The  era  of  prosperity  through 
which  we  had  passed  had  led  to  an  enlargement  of  many  plants  to  a 
point  where  they  could  supply  much  more  than  the  domestic  demand 
for  their  commodities.  Since  these  businesses  were  in  the  stage  of 
diminishing  costs,  they  were  anxious  to  find  wider  markets.  Realiz- 
ing that  foreign  trade  is  reciprocal,  the  manufacturers  involved  were 
aiming  to  create  a  domestic  demand  for  additional  foreign  products 
in  order  that  foreigners  might  have  claims  with  which  to  buy  Ameri- 
can goods.  Consequently  some  manufacturers  who,  in  1897,  when 
the  fight  was  for  the  domestic  market,  favored  high  duties,  in  191 2 
were  found  demanding  lower  duties.  This  sentiment  was  strength- 
ened by  a  feeling  that  in  some  branches  protection  was  no  longer 
necessary.    This  demand  from  manufacturers  is  significant  because 

2iAn  editorial  (1915). 


PROBLEM  OF  INTERNATIONAL  TRADE 


343 


of  Its  evidence  of  a  change  in  America's  position  in  international 
trade. 

Although  division  in  Republican  ranks  was  instrumental  in  giving 
Wilson  an  unprecedented  vote  in  the  electoral  college,  and  in  securing 
for  the  Democrats  control  of  the  Senate  and  House,  there  is  little 
doubt  that  the  country  at  large  stood  committed  to  a  downward  re- 
vision of  the  tariff.  This  was  undertaken  at  a  special  session  of  Con- 
gress and  culminated  in  the  act  of  October  3,  1913.  The  making  of 
no  tariff  bill  in  two  generations  was  less  influenced  by  the  representa- 
tives of  special  interests  sent  to  Washington.  The  bill  was  not 
extreme,  but  represented  a  genuine;^  attempt  to  reduce  duties.  Its 
most  significant  changes  were  in  putting  wool  on  the  free  list  imme- 
diately and  sugar  at  the  end  of  two  and  a  half  years.  The  former 
was  a  result  of  the  popular  agitation  against  the  notorious  Schedule 
K  of  the  Payne-Aldrich  Act.  With  free  wool  went  the  removal  of 
the  specific  compensatory  duties  on  woolens,  as  well  as  the  specific 
duties  on  cottons  and  silks.  Iron  ore,  pig  iron,  steel  rails,  and  agri- 
cultural implements  were  all  put  on  the  free  list.  The  act  substituted 
many  ad  valorem  for  specific  duties.  But,  since  the  reductions  were 
in  many  cases  upon  articles  which  we  habitually  export,  they  were 
nominal  rather  than  real.  The  reduction  of  duties  on  agricultural 
products  is  a  case  in  point. 

In  general  the  tariff  seems  neither  to  have  justified  its  friends  nor 
its  enemies.  It  has  not  reduced  prices ;  nor  has  it  led  to  a  closing 
of  industries  and  general  unemployment.  Its  effects,  if  effects  it 
has  had,  have  been  so  merged  with  those  of  numerous  other  active 
factors,  particularly  those  of  the  European  war,  that  they  cannot 
be  isolated.  It  was  not  expected  that  the  act  would  result  in  any 
immediate  extension  of  foreign  markets.  Custom  and  habit  are  too 
strong,  and  the  spirit  of  business  enterprise  a  little  too  slow  for  that. 
Whatever  effect  it  may  have  had  in  sending  American  goods  abroad 
has  lost  its  identity  in  the  general  stream  of  causes  affecting  trade 
which  have  come  in  the  train  of  the  European  struggle.  The  stalwart 
Republicans  are  attributing  current  bad  industrial  conditions  to  tariff 
tinkering.  The  financial  papers,  however,  are  not  demanding  upward 
revision.  Their  demand  just  now  is  for  business  to  be  let  alone.  At 
present  there  seems  to  be  no  strong  sentiment  in  favor  of  upward 
revision.  It  is,  perhaps,  premature  to  express  the  hope  that  the  tariff 
question  is  settled,  and  is  a  matter  of  history.  The  old  sectional 
clash,  intensified  by  an  industrial  struggle  between  the  interests  which 
demand  foreign  markets  and  the  industries  which  still  wish  domestic 
protection,  is  too  strong  for  that.  The  questions  of  the  distribution 
of  wealth  between  classes  will  also  serve  to  keep  it  alive.    Yet,  since 


344  CURRENT  ECONOMIC  PROBLEMS 

we  are  coming  to  grapple  with  the  more  vital  problems  of  a  full- 
grown  industrial  system,  it  seems  safe  to  say  it  will  never  again  have 
the  importance  which  it  has  had  in  the  past. 

153.     What  a  Tariff  Bill  Is  Like" 
Section  I 

Schedule  A. — Chemicals,  Oils  and  Paints. 

I.  Acids:  Boracic  acid,  ^  cent  per  pound;  citric  acid,  5  cents 
per  pound;  formic  acid,  i^^  cents  per  pound;  gallic  acid,  6  cents  per 
pound;  lactic,  acid,  i^  cents  per  pound;  oxalic  acid,  ij^  cents  per 
pound;  pyrogallic  acid,  12  cents  per  pound;  salicylic  acid,  2}^  cents 
per  pound ;  tannic  acid  and  tannin,  5  cents  per  pound ;  tartaric  acid, 
33^  cents  per  pound  ;  all  other  acids  and  acid  anhydrides  not  specially 
provided  for  in  this  section,  15  per  centum  ad  valorem. 

5.  Alkalies,  alkaloids,  and  all  chemical  and  medicinal  compounds, 
preparations,  mixtures  and  salts,  and  combinations  thereof  not  spe- 
cially provided  for  in  this  section,  15  per  centum  ad  valorem. 

19.     Chloroform,  2  cents  per  pound. 

48.  Perfumery,  including  cologne  and  other  toilet  waters,  articles 
of  perfumery,  whether  in  sachets  or  otherwise,  and  all  preparations 
used  as  applications  to  the  hair,  mouth,  teeth,  or  skin,  such  as  cos- 
metics, dentifrices,  including  tooth  soaps,  paste,  including  theatrical 
grease  paints,  and  pastes,  pomades,  powders  and  other  toilet  prepara- 
tions, all  the  foregoing,  if  containing  alcohol,  40  cents  per  pound  and 
60  per  centum  ad  valorem ;  if  not  containing  alcohol,  60  per  centum 
ad  valorem  ;  floral  or  flower  water  containing  no  alcohol,  not  specially 
provided  for  in  this  section,  20  per  centum  ad  valorem. 

Schedule  B. — Earth,  Earthenware  and  Glassware. 

74.  Plaster  rock  or  gypsum,  crude,  ground  or  calcined,  pearl 
hardening  for  paper  makers'  use ;  white,  non-staining  Portland  ce- 
ment, Keene's  cement  or  other  cement  of  which  gypsum  is  the  com- 
ponent material  of  chief  value,  and  all  other  cements  not  specially 
provided  for  in  this  section,  10  per  centum  ad  valorem. 

91.  Spectacles,  eyeglasses  and  goggles,  and  frames  for  the  same, 
or  parts  theerof,  finished  or  unfinished,  35  per  centum  ad  valorem. 

99.  Freestone,  granite,  sandstone,  limestone,  lava  and  all  other 
stone  suitable  for  use  as  monumental  or  building  stone,  except  marble, 
breccia,  and  onyx,  not  specially  provided  for  in  this  section,  hewn, 
dressed,  or  polished,  or  otherwise  manufactured,  25  per  centum  ad 

22Adapted  from  The  Tariff  Act  of  October  3,  1913,  pp.  1-93.  The  repro- 
duction of  the  act  in  its  entirety  would  require  about  one  hundred  pages  of  the 
size  of  this  one. 


PROBLEM  OF  INTERNATIONAL  TRADE  345 

valorem ;  unmanufactured,  or  not  dressed,  hewn,  or  polished,  3  cents 
per  cubic  foot. 

100.     Grindstones,  finished  or  unfinished,  $1.50  per  ton. 

Schedule  C. — Metals  and  Manufactures  of. 

102.  Chrome  or  chromium  metal,  ferrochrome  or  ferrochromium, 
ferromolybdenum,  ferrophosphorus,  ferrotitanium,  ferrotungsten, 
ferrovanadium,  molybdenum,  titanium,  tantalum,  tungsten  or  wolfram 
metal,  and  ferrosilicon,  and  other  alloys  used  in  the  manufacture  of 
steel,  not  specially  provided  for  in  this  section,  15  per  centum  ad 
valorem. 

no.  Steel  bars,  and  tapered  or  beveled  bars;  mill  shafting; 
pressed,  sheared,  or  stamped  shapes,  not  advanced  in  value  or  con- 
dition by  any  process  or  operation  subsequent  to  the  process  of  stamp- 
ing ;  hammer  molds  or  swaged  steel ;  gun-barrel  molds  not  in  bars ; 
all  descriptions  and  shapes  of  dry  sand,  loam,  or  iron  molded  steel 
castings,  sheets,  and  plates;  all  the  foregoing,  if  made  by  the  Bes- 
semer, Siemens-Martin,  open-hearth,  or  similar  processes,  not  con- 
taining alloys,  such  as  nickel,  cobalt,  vanadium,  chromium,  tungsten 
or  wolfram,  molybdenum,  titanium,  iridium,  uranium,  tantalum, 
boron,  and  similar  alloys,  8  per  centum  ad  valorem ;  steel  ingots, 
cogged  ingots,  blooms  and  slabs,  die  blocks  or  blanks ;  billets  and  bars 
and  tapered  or  beveled  bars ;  pressed,  sheared,  or  stamped  shapes  not 
advanced  in  value  or  condition  by  any  process  or  operation  subsequent 
to  the  process  of  stamping ;  hammer  molds  or  swaged  steel ;  gun- 
barrel  molds  not  in  bars ;  alloys  used  as  substitutes  for  steel  in  the 
manufacture  of  tools ;  all  descriptions  and  shapes  of  dry  sand,  loam, 
or  iron  molded  castings,  sheets,  and  plates ;  rolled  wire  rods  in  coils 
or  bars  not  smaller  than*  twenty  one-hundredths  of  one  inch  in 
diameter,  and  steel  not  specially  provided  for  in  this  section,  all  the 
foregoing  when  made  by  the  crucible,  electric,  or  cementation  process, 
either  with  or  without  alloys,  and  finished  by  rolling,  hammering,  or 
otherwise,  and  all  steels  by  whatever  process  made,  containing  alloys 
such  as  nickel,  cobalt,  vanadium,  chromium,  tungsten,  wolfram, 
molybdenum,  titanium,  iridium,  uranium,  tantalum,  boron  and  similar 
alloys,  15  per  centum  ad  valorem. 

Schedule  E. — Sugar,  Molasses,  and  Manufactures  of. 

177.  Sugars,  tank  bottoms,  sirups  of  cane  juice,  melada,  con- 
centrated melada,  concrete  and  concentrated  molasses,  testing  by  the 
polariscope  not  above  seventy-five  degrees,  seventy-one  one-hun- 
dredths of  I  per  cent  per  pound,  and  for  every  additional  degree 
shown  by  the  polariscopic  test,  twenty-six  one-thousandths  of  i 
cent  per  pound  additional,  and  fractions  of  a  degree  in  proportion ; 
molasses  testing  not  above  forty  degrees,  15  per  centum  ad  valorem; 


346  CURRENT  ECONOMIC  PROBLEMS 

testing  above  forty  degrees  and  not  above  fifty-six  degrees,  2^  cents 
per  gallon  ;  testing  above  fifty-six  degrees,  4^^  cents  per  gallon ;  sugar 
drainings  and  sugar  sweepings  shall  be  subject  to  duty  as  molasses  or 
sugar,  as  the  case  may  be,  according  to  polariscopic  test :  Provided, 
That  the  duties  imposed  in  this  paragraph  shall  be  effective  on  and 
after  the  first  day  of  March,  nineteen  hundred  and  fourteen,  until 
which  date  the  rates  of  duty  provided  by  paragraph  two  hundred  and 
sixteen  of  the  tariff  Act  approved  August  fifth,  nineteen  hundred  and 
nine,  shall  remain  in  force:  Provided,  however,  That  so  much  of 
paragraph  two  hundred  and  sixteen  of  an  Act  to  provide  revenue, 
equalize  duties,  and  encourage  the  industries  of  the  United  States, 
and  for  other  purposes,  approved  August  fifth,  nineteen  hundred  and 
nine,  as  relates  to  the  color  test  denominated  as  Number  Sixteen 
Dutch  standard  in  color,  shall  be  and  is  hereby  repealed :  Provided, 
further.  That  on  and  after  the  first  day  of  May,  nineteen  hundred  and 
sixteen,  the  articles  hereinbefore  enumerated  in  this  paragraph  shall 
be  admitted  free  of  duty. 

Schedule  G. — Agricultural  Products  and  Provisions. 

188.     Barley,  15  cents  per  bushel  of  forty-eight  pounds. 

193.  Rice,  cleaned,  i  cent  per  pound;  uncleaned  rice,  or  rice 
free  from  the  outer  hull  and  still  having  the  inner  cuticle  on,  ^  of  i 
cent  per  pound. 

195.  Butter  and  butter  substitutes,  2^  cents  per  pound. 

196,  Cheese  and  substitutes  therefor,  20  per  centum  ad  valorem. 

205,  Hay,  $2  per  ton. 

206.  Honey,  10  cents  per  gallon. 

213.  Straw,  50  cents  per  ton. 

214.  Teazels,  15  per  centum  ad  valo'rem. 
Schedule  N. — Sundries. 

341.  Dice,  dominoes,  draughts,  cheesemen,  chess  balls,  and  bil- 
liard, pool,  bagatelle  balls,  and  poker  chips,  of  ivory,  bone,  or  other 
materials,  50  per  centum  ad  valorem. 

347.  Feathers  and  downs,  on  the  skin  or  otherwise,  crude  or 
not  dressed,  colored,  or  otherwise  advanced  or  manufactured  in  any 
manner,  not  specially  provided  for  in  this  section,  20  per  centum  ad 
valorem;  when  dressed,  colored,  or  otherwise  advanced  or  manu- 
factured in  any  manner,  and  not  suitable  for  use  as  millinery  orna- 
ments, including  quilts  of  down  and  manufactures  of  down,  40  per 
centum  ad  valorem ;  artificial  or  ornamental  feathers  suitable  for 
use  as  millinery  ornaments,  artificial  and  ornamental  fruits,  grains, 
leaves,  flowers,  and  stems  or  parts  thereof,  of  whatever  material 
composed,  not  specially  provided  for  in  this  section,  60  per  centum 
ad  valorem ;  boas,  boutonnieres,  wreaths,  and  all  articles  not  specially 


PROBLEM  OF  INTERNATIONAL  TRADE  347 

provided  for  in  this  section,  composed  wholly  or  in  chief  value  of 
any  of  the  feathers,  flowers,  leaves,  or  other  material  herein  men- 
tioned, 60  per  centum  ad  valorem :  Provided,  That  the  importation 
of  aigrettes,  egret  plumes  or  so-called  osprey  plumes,  and  the  feath- 
ers, quills,  heads,  wings,  tails,  skins,  or  parts  of  skins,  of  wild  birds 
either  raw  or  manufactured,  and  not  for  scientific  or  educational 
purposes,  is  hereby  prohibited ;  but  this  provision  shall  not  apply  to 
the  feathers  or  plumes  of  ostriches,  or  to  the  feathers  or  plumes  of 
domestic  fowls  of  any  kind. 

Free  List. 

387.  Acids :  Acetic  or  pyroligneous,  arsenic  or  arsenious,  car- 
bolic, chromic,  fluoric,  hydrofluoric,  hydrochloric  or  muriatic,  nitric, 
phosphoric,  phthalic,  prussic,  silicic,  sulphuric  or  oil  of  vitriol,  and 
valerianic. 

389.     Acorns,  raw,  dried  or  undried,  but  unground. 

391.  Agricultural  implements:  Plows,  tooth  and  disk  harrows, 
headers,  harvesters,  reapers,  agricultural  drills  and  planters,  mowers, 
horserakes,  cultivators,  thrashing  machines,  cotton  gins,  machinery 
for  use  in  the  manufacture  of  sugar,  wagons  and  carts,  and  all  other 
agricultural  implements  of  any  kind  and  description,  whether  spe- 
cifically mentioned  herein  or  not,  whether  in  whole  or  in  parts,  in- 
cluding repair  parts. 

407.     Ashes,  wood  and  lye  of,  and  beet-root  ashes. 

457.     Coffee. 

512.  Ice. 

513.  India  rubber,  crude,  and  milk  of,  and  scrap  or  refuse  India 
rubber,  fit  only  for  remanufacture. 

586.     Rags,  not  otherwise  specially  provided  for  in  this  section. 

652.  Original  paintings  in  oil,  mineral,  water,  or  other  colors, 
pastels,  original  drawings  and  sketches  in  pen  and  ink  or  pencil  and 
water  colors,  artists'  proof  etchings  unbound,  and  engravings  and 
woodcuts  unbound,  original  sculptures  or  statuary,  including  not 
more  than  two  replicas  or  reproductions  of  the  same. 

154.     The  Tariff  Commission-^ 

As  the  outcome  of  a  long  agitation  on  September  8,  19 16,  Congress 
authorized  the  creation  of  a  tariff  commission.  This  action  was  taken 
as  one  element  in  the  revision  of  the  revenue  system  which  included 
the  re-enactment  of  the  income  tax  on  a  new  basis  and  the  adoption 
of  additional  tariff  duties.    The  Tariff  Commission  now  provided  for 

23Adapted  from  "Washington  Notes,"  Journal  of  Political  Economy, 
XXIV,  1014-15.    Copyright  by  the  University  of  Chicago,  1916. 


348  CURRENT  ECONOMIC  PROBLEMS 

is  "bipartisan"  and  consists  of  six  members  to  be  appointed  by  the 
President,  not  more  than  three  of  whom  are  to  be  members  of  the 
same  political  party.  The  function  of  the  commission  is  to  be  that 
of  investigating  "the  administration  of  fiscal  and  industrial  effects  of 
the  customs  laws,  the  relation  between  rates  of  duties  on  raw  materials 
and  the  finished  products,  the  effects  of  ad  valorem  and  specific 
duties,  the  arrangements  of  schedules,  the  classification  of  articles, 
and  like  matters.  Material  compiled  by  the  commission  is  to  be 
furnished  to  the  President  and  the  appropriate  committees  of  Con- 
gress whenever  desired.  The  usual  provisions  for  maintaining  the 
secrecy  of  the  information  obtained  and  for  organizing  and  in- 
augurating the  work  of  the  new  board  are  included. 

It  is  to  be  noted  that  the  Tariff  Commission  is  provided  with 
power  to  furnish  evidence  or  necessary  industrial  data  to  bodies 
charged  with  tariff  revision.  It  is  also  of  note  that  the  act  creating 
the  commission  has  nothing  to  say  with  reference  to  the  ascertain- 
ment of  what  is  called  "comparative  cost  of  production."  Neither 
is  there  any  stress  upon  so-called  "foreign  cost  of  production."  The 
powers  of  the  new  commission  are  broad  and  are  stated  in  language 
free  from  the  theoretical  bias  implied  in  the  idea  of  the  comparative 
cost  of  production. 

It  is  generally  admitted  that  the  work  of  the  commission  will  be 
affected  in  no  small  degree  by  the  developments  consequent  upon  the 
close  of  the  European  war.  Few,  if  any,  further  changes  in  the  tariff 
are  to  be  expected  for  the  present.  No  revolutionary  change  in  the 
direction  of  foreign  trade  is  to  be  looked  for  prior  to  the  close  of  hos- 
tilities. In  this  view  of  the  case  the  commission  may  have  a  period  of 
uninterrupted  investigation  equal  to  the  time  between  its  organization 
and  the  end  of  the  war. 

One  important  phase  of  the  commission's  duty  is  the  requirement 
that  it  shall  investigate  tariff  relations  between  the  United  States 
and  foreign  countries,  including  commercial  treaties,  preferential 
tariff  provisions,  and  the  like.  There  is  here  a  field  for  work  which 
is  not  only  large  but  likely  to  be  of  immediate  importance  upon  the 
conclusion  of  the  European  war,  which  is  not  necessarily  dependent 
upon  domestic  tariff  legislation.  The  new  commission  thus  has 
duties  of  a  varied  and  important  kind,  independent  of  the  direction 
taken  by  political  events,  although  in  this  case,  as  in  others,  much 
will  depend  upon  the  direction  given  to  the  work  by  the  persons  who 
may  be  named  members  of  the  new  organization. 


PROBLEM  OF  INTERNATIONAL  TRADE  349 

F.     THE  ARGUMENT  FROM  EXPERIENCE 
155.     Protection  and  Prosperity-* 

BY  ROBERT  ELLIS  THOMPSON 

The  policy  of  protection  is  challenged  now  to  justify  itself  by  its 
works  at  the  bar  of  public  opinion.  We  are  not  afraid  of  that  test. 
We  ask  your  attention  to  its  broad  results. 

It  has  raised  the  average  of  our  national  wealth  from  $514  a  head 
(slaves  included)  in  1850,  to  $870  a  head  in  1880. 

It  has  increased  the  value  of  our  manufactures  five  hundred  per 
cent,  and  that  of  our  foreign  commerce  in  the  same  ratio,  while  the 
commerce  of  England  increased  but  three  hundred  and  fifty  per  cent. 

It  has  secured  higher  wages  to  our  workmen  and  better  prices 
to  our  farmers,  without  increasing  to  either  the  cost  of  staple  manu- 
factures, as  is  shown  by  comparing  the  prices  of  textiles  and  hard- 
wares before  and  since  i860. 

It  has  diversified  our  industries  and  raised  our  people  out  of  that 
uniformity  of  occupation  which  is  the  mark  of  a  low  industrial  devel- 
opment. 

It  has  stimulated  inventions  and  improvements  to  the  degree  that 
some  of  the  great  staples  of  necessary  use  have  been  permanently 
cheapened  to  the  whole  world. 

It  has  drawn  the  different  sections  of  the  country  into  closer  bus- 
iness relations,  and  has  interlaced  the  great  trunk  lines  of  railroad 
to  the  West  with  others  running  southward. 

It  has  brought  the  foreign  artisan  across  the  ocean,  and  has  nat- 
uralized his  craft  on  our  shores,  whereas  free  trade  would  have 
brought  his  work  only. 

It  has  made  us  as  regards  the  great  staples  independent  of  all 
other  countries  in  case  of  war,  while  it  has  consolidated  the  national 
unity  and  increased  the  national  strength  to  a  degree  that  makes  the 
rest  of  mankind  anxious  to  be  at  peace  with  us. 

It  has  created  a  sentiment  in  favor  of  this  policy  so  powerful 
that  no  political  party  ventures  to  oppose  it  openly,  and  such  that 
the  friends  of  free  trade  are  hardly  heard  in  our  national  campaigns. 

2*Adapted  from  Protection  to  Home  Industry  (1886),  pp.  57-58.  The 
student  can  easily  find  for  himself  a  contemporary  reading  making  practically 
the  same  argument. 


350  CURRENT  ECONOMIC  PROBLEMS 

156.     Free  Trade  and  Prosperity^^ 

HOW  WORKMEN'S  WAGES  HAVE  GONE  UP 

SINCE  1880 

The  increase  in  wages  in  the  chief  industries  throughout  the 
United  Kingdom  in  the  last  20  years,  according  to  the  Third  Fiscal 
Blue  Book  (p.  212),  has  been  as  follows: 

Agriculture     -     -     -     -  10  per  cent 

Building  Trades  -     -     -  17  per  cent 

Coal  Mining  -    -    -     -  52  per  cent 

Engineering   -    -    -     -  15  per  cent 

Textiles 22  per  cent 


FREE  TRADE  MEANS  AN  INCREASE  IN  YOUR  WAGES 

FREE  TRADE  GIVES  US  THE  FOREIGNER'S  JOB 

One  of  the  most  absurd  posters  issued  by  the  Tariff  Reformers 
was  one  in  which  a  British  workman  was  supposed  to  say:  "The 
Foreigner  has  got  my  job." 

.  It  is  the  Foreigner  who  provides  jobs  for  British  Workmen ! 

FOR  EVERY  £1   OF  MANUFACTURED   GOODS   IM- 
PORTED INTO  THIS  COUNTRY  OVER  £2 
WORTH  ARE  SENT  ABROAD 

THE  WORLD  BANKS  IN  BRITAIN 

Under  Free  Trade  Great  Britain  Is  the  Banking  Center  of  the  World 

The  growth  of  British  banking  may  be  measured  by  the  value  of 
the  business  transacted  during  the  last  40  years. 

Here  are  the  figures  of  the  Bankers  Clearing  House  Returns : 

1869 £3,626,000,000 

1879  --------  4,886,000,000 

1889  --------  7,619,000,000 

1899  --------  9,150,000,000 

1909  --------  13,525,000,000 

^'^Adapted  from  Wages,  Food  Prices  and  Savings,  a  pamphlet  used  by 
the  Liberal  party  in  the  English  Parliamentary  campaign  in  1909-10. 


PROBLEM  OF  INTERNATIONAL  TRADE  351 

FREE  TRADE  MEANS  LARGER  INCOMES 

Great  Britain's  increasing  prosperity  under  free  trade  is  shown  by 
the  fact  that  the  amount  raised  by  the  income  tax  has  steadily  in- 
creased. 

In  1882  a  tax  of  id.  in  the  £  produced 

£1,915,000 

In  1909  a  tax  of  Id.  in  the  £  produced 

£2,784,000 

More  pounds  were  earned,  and  consequently  more  people  were 
able  to  pay  income  tax  in  1909  than  in  1882. 

Those  who  pay  income  tax  have  larger  incomes  than  before. 

PROGRESS  ON  THE  RAILWAY 
EXPRESS  SPEED  TO  PROSPERITY 

The  growth  of  business  under  free  trade  can  be  seen  by  the  in- 
crease in  the  traffic  on  our  railways  as  shown  by  the  following  official 
figures : 

PASSENGER  TRAFFIC  RECEIPTS 

1880 £27,200,000 

1890 34,300,000 

1900  --------  45,400,000 

1909  --------  51,200,000 

GOODS  TRAFFIC  RECEIPTS 

1880   -- -  £35,700,000 

1890   --- 42,200,000 

1900 53,500,000 

1909 -  -  -  59,500,000 

THE  NUMBER  OF  RAILWAY  SERVANTS  EMPLOYED  HAS  IN- 
CREASED 398,000  IN  1897  TO  NEARLY  500,000  IN  1909 

THE  PROFITS  OF  RAILWAYS  HAVE  INCREASED  FROM  £38,- 
000,000  IN  1895,  TO  £45,136,000  IN  1909 

G.     PROTECTION  IN  PRACTICE 

157.     A  Humble  Request  of  Congress-*^ 

Resolved,  That  the  mutuality  of  the  interests  of  the  wool  pro- 
ducers and  wool  manufacturers  of  the  United  States  is  established 

26  Resolutions  of  the  National  Wool  Growers'  Association  and  National 
Association  of  Wool  Manufacturers,  Hearings  of  the  JVays  and  Means  Com- 
mittee of  the  House  of  Representatives,  60th  Cong.,  2d  sess.,  House  Document 
143,  p.  5331  (1909). 


352  CURRENT  ECONOMIC  PROBLEMS 

by  the  closest  of  commercial  bonds,  that  of  demand  and  supply; 
it  having  been  demonstrated  that  the  American  grower  supplies 
more  than  70  per  cent  of  all  the  wool  consumed  by  American  mills, 
and,  with  equal  encouragement,  would  soon  supply  all  which  is  prop- 
erly adapted  to  production  here ;  and  further,  it  is  confirmed  by  the 
experience  of  half  a  century  that  the  periods  of  prosperity  and 
depression  in  the  two  branches  of  the  woolen  industry  have  been 
identical  in  time  and  induced  by  the  same  general  causes. 

Resolved,  That  as  the  two  branches  of  agricultural  and  manu- 
facturing industry  represented  by  the  woolen  interest  involve  largely 
the  labor  of  the  country,  whose  productiveness  is  the  basis  of  national 
prosperity,  sound  policy  requires  such  legislative  action  as  shall 
place  them  on  an  equal  footing,  and  give  them  equal  encouragement 
and  protection  in  competing  with  the  accumulated  capital  and  low 
wages  of  other  countries. 

Resolved,  That  the  benefits  of  a  truly  national  system,  as  applied 
to  American  industry,  will  be  found  in  developing  manufacturing 
and  agricultural  enterprise  in  all  the  States,  thus  furnishing  markets 
at  home  for  the  products  of  both  interests ;  and 

Resolved,  further,  That  it  is  the  sense  of  this  meeting  that  in  the 
coming  revision  of  the  tariff  the  present  duties  both  on  wool  and 
woolen  goods  be  maintained  without  reduction. 

158.     A  Recipe  for  Securing  Duties^^ 

Elsmere,  April  4,  1897 
Dear  Mr.  Whitman :    Now  about  the  tariff.    I  cannot,  after  what 
has  been  said  to  me  in  reference  to  my  confidential  relations  with 

the  committee,  keep  you  posted  as  I  would  like  to  do Let 

me  ask  you  a  question.  Should  tops  at  a  24-cent  line  have  the  same 
compensatory  duty  as  yarns  at  a  30-cent  line?  Should  tops  at  a  24- 
cent  line  have  a  compensatory  duty  of  273^  cents? I  do  not 

want  you  to  intimate  to  any  Senator  that  I  have  written  you  on 
this  subject.  I  am  kept  at  work  from  10  A.  M.  until  midnight  and 
I  have  not  sufficient  clerical  assistance  as  yet.  I  am  the  only  person 
whom  the  committee  allows  at  its  meetings. 

Truly  yours, 

S.  N.  D.  North. 

Boston,  June  2,  1897. 
My  dear  Mr.  Ndrth :    We  all  depend  upon  you  to  watch  closely 
our  interests,  to  see  that  nothing  is  overlooked  or  neglected  by  our 

27Adapted  from  Hearings  of  the  Ways  and  Means  Committee,  ibid.,  pp. 
5492-93- 


PROBLEM  OF  INTERNATIONAL  TRADE  353 

friends  on  the  committee.  I  have  no  doubt  they  will  do  all  they  can 
do,  but  with  so  many  interests-to  look  after,  our  special  representative 
must  see  to  it  that  our  interests  receive  proper  attention. 

Yours  very  truly, 

William  Whitman 

159.     The  Tariff  a  Local  Issue'^ 

Local  interests,  rather  than  fundamental  considerations  of  prin- 
ciple, are  the  motives  determining  the  attitude  of  the  average  con- 
gressman on  the  tariff.  He  is  supremely  concerned  with  securing 
for  the  favored  interests  of  his  own  district  all  the  protection  pos- 
sible. His  concern  for  interests  in  other  districts  is  a  mere  means 
to  this  more  important  end.  Alone  he  can  accompHsh  nothing.  He 
is  perforce  compelled  to  favor  duties  on  articles  produced  elsewhere 
in  order  that  he  may  secure  what  he  desires.  As  a  result  a  struggle 
over  a  tariff  is  by  no  means  an  attempt  properly  to  apply  fundamental 
and  well-recognized  principles  to  particular  situations.  It  is  rather 
an  attempt  to  reconcile  a  conflict  of  a  multitude  of  local  and  indus- 
trial interests. 

The  following  typical  proposals  will  give  a  fair  idea  of  the  raw 
material  out  of  which  the  tariff  bill  of  1909  was  constructed.  They 
will  also  throw  some  light  upon  the  logic  of  the  process  by  means  of 
which  the  bill  finally  assumed  form.  A  Massachusetts  Republican 
demanded  that  hides  be  put  on  the  free  list.  A  Texas  Democrat 
insisted  that  the  duty  on  hides  be  raised.  A  South  Carolina  Demo- 
crat demanded  a  protective  duty  on  rice.  Free  coal  was  pronounced 
by  a  Pennsylvania  Republican  to  be  a  repudiation  of  the  policy  of 
protection.  Several  representatives,  from  different  parts  of  the 
country,  pleaded  for  higher  duties  on  glass.  Senators  from  the 
Rocky  Mountain  states  dwelt  upon  the  importance  of  protection  of 
wool.  The  representatives  from  California  demanded  protection  on 
lemons.  A  Democratic  senator  from  Texas  demanded  a  high  duty 
on  lumber.  A  Michigan  Republican  argued  as  ardently  for  a  duty 
on  sugar.  A  congressman  from"  New  York  insisted  that  a  duty  on 
postcards  would  even  things  with  Germany.  Only  one  man  was 
patriotic  enough  to  want  to  apply  the  principle  of  protection  without 
the  slightest  reservation.  An  Iowa  congressman  rose  to  the  occasion 
by  pleading  that  selfishness  should  be  laid  aside,  that  all  should  forget 
local  and  personal  interests,  that  America  should  be  the  matter  of 

28The  evidence  upon  which  this  reading  is  based  is  all  taken  from  the 
Congressional  Record^  1909. 


354  CURRENT  ECONOMIC  PROBLEMS 

first  concern,  and  that  the  new  tariff  should  be  framed  in  such  a  way 
as  adaquately  and  equally  to  protect  all  industries. 

Senator  Knute  Nelson,  of  Minnesota,  a  protectionist  and  a  Re- 
publican, summed  up  the  situation  in  these  words :  "I  am  tired 
of  being  lectured  to  about  these  schedules,  and  about  the  orthodoxy 
of  the  Republican  party.  Let  us  recognize  the  fact  that  with  a 
tariff  bill  it  is  just  as  it  is  with  the  River  and  Harbor  bills.  There 
is  no  use  disguising  it.  You  tickle  me  and  I  tickle  you.  You  give 
us  what  we  want  on  the  Pacific  coast,  want  for  our  lead  ore  and  our 
citrus  fruit,  and  we  will  tickle  you  people  in  New  England  and  give 
you  what  you  want  on  your  cotton  goods.  When  you  boil  down 
the  patriotism  of  the  speeches  just  made  you  come  to  the  same  basis 
as  that  of  the  River  and  Harbor  bill.  You  vote  for  my  creeks,  you 
vote  for  my  harbors,  you  vote  for  my  rivers,  and  I  will  vote  for 
yours,  and  it  will  be  all  right." 

160.     Tariff  for  Politics  Only^^ 

BY  PETER  FINLEY  DUNNE 

"Well,  sir,  'tis  a  gr-r-and  worruk  thim  Sinitors  and  Congressmen 
are  doin'  in  Wash'n'ton.  Me  heart  bleeds  for  the  poor  fellows, 
steamin'  away  undher  th'  majestic  tin  dome  iv  th'  capitol  thryin'  to 
rejooce  th'  tariff.  The  likes  iv  ye  want  to  see  th'  tariff  rejooced  with 
a  jack  plane.  But  th'  tariff  has  been  a  good  frind  to  some  iv  thim 
boys  an'  it's  a  frind  iv  frinds  iv  some  iv  th'  others  an'  they  don't 
intend  to  be  rough  with  it.  A  little  gentle  massage  to  rejooce  th' 
most  prominent  prochooberances  is  all  that  is  nicessry.  Whiniver 
they  rub  too  hard,  Sinitor  Aldrich  says,  'Go  a  little  asier  there,  boys. 
He's  very  tender  in  some  iv  thim  schedules.  P'raps  we'd  better  give 
him  a  little  nourishment  to  build  him  up,'  he  says.  An'  th'  last  I 
heerd  about  it,  ye  won't  notice  anny  reduction  in  its  weight.  No  sir, 
I  shudden't  be  surprised  if  it  was  heartier  than  iver. 

"Me  congressman  sint  me  a  copy  iv  th'  tariff  bill  th'  other  day. 
I've  been  study  in'  it  f'r  a  week.  'Tis  a  good  piece  of  summer  lithra- 
choor.  'Tis  full  iv  action  an'  romance.  It  beats  th'  Deadwood  Dick 
series.  It  gives  ye  some  idee  iv  th'  gloryous  governmint  we're  livin 
undher,  to  see  our  fair  Columbia  puttin'  her  brave  young  arms  out 
defindin'  th'  products  iv  our  soil  fr'm  steel  rails  to  porous  plasthers, 
hooks  an'  eyes,  artyficial  horse  hair  and  bone  casings,  which  comes 
under  th'  head  of  clothin'  an'  I  suppose  is  a  polite  name  f'r  panta- 
loons. 

29Adapted  from  "The  TarifiF,"  in  Mr.  Dooley  Says,  pp.  144-57.  Copyright 
by  Charles  Scribner's  Sons,  1909. 


PROBLEMS  OF  INTERNATIONAL  TRADE  355 

"Iv  coorse,  low  people  like  ye,  Hinnissy,  will  kick  because  it's 
goin'  to  cost  ye  more  to  indulge  ye'er  taste  in  ennervating  luxuries. 
D'ye  know  Sinitor  Aldrich?  Ye  don't?  He  knows  ye.  'Tis  as  if 
he  said :  'This  here  vulgar  plutocrat,  Hinnissy,  is  turnin'  th'  heads 
iv  our  young  men  with  his  garish  display.  Before  this,  counthries 
have  perished  because  iv  th'  ostintation  iv  th'  arrystocracy.  We  must 
presarve  th'  ideals  iv  American  simplicity.  We'll  put  a  tax  iv  sixty 
per  cent  on  ready  made  clothin'  costin'  less  thin  ten  dollars  a  suit. 
That'll  keep  Hinnissy  from  squanderin'  money  wrung  fr'm  Jawn  D. 
in  th'  roo  dilly  Pay.  We'll  make  a  specyal  assault  on  woolen  socks 
an'  cowhide  shoes.  We'll  make  an  example  iv  this  here  pampered 
babe  iv  fortune,'  says  he. 

"An'  there  it  is.  Ye  haven't  got  a  thing  on  ye'r  back  excipt  ye'er 
skin — an'  that  may  be  there ;  I  haven't  got  as  far  as  th'  hide  schedule 
yet.  It's  ye'er  own  fault.  If  ye  will  persist  in  wearin'  those  gee- 
gaws  ye'U  have  to  pay  f'r  thim.  If  ye  will  go  on  decoratin'  ye'er 
house  with  shingles  an'  paint  an'  puttin'  paper  on  th'  walls,  ye've  got 
to  settle.    That's  all. 

"Ye'd  think  th'  way  such  as  ye  talk  that  ivrything  is  taxed.  It 
ain't  so.  'Tis  an  insult  to  th'  pathritism  iv  Congress  to  say  so.  Th' 
Republican  party,  with  a  good  deal  iv  assistance  fr'm  th'  pathriotic 
Dimmycrats,  has  been  thrue  to  its  promises.  Look  at  th'  free  list,  if 
ye  don't  believe  it.  Practically  ivrything  nicissry  to  existence  comes 
in  free.  What,  for  example,  says  ye.  I'll  look.  Here  it  is.  Curling 
stones.  Ye'll  be  able  to  buy  all  ye'll  need  this  summer  for  practically 
nawthin.  What  else?  Well,  teeth.  Here  it  is  in  th'  bill:  Teeth 
free  iv  jooty.'  Undher  th'  Dingley  Bill  they  were  heavily  taxed. 
Onless  ye  cud  prove  that  they  had  cost  ye  less  thin  a  hundred  dollars, 
or  that  ye  had  worn  thim  f'r  two  years  in  Europe,  or  that  ye  were 
bringin'  thim  in  f'r  scientific  purposes  or  to  give  a  museem,  there 
was  an  enormous  jooty  on  teeth.  Now  ye  don't  have  to  hand  a  five 
to  th'  inspictor  an'  whisper :  T've  got  a  few  biscupids  that  I  picked 
up  abroad.  Be  a  good  fellow  and  let  me  through.'  No  sir,  teeth  are 
free. 

"What  other  nicissities,  says  ye?  Well,  there's  sea  moss,  news- 
papers, nuts  and  nux  vomica.  They've  removed  th'  jooty  on  Pulu. 
I  didn't  think  they'd  go  that  far.  Ye  know  what  Pulu  is,  iv  coorse, 
an'  I'm  sure  ye'll  be  glad  to  know  this  refreshin'  bev'rage  or  soap  is 
on  th'  free  list.  An'  cannary  bur'rd  seed  is  fhree.  Lookin'  down  th' 
list  I  see  that  divvy-divvy  is  free  also.  But  there  are  other  items, 
mind  ye.  Here's  some  of  them :  Apatite,  hog  bristles,  wurruks  iv 
art  more  thinn  twenty  years  old,  kelp,  marshmallows,  life  boats,  silk 
worm  eggs,  stilts,  skeletons,  turtles,  an'  leeches.    Th*  new  tariff  bill 


356  CURRENT  ECONOMIC  PROBLEMS 

puts  these  family  commodyties  within  th'  reach  iv  all.  An'  yes, 
opium  is  on  th'  free  list.  Th'  tariff  bill  woulden't  be  complete  without 
that  there  item.  But  it  ought  to  read:  'Opyum  f'r  smokin'  while 
readin'  th'  tariff  bill.'  Ye  can  take  this  sterlin'  piece  of  lithrachoor  to 
a  bunk  with  ye  an'  light  a  ball  iv  hop.  Befure  ye  smoke  up  p'raps  ye 
can't  see  where  th'  tariff  has  been  rejooced.  But  afther  ye've  had  a 
long  dhraw  it  all  becomes  clear  to  ye.  Ye'er  worries  about  th' 
children's  shoes  disappear  an'  ye  see  ye'ersilf  floatin'  over  a  purple 
sea,  in  ye're  private  yacht,  lulled  by  th'  London  Times,  surrounded 
be  wurrks  iv  art  more  thin  twinty  years  old,  atin'  marshmallows 
an'  canary  bur-rd  seed,  while  the  turtles  an'  leeches  frisk  on  th' 
binnacle, 

"Well,  sir,  if  nobody  else  has  read  th'  debates  on  th'  tariff  bill,  I 
have.  Th'  walls  iv  Congress  has  resounded  with  th'  loftiest  sinti- 
ments.  Hinnery  Cabin  Lodge  in  accents  that  wud  melt  th'  heart  iv 
th'  coldest  manyfacthrer  iv  button  shoes  has  pleaded  f'r  freedom  f'r 
th'  skins  iv  cows.  I'm  sorry  this  appeal  wasn't  succissful.  Th'  hide 
iv  th'  pauperized  kine  iv  Europe  will  have  to  cough  up  at  th'  custom 
house  before  they  can  be  convarted  into  brogans.^°  This  pathriotic 
result  was  secured  be  th'  gallant  Sinitor  fr'm  Texas.  He's  an  ardint 
free  thrader,  mind  ye.  He's  almost  a  slave  to  th'  principles  iv  th' 
Dimmycratic  party.  But  he's  no  blamed  bigot.  He  can  have  prin- 
ciples an'  lave  thim  alone.  An'  I  want  to  tell  ye,  me  f rind,  that  whin 
it  comes  to  distributin'  th'  honors  f'r  this  reform  iv  th'  tariff,  don't 
fail  to  throw  a  few  flowers  at  th'  riprisentatives  iv  our  small  but 
gallant  party.  It  was  a  fine  thing  to  see  thim  standin'  be  th'  battle 
cry  if  our  grand  old  organyzation. 

"Says  th  'Sinitor  fr'm  Louisyanny :  'Louisyanny,  th'  proudest 
jool  in  th'  dyadim  iv  our  fair  land,  remains  thrue  to  th'  honored 
teachin's  iv  our  leaders.  Th'  protective  tariff  is  an  abomynation. 
It  is  crushin'  out  th'  lives  iv  our  people.  Wan  iv  th'  worst  parts  is 
th'  tariff  on  lathes.  Fellow  sinitors,  as  long  as  one  dhrop  iv  pathriotic 
blood  surges  through  me  heart,  I  will  raise  me  voice  again  a  tariff  on 
lathes,  onless,'  he  says,  'this  dhread  implyment  iv  oppressyon  is 
akelly  used,'  he  says,  'to  protect  th'  bland  an'  beautiful  molasses  iv  th' 
State  iv  me  birth,'  he  says. 

"  *I  am  heartily  in  sympathy  with  th'  sinitor  fr'm  Louisyanny,' 
says  th'  Sinitor  fr'm  Virginya.  'I  loathe  th'  tariff.  Fr'm  me  arliest 
days  I  was  brought  up  to  look  on  it  with  pizenous  hathred.  At  many 
a  convintion  ye  cud  hear  me  whoopin'  agin'  it.  But  if  there  is  such  a 
lot  iv  this  monsthrous  iniquity  passin'  around,  don't  Virginya  get 

^^It  is  prosaic  to  spoil  Mr.  Dooley's  figure  by  stating  that  he  is  wrong 
on  this  point.    Hides  were  admitted  free  of  duty  by  the  Payne-Aldrich  bill. 


PROBLEM  OF  INTERNATIONAL  TRADE  357 

none?  Gintlemen,  I  do  not  ask,  I  demand  rights  f'r  me  common- 
wealth. I  will  talk  here  ontil  July  fourth,  nineteen  hundred  an' 
eighty-two,  agin'  th'  proposed  hellish  tax  on  feather  beds  onless 
somethin'  is  done  f'r  th'  tamarack  bark  iv  old  Virginya.' 

"A  sinitor :    'What's  it  used  f'r  ?' 

"Th'  sinitor  f r'm  Virginya :  'I  do  not  quite  know.  It  is  ayther 
a  cure  f'r  hives  or  enthers  largely  into  th'  mannyfacture  iv  carpet 
slippers.  But  there's  a  frind  iv  mine  who  makes  it  an'  he  needs  th' 
money.' 

"  'Th'  argymints  iv  th'  Sinitor  f  r'm  Virginya  are  onanswerable,' 
says  Sinitor  Aldhrich.  'Wud  it  be  agreeable  to  me  Dimmycratic 
colleague  to  put  both  feather  beds  an'  his  what-ye-call-it  in  th'  same 
item  ?' 

"  'In  such  circumstances,'  says  th'  Sinitor  fr'm  Virginya,  'I  would 
be  foorced  to  waive  me  almost  insane  prejudice  again'  th'  hellish 
docthrines  iv  th'  distinguished  Sinitor  fr'm  Rhode  Island,'  says  he. 

"An'  so  it  goes,  Hinnessy.  Nivir  a  sordid  wurrud,  mind  ye,  but 
ivrything  done  on  th'  fine  old  principle  iv  give  an'  take." 

"Well,"  says  Mr.  Hinnessy,  "what  difference  does  it  make?  Th' 
foreigner  pays  th'  tax,  anyhow." 

"He  does,"  said  Mr.  Dooley,  "if  he  ain't  turned  back  at  Ellis 
Island." 

161.     Tricks  of  Tariff  Making^^ 

A  superficial  comparison  of  two  tariff  bills  gives  very  little  clue 
to  the  differences  between  them.  An  accurate  count  of  the  number 
of  increases  and  decreases  in  the  later,  as  compared  with  the  earlier 
bill,  throws  no  light  upon  the  larger  question  of  whether  the  revision 
was  an  upward  or  a  downward  revision.  This  method  is  important 
only  because  of  its  suggestion  of  a  method  for  proving  to  superficial 
observers  that  there  has  been  an  upward  or  a  downward  revision. 
Real  changes  and  their  effects  can  be  determined  only  by  examining 
rates  on  particular  commodities  in  view  of  a  knowledge  of  all  the 
conditions  surrounding  the  production  of  these  commodities.  This 
can  be  well  illustrated  by  reference  to  the  tariff  of  1909. 

The  statement  has  been  repeatedly  made  that  this  tariff  substan- 
tially reduced  the  level  of  duties.  The  conclusion  is  established  by 
the  arithmetical  process  of  counting  advances  and  reductions.  It 
fails,  however,  to  take  into  consideration  the  fact  that  most  of  the 
duties  reduced  were  upon  commodities  which  are  produced  in  this 
country  for  export.    In  such  cases  tariff  duties  are  purely  nominal. 

3iThe  evidence  presented  in  this  reading  is  all  taken  from  "The  Tariflf 
of  1909,"  by  H.  Parker  Willis,  in  the  Journal  of  Political  Economy,  XVII, 
597-611. 


358  CURRENT  ECONOMIC  PROBLEMS 

They  can  in  the  very  nature  of  things  furnish  no  protection,  because 
there  is  nothing  to  protect  against.  On  the  contrary  the  increases 
were  upon  goods  which  needed,  or  at  any  rate  could  profit  by,  ad- 
vances. To  take  a  few  illustrations :  In  Schedule  A  the  duties  on 
most  acids  were  cut,  as  well  as  upon  ammonia,  borax,  and  ether. 
On  drugs,  however,  which  were  in  position  to  profit,  substantial 
advances  were  made.  In  Schedule  B  the  rates  were  reduced  on 
firebrick,  marble,  onyx,  granite,  and  other  non-portable  articles.  On 
pumice  stone  and  certain  grades  of  glass,  duties,  however,  were 
raised.  In  Schedule  C  the  reductions  in  nominal  duties  were  very 
large,  that  on  iron  ore  dropping  from  40  to  15  cents.  Yet  upon  the 
more  expensive  and  finished  metal  products  there  were  material 
advances.  The  best  examples  in  the  bill,  however,  are  contained  in 
Schedule  G,  dealing  with  agricultural  products,  of  which  we  export 
very  large  surpluses.  Neglecting  the  obvious  facts  of  the  grain 
trade,  Congress  tried  to  give  the  impression  of  great  care  for  the 
farmer.  Thus  on  broom  corn,  which  had  been  free,  a  duty  of  $3  a 
ton  was  imposed ;  the  rate  on  buckwheat  flour  was  raised  from  20  to 
25  per  cent;  on  oats  from  15  to  20  cents  a  bushel.  Hops  were 
advanced  from  12  to  15  cents  a  pound.  For  some  obscure  reason 
the  duty  on  cabbages  was  dropped  from  3  to  2  cents.  Nursery  stock 
and  fruits  received  a  general  raise.  Congress,  of  course,  did  not 
overlook  the  opportunity  for  dealing  the  usual  "blow  at  the  beef  trust" 
by  reducing  the  duty  which  it  did  not  need. 

But  many  devices  much  more  subtle  than  these  found  their  way 
into  the  bill.  Many  changes  were  made  in  the  unit  of  measurement 
for  customs  purposes.  Electric  lighting  carbons,  for  instance,  which 
had  been  90  cents  per  hundred,  were  now  made  65  cents  per  hundred 
feet  on  certain  grades  and  35  cents  on  other  grades,  the  only  kind 
imported  in  practice  being  dutiable  at  the  higher  rate.  A  provision 
in  the  cotton  schedule  that  in  counting  threads,  upon  the  number  of 
which  the  rate  of  duty  depended,  "all  the  warp  and  filling  threads" 
should  be  included,  operated  practically  to  double  the  duties  upon 
some  classes  of  goods,  in  so  mvich  as,  under  the  former  method  of 
counting,  "double  yarns,"  in  which  the  thread  is  twisted  together  out 
of  two  or  more  yarns,  had  been  counted  as  a  single  thread.  The 
enormous  concession  made  to  the  public  by  the  reduction  of  the  tariff 
on  sugar  by  one-twentieth  of  a  cent  a  pound,  a  reduction  which  could 
have  no  influence  on  price,  was  the  mask  for  changing  the  method 
of  weighing  sugar,  which  in  itself  amounted  to  a  substantial  increase 
in  duty. 

These  examples  by  no  means  cover  the  act.  In  fact  it  is  doubtful 
whether  all  the  tricks  in  the  bill  will  ever  be  discovered.    However, 


PROBLEM  OF  INTERNATIONAL  TRADE  359 

they  are  typical  of  the  kinds  of  tricks  that  are  incorporated  in  the 
American  tariff  bill. 

162.     The  Impossibility  of  Ascertaining  Costs^^ 

BY  H.  PARKER  WILLIS 

The  case  against  the  cost-of-production  theory  as  a  regulator 
of  tariff  duties  may  be  summed  up  in  a  series  of  propositions  some- 
what as  follows : 

1.  In  practice  the  ascertainment  of  costs  is  impossible.  No 
board  of  commission  has  the  power  to  demand  cost  statements  from 
manufacturers  or  producers ;  and  if  it  had,  it  could  not  secure  truth- 
ful statements.  Moreover,  there  is  no  way  of  obtaining  statements 
of  any  kind  from  foreigners. 

2.  Even  if  all  manufacturers  both  here  and  abroad  were  willing 
to  throw  open  their  books  in  an  absolutely  honest  and  impartial 
way  to  an  all-powerful  commission,  it  would  be  of  little  service. 
This  is  because  cost  accounting  is  not  generally  practiced  by  pro- 
ducers and  because,  where  it  is  practiced,  there  is  no  general  agree- 
ment as  to  the  treatment  of  different  elements  of  cost. 

3.  If  there  were  a  perfect  system  of  cost  accounting  installed 
upon  a  uniform  basis  in  every  plant  manufacturing  a  given  article 
throughout  the  world,  knowledge  of  comparative  costs  would  still 
be  of  little  service,  since  costs  in  every  country  would  have  to  be 
known  before  any  conclusions  could  be  arrived  at  as  to  what  tariff 
rate  was  needed  to  protect  a  given  country  against  the  competition 
of  others. 

4.  If  all  these  facts  were  known  for  every  country,  the  diffi- 
culty would  be  about  as  great  as  it  was  previously  if  the  data  were 
to  be  used  for  the  establishment  of  tariff  rates.  This  is  because 
costs  of  production  vary  as  widely  within  a  given  country  as  they 
do  between  different  countries.  Unless  it  were  known  whether  a 
duty  were  to  be  imposed  for  the  purpose  of  equalizing  costs  as 
between  the  best,  the  poorest,  or  the  average  establishments  in  the 
several  countries,  the  information  about  costs  would  be  useless  as  a 
basis  of  tariff  duties. 

5.  Even  with  knowledge  on  all  of  the  points  already  enumer- 
ated, and  with  a  clear-cut  intention  on  the  point  indicated  above, 
the  cost  analysis  would  still  be  inadequate  because  of  the  fact  that 
many  commodities  are  produced  in  groups,  or  as  by-products  of 
one  another,  so  that  to  utilize  the  general  cost  analysis  as  a  basis 

32Adapted  from  an  article  in  the  Journal  of  Political  Economy,  XIX 
(1911),  374-76. 


36o  CURRENT  ECONOMIC  PROBLEMS 

for  tariff  rates,  it  would  be  necessary  to  know  the  manufacturer's 
intention  with  reference  to  the  fixing  of  prices.  It  would  further 
be  necessary  to  know  that  the  manufacturer  had  no  disposition  to 
establish  "export  prices"  at  rates  lower  than  those  that  would  be 
dictated  by  his  costs  of  production. 

6.  If  all  of  the  foregoing  factors  were  known,  including  posi- 
tive data  regarding  the  intention  of  the  manufacturer  in  regard  to 
the  establishment  of  prices,  there  would  still  remain  the  question 
whether  this  information  about  costs,  which  is  necessarily  stated  in 
terms  of  money,  would  have  any  real  significance  of  a  permanent 
economic  character.  Money  costs  do  not  correspond  in  all  cases 
to  real  costs  as  measured  by  sacrifice  of  labor  and  capital.  It  may  be 
true  that  a  given  country  can  produce  much  more  cheaply  than 
another,  yet  it  does  not  follow  that  it  will  so  produce,  since  its  cost 
advantage  in  some  other  line  may  be  so  much  greater  as  to  dictate 
its  devoting  its  attention  almost  exclusively  to  that  line. 

For  all  these  reasons,  the  conclusion  must  be  reached  that  cost 
of  production  is  both  practically  impossible  and  theoretically  un- 
sound as  a  basis  for  the  establishment  of  tariff  duties. 

H.     THE  TARIFF  AND  WORLD-TRADE 
163.     Recent  Changes  in  the  World's  Trade^^ 

BY  GROSVENOR  M.  JONES 

Toward  the  close  of  the  last  century  there  was  apparent  a  decided 
change  in  the  character  of  the  foreign  trade  of  the  United  States 
both  on  the  import  and  the  export  side.  This  was  coincident  with 
the  change  in  the  trend  of  our  economic  development.  It  began  to  ap- 
pear that  we  were  reaching  the  peak  of  our  production  of  wheat,  corn, 
0  \  and  other  grains,  and  that  we  had  about  reached  the  maximum  number 
\  of  cattle  and  sheep  that  could  be  sustained  on  our  lands.  This  condi- 
tion was  reflected  in  a  decrease  of  our  exports  of  farm  products. 
At  this  time  manufactured  goods  began  to  be  exported  in  increasing 
volume  and  there  was  a  corresponding  increase  in  the  importation 
of  raw  materials  and  semi-manufactured  products. 

Even  if  the  war  with  Europe  had  not  occurred  this  shift  in  the 
character  of  our  imports  and  exports  would  have  continued.  It 
would  have  been  accompanied  by  a  gradual  liquidation  of  our  indebt- 
edness to  Europe  which  had  been  created  by  European  investments 

s^Adapted  from  "The  Declining  Independence  of  the  United  States." 
Annals  of  the  American  Academy  of  Political  and  Social  Science,  LXXXIII, 
25-34.    Copyright,  1919. 


PROBLEM  OF  INTERNATIONAL  TRADE  361 

in  the  United  States  and  by  a  rapid  extension  of  investments  of 
American  capital  in  foreign  lands. 

The  war  has  accelerated  these  tendencies  in  foreign  trade  and  has 
produced  conditions  which  are  decidedly  new.  It  has  changed  us 
from  a  debtor  to  a  creditor  nation.  Whereas  we  formerly  owed 
Europe  four  or  five  billions  Europe  is  now  indebted  to  us  to  the 
extent  of  nine  or  ten  billions.  It  has  given  us  increased  financial 
power.    It  has  given  us  a  merchant  marine  which  we  probably  would  ( 

not  have  had  otherwise  for  many  years.    It  has  brought  about  a  more  r,        yH 
rapid  extension  of  our  trade  in  foreign  markets  and  a  better  under— ^^^X*^ 
standing  of  the  importance  of  foreign  trade.     It  has  resulted  in  a 
tremehHous  increase  in  our  production  of  all  classes  of  manufactured 
goods.     It  has  stimulated  new  industries. 

Indirectly  the  war  has  affected  us  by  its  effects  upon  the  economic 
development  of  other  countries.  It  has  altered  their  relative  stand- 
ings in  international  trade  to  the  advantage  of  certain  countries  and 
to  the  detriment  of  others.  The  full  force  of  these  changes  is  diffi- 
cult to  gauge  amid  the  uncertainties  of  the  transition  period.  Not 
until  the  nations  have  begun  to  devote  their  full  energies  to  peace- 
time pursuits  can  forecasts  be  made  with  any  assurance. 

Of  the  nations  of  Europe  none  have  been  affected  more  by  the 
war  than  have  Great  Britain  and  Germany.  While  the  former  has 
lost  heavily  in  ships  and  piled  up  a  huge  debt  which  must  place  a 
heavy  war  burden  upon  her  industries,  the  necessities  of  the  war 
acted  as  a  spur.  The  result  has  been  that  in  many  industries  there 
are  new  and  larger  plants,  more  modern  machinery,  and  more  mod- 
ern methods  of  manufacture.  Great  Britain  is  increasing  and  im- 
proving and  quickening  our  industrial  resources  to  an  extent  which 
would  have  been  impossible  but  for  the  demands  of  the  conflict. 

The  effects  of  the  war  upon  the  economic  conditions  of  Germany 
cannot  be  appraised  with  accuracy  as  yet.  This  much,  however,  is 
certain.  The  terrific  loss  of  men  must  cripple  many  German  indus- 
tries for  years.  The  rehabilitation  of  the  railroads  and  of  plants  in 
which  machinery  was  worked  to  a  feverish  limit  during  the  war  will 
require  several  years  at  least.  Moreover,  the  low  stocks  of  important 
raw  materials  for  which  Germany  is  chiefly  dependent  upon  other 
countries,  coupled  with  her  crippled  financial  position,  must  further 
retard  her  resumption  of  industry.  The  loss  of  the  iron  ore  of 
Lorraine  and  the  coal  supplies  of  the  Saar  Valley  will  also  have  an 
effect.  Add  to  these  the  payment  of  heavy  indemnities  and  the  re- 
linquishment of  most  of  her  merchant  marine,  and  it  seems  clear 
that  it  will  be  years  before  Germany  can  again  assume  an  important 


362  CURRENT  ECONOMIC  PROBLEMS 

place  in  foreign  commerce.  Yet,  freed  from  the  burden  of  main- 
taining large  military  and  naval  establishments  and  with  the  well- 
recognized  organizing  ability  of  her  industrialists  and  the  thrift  and 
energy  of  her  population,  no  one  can  predict  how  soon  Germany  will 
take  an  influential  place  in  international  trade. 

The  effects  of  the  war  upon  the  industries  of  Belgium  and  France 
need  not  be  recounted.  The  numerous  blast  furnaces,  textile  mills, 
machine  shops,  sugar  mills,  and  coal  mines  of  Belgium  and  northern 
France  have  been  either  completely  wiped  out  or  so  badly  damaged 
as  to  require  years  for  making  the  necessary  repairs.  The  fertility 
of  large  areas  of  agricultural  lands  has  been  greatly  impaired  and 
hundreds  of  thousand  of  cattle  and  work  animals  have  been  destroyed 
or  consumed.  The  speed  with  which  Belgium  and  France  are  re- 
stored to  their  former  industrial  position  will  depend  largely  upon 
the  amount  and  character  of  the  indemnities  they  receive  and  upon 
the  financial  assistance  extended  them  by  their  Allies.  Both  peoples 
are  noted  for  their  habits  of  industry  and  thrift.  The  heavy  losses 
in  man  power  will  be  compensated  for,  in  part  at  least,  by  the  modern- 
izing of  industry  and  the  introduction  on  a  large  scale  of  labor-saving 
machinery  and  methods. 

The  industrial  districts  of  Poland,  those  near  Warsaw  in  par- 
ticular, have  suffered  heavily  through  actual  destruction  or  through 
pillage  by  the  Germans.  Many  mills  in  Polish  industrial  centers 
will  not  be  restored  to  their  former  activity  for  many  months  or 
perhaps  years. 

The  economic  rehabilitation  of  Russia  is  doubtless  the  most  un- 
certain factor  in  the  equation.  If  political  conditions  gave  only  a 
slight  promise  of  betterment  within  the  coming  year,  it  would  be  far 
easier  than  it  is  at  present  to  gauge  the  future  of  world-trade.  For, 
under  ordinary  conditions,  Russia  furnishes  a  large  proportion  of 
the  world's  supply  of  grain,  lumber,  hides,  wool,  manganese,  platinum, 
and  other  commodities.  Russia  is  now  a  very  large  but  uncertain 
debtor  to  Great  Britain  and  the  United  States. 

In  some  parts  of  the  world  the  war  acted  as  a  great  stimulus  to 
industry.  Absorption  of  the  leading  countries  of  Europe  in  the  war 
stimulated  agriculture,  mining,  and  manufacturing  elsewhere.  These 
industries  were  stimulated  not  only  in  the  United  States,  but  also  in 
Canada,  many  of  the  Latin-American  republics,  Japan,  China,  India, 
the  Dutch  East  Indies,  and  South  Africa.  The  stimulus  of  war  has 
greatly  increased  the  world's  production  of  many  commodities,  as, 
for  example,  wheat,  corn,  and  rice ;  copper,  lead,  and  zinc ;  iron  and 
steel ;  textiles,  machines  and  meat  products. 


PROBLEM  OF  INTERNATIONAL  TRADE  363 

The  shortage  of  shipping  during  the  war  also  has  had  a  profound 
effect  upon  trade.  The  scarcity  of  ships  necessitated  their  use  on 
the  shortest  routes,  regardless  of  the  cost  of  commodities.  Speed  in 
delivery,  not  price,  was  the  controlling  factor.  Huge  quantities  of 
goods  in  Australian  ports,  although  available  at  prices  far  below 
similar  products  raised  in  the  Angentine  and  the  United  States,  were 
unavailable  because  of  the  scarcity  of  shipping.  Time  was  the 
essence  and  the  nearest  market  was  given  the  preference.  This  has 
had  the  effect  of  establishing  more  direct  routes  for  American  trade. 

Far  from  helping,  the  great  excess  of  value  of  exports  over  im- 
ports, produced  by  the  abnormal  war  demands  of  Europe,  has  be- 
come so  great  as  to  threaten  a  temporary  impairment  of  our  foreign 
trade.  This  comes  just  at  a  time  when  this  trade  is  needed  to  take 
up  the  slack  of  the  after-war  period. 

This  check  need  not  cause  alarm.  It  is  a  natural  reaction  from  the 
long  period  of  extensive  foreign  buying  in  our  markets.  During  the 
war  the  so-called  favorable  balance  of  trade  has  been  liquidated  in 
part  by  the  return  of  several  billions  of  American  securities  and  by 
the  payment  of  more  than  a  billion  dollars  in  gold;  but  an  even 
greater  amount  is  still  due  us  in  the  form  of  British  and  French 
government  loans. 

It  is  clear  that  Europe  cannot  continue  to  import  in  large  volume 
from  the  United  States  without  some  new  financial  arrangements. 
Yet  Europe  must  buy  of  us  large  quantities  of  foodstuffs,  cotton, 
lumber,  hides,  copper,  other  necessary  raw  materials,  iron  and  steel 
products,  and  machinery.  During  the  coming  year  these  purchases 
will  probably  far  outrun  in  value  our  purchases  in  Europe.  How  can 
Europe  liquidate  this  unfavorable  trade  balance  in  addition  to  pay- 
ing five  or  six  hundred  millions  of  dollars  in  annual  interest  on  her 
debt  to  us.  The  factors  enumerated  below  give  the  probable  answer 
to  the  problem  :  ( i )  We  might  invest  largely  in  public-service  and 
industrial  enterprises  in  France  and  Belgium.  (2)  We  might  in- 
crease our  importation  of  raw  materials  or  semi-manufactured  arti- 
cles. (3)  The  resumption  of  travel  in  Europe  would  doubtless  help 
to  restore  the  balance  sheet.  (4)  The  remittances  of  Americans  to 
relatives  and  friends  in  Europe  will  doubtless  be  far  in  excess  of 
sums  sent  in  the  past,  since  there  will  be  large  demands  upon  the 
generosity  of  the  more  fortunate  kinsmen  in  the  Old  World.  Of 
these  devices  that  of  large-scale  investments  in  European  enterprises 
seems  to  be  most  practical  and  most  important. 

The  war,  it  is  clear,  has  changed,  at  least  temporarily,  the  charac- 
ter, extent,  and  direction  of  our  foreign  trade.  While  it  has  freed 
us  from  indebtedness  to  Europe,  it  has  made  us  more  dependent 


364  CURRENT  ECONOMIC  PROBLEMS 

upon  other  parts  of  the  world  for  supplies  of  foodstufifs  and  many 
important  raw  materials.  This  dependence  increases  as  our  popula- 
tion grows,  as  our  manufacturing  industries  become  larger  and  more 
diversified,  and  as  the  costs  of  interior  transportation  in  the  United 
States  become  higher.  In  addition  we  shall  find  it  necessary  to 
receive  interest  payments  on  foreign  investments  and  on  loans  to 
foreign  governments  largely  in  the  form  of  foodstuffs,  raw  materials, 
and  semi-manufactured  goods.  This  will  tend  to  facilitate  importa- 
tion and  to  make  us  more  largely  dependent  upon  other  countries  than 
we  now  are.  Our  proud  boast  of  self-sufficiency  can  be  made  with 
less  assurance  than  formerly. 

164.     The  Increase  in  Shipping^* 

BY  RAYMOND  GARFIELD  GETTELL 

A  few  months  after  the  passage  of  the  act  creating  the  United 
States  Shipping  Board,  the  nation  entered  the  war.  Unrestricted 
submarine  warfare  was  destroying  the  world's  shipping  faster  than 
it  could  be  replaced,  and  the  United  States  was  faced,  not  merely  with 
the  difficulty  of  securing  shipping  space  for  the  accumulation  of 
goods  awaiting  shipment  abroad,  but  also  with  the  problem  of  finding 
facilities  for  transporting  to  Europe  a  large  army  with  all  equipment 
and  supplies.  Under  these  conditions  the  construction  and  acquisi- 
tion of  vessels  and  their  effective  operation  became  paramount,  and 
the  question  of  regulation  of  private  shipping  relatively  unimportant. 
The  war  program  compelled  the  Shipping  Board  to  secure  a  large 
ocean-going  fleet  as  speedily  as  possible. 

Acting  under  the  authority  of  the  Shipping  Act,  the  Shipping 
Board  on  April  16,  191 7,  organized  the  Emergency  Fleet  Corporation, 
and  delegated  to  it  the  execution  of  its  construction  program.  After 
some  delay  the  corporation  began  to  give  contracts  for  what  is  prob- 
ably the  largest  construction  undertaking  ever  attempted  by  a  single 
institution. 

When  the  United  States  entered  the  war  there  were  thirty-seven 
shipyards  building  steel  vessels  in  the  United  States,  and  twenty-four 
yards  building  wooden  vessels.  In  these  yards  were  a  total  of  235 
shipways.  Seventy  per  cent  of  the  ways  of  the  steel  yards  were 
being  used  in  construction  for  the  navy,  and  many  of  the  modern 
yards  were  unfit  for  modern  shipbuilding  purposes.  To  procure  ships 
it  was,  therefore,  necessary  to  expand  existing  yards  and  build  new 

8*Adapted  from  "Shipping  and  World-Politics,"  Atlantic  Monthly, 
CXXIII,  257-60.    Copyright  by  the  Atlantic  Monthly  Co.,  1919. 


PROBLEM  OF  INTERNATIONAL  TRADE  365 

ones.  The  number  of  steel  yards  has  been  approximately  doubled 
and  of  wooden  yards  trebled  since  the  United  States  entered  the 
war.     • 

In  addition,  four  large  agency  yards,  with  196  shipways  for  the 
construction  of  fabricated  steel  vessels  were  built.  These  yards  alone, 
when  in  full  operation,  can  produce  more  tonnage  per  year  than  all 
the  yards  in  any  country  have  produced  in  any  year  up  to  this  time. 
Government  yards  for  the  construction  of  concrete  vessels  were  also 
established.  There  are  now  over  two  hundred  shipyards,  with  more 
than  one  hundred  shipways,  in  the  United  States.  Contracts  provid- 
ing for  more  than  2,000  vessels,  aggregating  15,000,000  dead-weight 
tons,  have  been  given  to  these  yards,  and  completed  vessels  have  been 
turned  out  in  record  time.  The  delivery  of  a  3,500-ton  vessel  ready 
for  service  thirty-seven  days  after  work  was  started  on  it  is  a  sample 
of  the  amazing  achievements  of  our  new  shipbuilding  industry.  Prior 
to  the  war  the  United  States  was  a  poor  third  among  shipbuilding' 
nations.  It  now  ranks  first  in  shipyards,  shipways,  shipyard  workers, 
ships  under  construction,  and  ships  completed  during  the  past  year. 

Meanwhile  the  Shipping  Board  was  given  the  authority  to  take 
over  the  title  or  the  use  of  American  vessels  or  vessels  building  in 
American  shipyards.  On  August  3,  191 7,  all  steel  vessels  of  2,500 
dead-weight  tone  or  over  under  construction  or  under  order  in  Ameri- 
can shipyards  for  private  or  f oriegn  owners,  were  requisitioned.  The 
second  step  involved  the  requisition  of  American  vessels  in  active 
service;  and  on  October  12,  1917,  a  general  requisition  order  was 
issued,  by  which  all  American  steel  power-driven  cargo  vessels  of 
2,500  dead-weight  tons,  or  over,  and  all  American  passenger  vessels 
of  2,500  tons  gross  register,  suitable  for  foreign  service,  were  taken 
over.  Some  of  these  vessels  have  since  been  released  from  requisition 
and  additional  vessels  have  been  taken  by  special  order.  At  present 
there  are  about  450  ships,  aggregating  3,000,000  dead-weight  tons, 
under  requisition  to  the  Shipping  Board.  These  vessels  are  in  general 
intrusted  for  operation  to  companies  by  which  they  were  formerly 
controlled,  but  under  strict  governmental  regulation. 

When  the  United  States  entered  the  war  there  were  interned  in 
the  United  States  and  in  its  island  territories  ninety-nine  German  ves- 
sels of  about  650,000  dead- weight  tons.  A  joint  resolution  of  Con- 
gress authorized  the  President  to  take  possession  of  all  vessels  within 
the  jurisdiction  of  the  United  States  which  were  under  enemy  owner- 
ship or  registry.  This  power  was  conferred  on  the  Shipping  Board 
by  executive  order  June  30,  191 7,  and  the  necessary  steps  were  taken 
by  formal  seizure  to  confirm  possession  of  these  vessels.  A  number 
of  German  and  Austrian  vessels,  seized  by  other  countries,  were  later 


366  CURRENT  ECONOMIC  PROBLEMS 

purchased  or  chartered  by  the  Shipping  Board  and  by  American  citi- 
zens. In  addition  on  March  30,  191 8,  the  President  issued  a  proclama- 
tion which  brought  under  the  control  of  the  Shipping  Board  eighty- 
nine  Dutch  vessels  of  over  500,000  dead-weight  tons. 

In  addition  the  Shipping  Board  has  chartered  about  three  hundred 
vessels  of  over  1,200,000  dead-weight  tons  from  other  countries, 
chiefly  neutral ;  and  American  citizens  have  chartered  about  an  equal 
tonnage  of  foreign  ships.  Arrangements  have  also  been  made  with 
Japaii  for  the  purchase  of  fifteen  completed  ships  of  127,000  tons  and 
for  the  construction  in  Japanese  yards  of  about  fifty  vessels  of  380,000 
tons.  Contracts  have  also  been  let  for  the  construction  of  four  vessels 
in  a  Chinese  shipyard. 

By  these  various  steps  the  Shipping  Board  now  has  under  its 
control  more  than  2,000  vessels,  of  about  10,000,000  dead-weight  ton- 
nage. If  the  construction  program  is  continued  as  planned,  the 
United  States  will  possess  in  1920  a  merchant  marine  of  25,000,000 
tons.  This  is  equivalent  to  one-third  of  the  world's  tonnage  at  the 
outbreak  of  the  war,  and  will  place  the  United  States  abreast  of  Great 
Britain  as  an  ocean  carrier. 

165.     New  Policies  in  Foreign  Trade^* 

BY  WILLIAM  B.  COLVER 

Altered  commercial  conditions  in  international  trade  resulting 
from  the  world-war  have  completely  disarranged  the  world's  com- 
mercial chessboard.  A  regrouping  is  taking  place  whereby  the  rela- 
tive positions  and  spheres  of  influence  of  the  leading  commercial 
countries  are  being  vitally  affected.  This  universal  dislocation  of 
commerce  has  greatly  stimulated  activity  in  foriegn  trade.  Efforts  to 
regain  what  has  been  lost  or  is  being  endangered  by  new  competitors, 
and  to  hold  and  expand  what  has  been  newly  acquired,  surpasses  all 
precedents  in  scope,  in  keenness  of  rivalry,  and  in  systematic  method 
of  endeavor.  A  world-wide  drive  for  foriegn  trade  has  begun.  The 
nature  and  intensity  of  this  can  be  indicated  by  an  enumeration  of 
the  details  which  together  form  the  foreign  trade  policies  which  the 
various  countries  of  the  world  are  now  formulating.  For  our  pur- 
poses the  developing  trade  methods  and  policy  of  Japan  will  serve  as 
a  typical  example. 

The  expansion  of  Japan's  trade  and  industries  during  the  war  has 
been  phenomenal.    Large  orders  for  munitions  from  the  Allies  and 

^^Adapted  from  "Recent  Phases  of  Competition  in  International  Trade," 
Annals  of  the  American  Academy  of  Political  and  Social  Science,  LXXXIII, 
223-48.     Copyright  by  the  Academy,  1919. 


PROBLEM  OF  INTERNATIONAL  TRADE  367 

requirements  from  the  Far  Eastern  countries,  where  the  imports  from 
Germany  had  ceased  to  come,  enHvened  the  export  trade.  The 
scarcity  of  freight  space  throughout  the  world  and  the  abnormal 
chartering  of  Japanese  ships  for  foreign  trade  stimulated  shipbuild- 
ing. The  sudden  shortage  of  imported  chemico-industrial  products 
and  of  machinery  caused  new  enterprises  in  those  lines  to  spring  up 
at  home.  Lastly,  the  great  accumulation  of  funds  facilitated  the 
expansion  of  commercial  and  industrial  activities. 

Japanese  business  men  were  quick  to  recognize  the  opportunities 
open  to  them  in  foreign  markets.  In  a  systematic  way  and  backed  by 
their  government,  a  well-organized  trade  machinery  was  established 
with  the  result  that  the  value  of  the  total  exports  from  that  country 
was  trebled  in  1918  as  compared  with  1913. 

During  the  war  Japan's  exports  of  cotton  cloth  have  been  multi- 
plied five-fold  in  value.  The  government  recognizes  that  if  newly 
gained  markets  are  to  be  retained,  the  quality  of  Japanese  cotton 
cloths  must  bear  comparison  with  that  of  cloths  of  British  and  other 
production.  Japanese  manufacturers  will,  therefore,  be  required  by 
the  government  to  keep  their  exports  up  to  a  fixed  high  standard. 
The  Department  of  Agriculture  and  Commerce  announced  recently 
that  a  scheme  was  in  preparation  for  the  formation  of  an  association 
of  textile  manufacturers,  which  would  be  charged  by  the  government 
with  strict  supervision  over  goods  woven  for  export.  The  association 
will  also  examine  such  goods  through  inspection  committees,  and 
bounties  will  be  granted  by  the  government  to  bear  part  of  the  cost  of 
conditioning  exports. 

In  Japan  the  subsidizing  of  commerce  is  practiced  on  a  larger 
scale  than  in  other  countries.  During  the  past  four  years  this  policy 
has  been  pursued  with  an  increased  vigor,  particularly  in  connection 
with  those  industries  which  are  calculated  to  net  large  increases  in 
foreign  trade.  Under  a  special  law  enacted  in  191 5  the  government 
is  authorized  to  give  financial  aid  to  the  dyestuffs  industry.  A  de- 
termined attempt  is  being  made  to  introduce  Japanese  dyes  in  the 
markets  of  the  Far  Eastern  countries.  Japan  supplies  about  28  per 
cent  of  the  total  world's  consumption  of  silk.  Approximately  one- 
third  of  her  total  exports  prior  to  the  war  consisted  of  raw  silk.  Com- 
prehensive plans  have  been  made  to  foster  this  trade. 

The  expansion  of  her  merchant  marine  has  been  consistently 
advocated  in  Japan's  foreign  trade  policy.  During  the  war  shipbuild- 
ing has  been  promoted  by  all  possible  means,  and  governmental  sub- 
sidies have  been  freely  extended  for  this  purpose.  Japanese  vessels 
now  run  on  four  great  routes  to  Europe,  North  America,  South 
America,  and  Australia.  There  are  also  lines  plying  between  Japanese 


368  CURRENT  ECONOMIC  PROBLEMS 

ports  and  Korea,  Northern  China,  and  nine  ports  on  the  Yangtse- 
kiang.  The  Japanese  government  exercises  strict  supervision  over 
shipping. 

The  Japanese  banks  are  active  forces  in  the  foreign  trade  ma- 
chinery. The  Yokohoma  Specie  Bank,  for  instance,  had  its  charter 
modified  in  order  to  enlarge  its  foreign  trade  department.  Other 
banks  are  also  extending  their  operations  at  home  and  abroad,  and 
are  giving  financial  help  to  shipping  undertakings.  At  present  they 
are  giving  attention  to  the  mineral  resources  of  China.  They  are 
also  reported  to  be  considering  the  establishment  of  electrical  under- 
takings in  the  interior  of  China  with  Japanese  money,  machinery,  and 
engineers. 

Recently  the  keenness  of  the  Japanese  has  been  apparent  in  the 
systematic  way  in  which  they  are  extending  trade  with  the  countries 
round  about.  A  commercial  museum  is  to  be  established  at  Singapore 
with  the  object  of  extending  trade  through  that  center.  Not  only  will 
merchandise  be  exhibited,  but  investigations  relating  to  trade  and 
commerce  will  be  undertaken.  The  museum  is  intended  to  become 
a  central  base  of  Japan's  commercial  operations  in  that  part  of  the 
world.  The  establishment  of  similar  institutions  is  contemplated  in 
due  course  of  time  at  other  places. 

This  single  example  is  typical  of  the  world-wide  preparations  for 
post-war  competition  in  international  trade.  An  analysis  of  the  whole 
situation  makes  it  appear  that,  in  the  future,  competition  in  the 
world's  markets  will  be  carried  along  difiEerent  lines  than  in  the  past. 
Improved  methods  of  trade  expansion  and  new  policies  of  trade 
strategy  have  been  introduced.  A  much  greater  degree  of  solidarity 
of  commercial  interests  has  been  brought  about  through  the  forma- 
tion of  trade  associations  and  combinations  of  manufacturers  and 
exporters.  Through  various  forms  of  participation  in  industry,  espe- 
cially by  granting  subsidies,  new  domestic  interests  have  been  firmly 
established.  By  means  of  bank  amalgamations  and  through  inter- 
lacing directorates  huge  agglomerations  of  capital  have  been  effected. 
International  promoting  companies  have  been  formed  for  acquiring 
and  developing  mining,  transportation  and  other  concessions  in  for- 
eign countries. 

In  view  of  this  situation  the  demand  of  the  hour  aeems  to  point 
out  the  need  of  constructive  action  on  an  international  basis  for  the 
future  protection  of  commerce  and  trade.  A  new  international  code 
of  regulations  for  the  protection  of  industrial  property  against  unfair 
methods  of  competition,  dumping,  infringements  of  patents  and 
trade-marks,  and  potent  means  for  enforcing  agreements  of  this  kind 
through  an  international  tribunal  of  commerce  and  trade,  may  prove 


PROBLEM  OF  INTERNATIONAL  TRADE  369 

to  be  one  of  the  most  important  instruments  for  preventing  friction 
and  promoting  good-will  in  the  commercial  theater  of  the  world. 

166.     Export  Associations^^ 

"Export  Associations,"  as  they  were  conceived  by  those  who 
devised  the  Webb-Pomerene  Act,  signed  by  the  President  on  April  10, 
1918,  are  groups  of  competing  manufacturers,  producers,  or  other 
business  concerns.  They  could  not  get  together  before  in  a  formal 
business  agreement  because  of  the  Sherman  Antitrust  Law.  Now 
they  are  permitted  to  form  a  special  kind  of  corporation  or  company, 
with  a  charter  obtained  from  any  of  the  states  in  the  usual  way.  They 
can  engage  in  foreign  trade  in  combination  without  fear  of  prosecu- 
tion under  the  antitrust  laws  unless  they  resort  to  obviously  unfair 
practices.  They  cannot  use  their  association  to  affect  any  kind  of 
rontrol  of  business  in  the  United  States. 

Probably  the  most  typical  export  association  already  incorporated 
is  the  Copper  Export  Association.  The  whole  nation  has  a  business 
interest  in  permitting  the  copper  producers  to  get  together  and  meet 
as  a  unit  organization  the  buying  combine  of  Europe.  Oven  ten  years 
ago  the  European  trust  of  copper  buyers  took  advantage  of  the  unor- 
ganized copper  producers  of  this  country,  forbidden  as  they  were  to 
join  in  any  policy  of  price-control.  As  a  result  American  copper  was 
obtained  by  European  manufacturers,  delivered  in  Europe,  at  nearly 
half  a  cent  a  pound  below  the  American  market  price  which  our 
manufacturers  paid.  In  America  competition  was  enforced  upon 
sellers  and  buyers.  In  Europe  buyers  could  combine  in  their  cam- 
paign and  use  our  enforced  competition  to  their  advantage.  The 
Copper  Export  Association,  consisting  of  fourteen  American  corpora- 
tions, which  do  no  export  business  except  through  their  association, 
makes  the  price  for  the  foreign  buyers.  Already  export  copper  prices 
are  higher  than  domestic. 

This  is  the  typical  export  association  contemplated  by  the  f  ramers 
of  the  law.  It  is  a  "horizontal"  combination  of  business  concerns 
which  produce  or  manufacture  the  same  goods  and  are  competitors 
for  the  business  within  the  United  States.  They  are  forbidden  by 
the  Sherman  Act  to  do  anything  to  control  domestic  prices  or  dis- 
tribution. In  keeping  with  the  Webb-Pomerene  Act  they  have  ac- 
complished a  complete  merger  of  all  their  foriegn  business. 

There  is  another  kind  of  combination  which  it  has  all  along  been 
believed  to  be  legal  under  the  Sherman  Act.    This  is  the  "perpendicu- 

3«Adapted  from  an  unsigned  article  entitled  "Beginning  the  Merger  Period 
of  World-Wide  American  Business,"  The  Americas,  V  (No.  5),  1-3.  Copy- 
right by  the  National  City  Bank  of  New  York,  1918. 


370  CURRENT  ECONOMIC  PROBLEMS 

lar"  or  "tandem"  combination  of  producers,  manufacturers,  or  mer- 
chants of  lines  of  goods  which  are  not  directly  competitive,  but  are  in 
the  same  "line,"  and  together  make  up  complete  lines  or  assortments 
of  merchandise.  The  International  Paper  Export  Association  was 
this  kind  of  "perpendicular"  combination  and  did  business  abroad 
for  several  years.  It  contained  one  newsprint  manufacturer,  one 
writing-paper  manufacturer,  etc.,  and  no  competitors.  It  was  able  to 
offer  to  foreign  customers  any  kind  of  paper  product  they  needed,  and 
enjoyed  all  the  economies  of  a  selling  organization  made  possible  by 
this  arrangement.  It  is  not  now  certain  whether  this  kind  of  combina- 
tion can  continue  without  coming  under  the  terms  of  the  Webb- 
Pomerene  Act. 

The  adoption  of  the  new  law  has  advertised  all  over  the  country 
the  advantages  of  formal  combination  in  conducting  foreign  business. 
As  a  result  it  seems  evident  that  our  coming  effort  for  export  busi- 
ness will  consist  largely  of  highly  organized  combination,  amounting 
in  some  cases  to  "super-organization,"  of  grouped  business  interests. 
We  are  on  a  wave  of  consolidation  and  merger  as  applied  to  develop- 
ing foreign  trade.  This  is  very  much  like  the  beginning  of  our  great 
period  of  industrial,  railway,  banking,  and  commercial  combination 
of  twenty  years  ago. 


I.  TRADE  AND  THE  PEACE  OF  THE  WORLD 

167.     Protection  and  the  National  Defense^^ 

Until  a  few  months  ago  it  was  conventional  to  insist  that  even  the 
partial  free  trade  which  has  been  attained  in  the  Western  World  has 
caused  the  war-drum  to  throb  no  longer.  The  argument  was  rational, 
and  since  it  was  assumed,  for  some  unknown  reason,  that  man's 
actions  were  rational,  it  was  quite  convincing.  It  ran  something  like 
this :  The  actions  of  nations,  like  those  of  individuals,  are  premised 
upon  a  desire  to  realize  the  highest  measure  of  material  welfare. 
States  are,  therefore,  likely  to  do  those  things  which  lead  to  an  in- 
crease in  welfare,  and  to  leave  undone  those  things  which  seriously 
threaten  it.  Now  commerce  ties  industrial  countries  together  with 
bonds  of  common  pecuniary  interests.  So  close  are  these  and  so 
intricate  is  the  scheme  of  pecuniary  interests  which  is  created,  that 
anything  which  breaks  the  commercial  nexus  seriously  threatens  the 
profits  and  material  welfare  of  capitalists  and  laborers  alike  in  many 
industries  in  many  countries.     Because  these  relations  are  not  of 

3''An  editorial  (1915). 


PROBLEM  OF  INTERNATIONAL  TRADE 


371 


dependence,  but  rather  of  interdependence,  nations  cannot  afford  to 
fight.  The  antipathy  to  fighting  is  strengthened  by  the  prominence 
of  commercial  opinion  in  determining  national  poHcy.  On  the  con- 
trary the  gains  from  war  are  illusory.  Increases  in  territory  are 
nominal  rather  than  real.  They  are  attended  by  no  great  increase 
in  material  welfare.  Indemnities  do  not  repay  their  cost  of  collec- 
tion. Loot  is  a  breach  of  the  ethics  of  warfare.  Consequently  the 
partial  free  trade  of  the  present  is  an  excellent  investment  in  peace 
insurance. 

Unfortunately,  however,  the  events  of  the  last  few  months  have 
proved  that  the  wisdom  of  nations  does  not  reside  in  the  rational 
calculations  of  ledgers.  The  pecuniary  fact  has  as  yet  completely 
conquered  neither  the  statesman  nor  the  man  in  the  street  sufficiently 
to  make  economics  the  basis  of  national  action.  Instinct  and  impulse 
are  still  associated  with  rationality  in  political  judgment.  Race  and 
creed  and  politics  are  still  matters  of  concern.  The  pocketbook  has 
not  mastered  hate,  and  the  bank-ledger  has  not  as  yet  won  the  victory 
over  jealousy.  Accordingly,  the  European  conflict  teaches  quite 
clearly  that,  whatever  may  be  rational,  there  is  more  than  a  possi- 
bility that  a  nation  may  find  itself  suddenly  at  war. 

The  supreme  national  duty,  then,  is  to  be  ready  for  war.  In  this 
preparation  the  tariff  policy  is  a  matter  of  the  greatest  moment. 
Clearly,  whatever  may  be  our  disadvantage,  it  will  not  do  to  depend 
upon  a  foreign  source  of  supply  for  munitions  of  war.  A  navy  alone 
may  stand  between  us  and  that  source.  Should  the  fleet  be  defeated, 
there  would  be  no  chance  for  us  to  save  ourselves.  But  only  a 
moment's  reflection  is  necessary  to  show  that,  even  if  we  manufacture 
our  own  munitions,  it  is  equally  necessary  that  we  produce  the  raw 
materials  out  of  which  they  are  to  be  niade.  The  cutting  off  of  a 
single  essential  raw  material  would  prove  fatal.  To  munitions  must 
be  added  all  that  long  list  of  articles  which,  under  modern  conditions, 
are  essential  to  the  successful  conduct  of  the  war.  Soldiers,  if  they 
are  expected  to  win  battles,  must  be  properly  fed,  clothed,  and  housed. 
We  can  depend  upon  the  caprice  of  import  for  no  article  essential  to 
their  personal  efficiency.  We  must  also  have  many  auxiliary  articles 
and  devices  upon  which  the  success  of  the  force  as  a  fighting  unit 
depends.  These  include  horses,  automobiles,  gasoline,  copper,  steel, 
drugs,  chemicals,  and  innumerable  other  things.  Our  transportation 
system,  too,  must  be  prepared  to  meet  military  exigencies.  In  short, 
war  practically  involves,  as  it  is  carried  on  under  the  modem  machine 
process,  making  the  whole  industrial  system  function  toward  military 
efficiency.  War  comes  unexpectedly.  An  industry,  on  the  contrary, 
cannot  be  quickly  started.    Time  and  experimentation  are  necessary 


372  CURRENT  ECONOMIC  PROBLEMS 

to  make  it  fit  into  a  complicated  industrial  scheme.  Consequently  in- 
dustries which  supply  every  essential  article  required  in  war  must  be 
built  up  to  high  efficiency  in  time  of  peace.  At  best  we  can  expect  only~ 
a  few  industries  to  be  built  up  in  just  the  right  way  in  response  to  the 
capricious  demand  of  pecuniary  profit.  A  use,  and  a  very  extensive 
use  of  protection  is,  therefore,  necessary  to  prepare  a  nation  for  the 
acute  stress  that  may  mean  life  or  death. 

168.     The  Future  of  Trade  and  Peace^* 

BY  J.  RUSSEL  SMITH 

The  pictured  world  of  almost  countless  comfortable  millions,  with 
plenty  of  goods,  developing  trade,  education,  the  arts,  and  the  great 
art  of  living,  can  only  inhabit  the  earth  if  we  can  banish  from  it  per- 
manently several  conspicuous  characters  of  history — Captain  Kidd, 
Alexander,  Caesar,  Tamerlane,  the  Kaiser.  Those  accursed  twins, 
the  pirate  and  the  conqueror,  one  using  government  as  a  sham,  the 
other  boldly  flouting  it,  are  the  archenemies  of  world-peace.  History, 
if  we  take  the  record  of  the  race  in  perspective,  is  a  sad  chronicle  of 
almost  unending  marauding  conquest.  Civilizations  have  risen  only 
to  fall  before  the  smashing  blow  of  some  vigorous  band  of  rovers. 
Organized  society  only  arises  in  spots  easy  of  protection  and  sur- 
vives for  a  time  until  attack  from  the  outside  becomes  stronger  than 
defense  from  within. 

The  world  is  one.  It  is  one  in  trade ;  it  must  also  become  one  in 
government.  The  most  serious  question  just  at  present  facing  the 
human  race  is  this :  whose  government  shall  it  be  ?  Shall  we  have 
a  recurrence  of  world-empire,  world-dominion,  world-obedience, 
world-tribute,  world-submission,  or  shall  we  have  a  democracy  of 
peoples,  each  free  to  develop  its  bit  of  the  earth,  to  perfect  its  own 
way  of  doing  things,  to  trade  with  its  neighbors,  to  live  as  do  the 
citizens  of  any  other  well-ordered  community — tending  their  gardens, 
training  their  children,  buying  and  selling,  coming  and  going  obedient 
to  no  one,  or  to  no  class,  but  obedient  to  the  will  of  all  ? 

Our  thinking  must  grow  up.  We  have  developed  world-trade, 
world-investment,  world-enterprise.  Enterprise  must  not  run  loose 
and  uncontrolled  because  it  is  bigger  than  man's  mind,  or  rather 
bigger  than  man's  habit  of  thinking.  We  have  been  trying  to  run 
twentieth-century  business  with  seventeenth-century  thinking.  Our 
mental  concepts,  our  mental  content,  our  mental  habits  are  of  an  age 
long  past.    We  can  make  a  scientific  machine  in  five  years  and  put 

38Adapted  from  Influence  of  the  Great  War  Upon  Shipping,  pp.  342-50. 
Copyright  by  the  Carnegie  Endowment  for  International  Peace,  1919. 


PROBLEM  OF  INTERNATIONAL  TRADE  373 

it  to  work,  but  it  is  a  slow  job  to  readjust  society  to  it.  We  must 
develop  world-thinking  and  world-government  to  match  world-enter- 
prise, or  suffer.  Just  as  the  thirteen  states  relinquished  the  possibility 
of  exploiting  each  other  through  war,  tariff,  trade,  and  financial 
disagreement,  so  the  nations  of  the  world,  if  they  would  keep  the 
peace,  must  stop  the  exploitation  of  one  regional  group  of  people 
by  another. 

To  make  this  world-organization  survive  several  conditions  are 
necessary.  First,  all  must  have  access  to  the  sea.  There  must  be  no 
more  question  about  the  right  of  a  people  to  have  free  access  to  the 
sea  than  there  is  about  the  right  of  a  man  to  have  free  access  to  the 
public  street  or  road.  Second,  we  must  reduce  the  temptations  to 
war.  War  arises  out  of  two  desires ;  one  the  lust  of  dominion,  and 
the  other  the  desire  for  special  privilege  upon  the  face  of  the  earth. 
Especially  dangerous  is  the  white  man's  desire  to  keep  his  land  white 
and  to  exclude  the  yellow  man  and  the  black  man.  This  exclusion 
rests  on  force ;  yet  it  is  one  of  the  things  we  hold  most  dear.  If  we 
will  insist  upon  it,  as  perhaps  we  shall,  we  must  mitigate  it  as  far 
as  possible  by  the  abolition  of  tariffs.  The  free  exchange  of  com- 
modities will  do  much  to  share  the  advantages  of  exclusive  posses- 
sion of  territory  and  reduce  the  need  which  yellow  men  of  densely 
peopled  lands  feel  for  the  empty  lands  of  the  white  man. 

International  trade  policy  thus  becomes  one  of  the  great  cares  of 
those  who  reorganize  the  world  for  peace.  Tariffs  are  the  chief 
factor  in  trade  policy.  Fortunately,  of  the  two  reasons  for  tariffs  rec- 
ognized by  economists,  one  is  passing  by  a  process  of  legislation  and 
the  other  will  be  gradually  and  automatically  removed  in  exact  pro- 
portion to  the  strength  of  a  league  to  enforce  peace.  These  two 
reasons  for  the  tariff  are  (i)  the  necessity  of  starting  infant  in- 
dustries and  (2)  industrial  completeness  necessary  for  war.  As  to 
the  first,  if  the  tariff  policy  aims  merely  at  a  protection  of  infant 
industries  during  the  period  of  infancy,  it  should  be  the  cause  of 
no  friction. 

The  second  argument  for  tariffs  is  the  more  potent  one.  There 
is  almost  no  limit  to  its  application  now  that  war  has  become  so  in- 
dustrial. Along  with  this  idea  we  should  never  lose  sight  of  the  fact 
that  all  economists  recognize  in  the  tariff  a  factor  increasing  the  cost 
of  living  in  the  country  possessing  it.  The  tariff,  except  as  a  starter 
of  new  industries,  tends  to  impoverish ;  conversely,  free  trade  tends 
to  enrich  by  giving  the  importing  country  the  advantage  of  the  spe- 
cialization that  may  be  developed  in  all  other  countries. 

At  the  present  moment  the  pains  and  perils  of  the  Great  War  have 
served  to  emphasize  the  importance  of  tariffs  as  factors  aiding  the 


374  CURRENT  ECONOMIC  PROBLEMS 

industrial  completeness  necessary  to  national  defense.  We  have, 
however,  already  passed  the  point  of  the  possibility  of  this  as  a  gen- 
eral policy  for  the  nations  of  the  world.  We  have  developed  popula- 
tion and  trade  too  far;  industry  and  war  have  become  too  complex 
for  any  nation  to  hope  to  be  commercially  independent,  even  if  its 
variety  of  resources  is  as  great  as  that  of  this  country.  Everyone 
knows  that  England  and  Holland,  France  and  Norway  are  dependent 
upon  the  sea ;  but  so  also  is  the  United  States.  Our  steel  industry, 
with  its  whole  great  class  of  war  supplies,  can  be  ruined  by  cutting 
off  imported  ores  used  in  hardening  steel. 

Tariffs  cannot  make  us,  even  in  the  United  States,  independent  in 
war,  although  if  deliberately  used  for  that  purpose  they  could  make 
us  nearly  independent,  but  at  a  great  cost  through  high  living  ex- 
penses and  inefficient  industry. 

Every  year  science  is  making  military  completeness  less  possible, 
attack  more  deadly,  and  isolation  more  impossible.  The  past  is  gone, 
along  with  it  isolation  is  also  gone.  The  world  has  given  hostage  to 
peace.  Our  century  of  world-trade  has  already  developed  the  degree 
of  independence  of  nations  and  dependence  on  the  sea  and  ships, 
whereby  we  are  compelled  to  maintain  this  commerce  or  lapse  back 
to  a  past  epoch  of  small  population  or  obedience  to  some  tyrant.  We 
must  unite  in  world-organization  with  a  free  sea  permitting  world- 
trade,  or  start  into  an  epoch  of  militarism  with  the  menace  of  being 
united  by  some  world-conqueror  taking  a  rich  world-tribute. 

We  cannot  hope  to  remove  from  man  the  lust  of  world-dominion, 
but  we  can  do  much  to  remove  from  it  an  admixture  of  the  desire  for 
land  and  the  desire  for  trade  privilege.  We  cannot  hope  to  remove 
land  hunger,  but  we  can  gradually  dull  the  appetite  by  establishing 
freedom  of  trade,  which  will  still  leave  peoples  free  to  develop  their 
own  special  conditions.  By  this  mitigation  of  desire  we  have  some 
chance  of  organizing  the  world  so  that  it  may  be  able  to  suppress  the 
lust  of  dominion  and  this  modified  land  hunger. 

169.     The  Cult  of  National  Self-Sufficiency^^ 

BY  EDWIN  CANNAN 

The  cult  of  national  self-sufficiency  is  incompatible  with  peace, 
since  it  must  inevitably  render  warfare  perpetual  by  making  it  neces- 
sary for  each  nation  to  grab  territory  which  contains  the  source  of 
some  product  which  it  has  not  got  in  its  existing  territory  and  which 

^^Adapted  from  "The  Influence  of  the  War  on  Commercial  Policy,"  pp. 
44-45,  "Reorganization  of  Industry  Series,"  III.  Published  by  the  Council  of 
Ruskin  College,  London,  1017. 


PROBLEM  OF  INTERNATIONAL  TRADE  375 

it  must  have  in  order  to  be  self-sufficient.  We  have  seen  a  little  of 
this  already ;  it  would  be  more  and  more  serious,  the  more  intense 
the  worship  of  self-sufficiency.  Supposing  the  bigger  empires  man- 
aged to  settle  down  to  an  uneasy  peace,  what  would  become  of  the 
smaller  countries  ?  What  is  to  become  of  Denmark,  Sweden,  Portu- 
gal, when  the  big  countries  reached  a  high  degree  of  self-sufficiency 
and  would  not  deal  with  them?  They  must  join  the  bigger  countries, 
and  soon  there  would  be  only  two  or  three  great  powers  in  the  world 
which,  after  a  second  or  third  Armaggedon,  would  be  reduced  to  one 
by  some  struggle  for  the  source  of  some  indispensable  article. 

Such  arguments  may  seem  telling  enough  in  the  countries  which 
are  too  small  to  allow  the  lust  of  power  to  flourish.  But  in  the  greater 
empires  they  are  likely  to  fall  on  deaf  ears  so  long  as  the  present 
state  of  sentiment  prevails.  In  each  of  these  people  will  be  found  to 
believe  that  their  own  country  is  the  best  situated  for  the  struggle. 
In  the  large  scattered  empire  of  which  the  parts  are  separated  by 
long  distances  over  sea,  people  think  they  can  best  be  independent  of 
outside  supplies  because  their  dominions  extend  into  every  zone  of 
temperature  and  include  every  kind  of  soil.  In  the  smaller  but  com- 
pact empire  the  weaknesses  of  the  larger  but  more  scattered  one — 
its  liability  to  succumb  to  submarine  attack  for  example — are  clearly 
perceived,  and  it  is  hoped  that  the  more  compact  area  will  win  through 
with  the  aid  afforded  by  science  in  providing  substitutes  for  imported 
products.  So  long  as  the  question  is  considered  from  a  purely  na- 
tional point  of  view,  and  so  long  as  patriotism  is  confounded  with 
contempt  and  hatred  of  other  nations,  we  may  doubt  if  argument 
directed  to  show  the  suicidal  character  of  the  gospel  of  self-sufficiency 
will  have  much  effect  in  the  greater  countries.  When  two  men 
desirous  of  killing  each  other  are  locked  together  in  the  water,  it  is 
not  much  use  to  tell  them  to  let  go  if  each  thinks  the  other  will  drown 
first. 


VIII 
THE  PROBLEM  OF  RAILWAY  REGULATION 

In  a  machine  system  continental  in  extent  and  embracing  a  varied  host  of 
correlated  industrial  activities  the  railroad  occupies  a  position  of  strategic 
importance.  Through  it  the  vast  and  intricate  gear  of  "the  industrial  machine" 
is  made  to  "engage."  Its  rates,  by  influencing  costs  and  prices,  perform  im- 
portant services  in  the  organization  and  direction  of  industry.  It  is  inevitable, 
therefore,  that  we  should  have  "a  railroad  problem"  which  three  considerations 
impel  the  public  to  keep  alive.  First,  the  railroad  is  an  industrial  unit  of 
large  size;  and  in  a  country  steeped  in  the  conventions  of  competition,  the 
giant  is  always  under  suspicion.  Second,  the  business  tends  to  be  monopo- 
listic ;  and  to  monopoly  the  public  imputes  not  only  horns  and  forked  tail, 
but  a  capacious  maw  as  well.  Third,  it  is  an  instrument  possessed  of  great 
powers  of  industrial  control;  for  through  its  "manipulation"  of  rates  it  can 
cause  industry  to  flourish  or  fade ;  it  can  give  to  industrial  development  a 
"natural"  or  an  untoward  direction.  These  considerations  have  caused  the 
problem  to  wear  a  constant  freshness  which  comes  from  its  varied  and  never- 
ending  sequel. 

When  "railroads  were  new"  our  people  were  thoroughly  imbued  with 
individualism.  Firmly  convinced  were  they  that  one  should  have  what  he 
earned,  and  that  he  earned  "what  he  got."  They  were  satisfied  that  in  com- 
petition the  public  possessed  an  adequate  safeguard.  They  did  not  hesitate  to 
pronounce  "regulation"  "meddlesome  interference"  and  to  characterize  the 
almost  unthinkable  proposal  of  government  ownership  as  "socialistic."  But 
they  had  no  adequate  conception  of  the  nature  of  the  railroad  industry.  They 
did  not  see  that  railway  economy  requires  monopoly;  that  the  proper  per- 
formance of  its  services  requires  the  business  to  be  endowed  with  public 
powers ;  that  costs  of  particular  services  cannot  be  isolated  to  do  duty  as 
bases  for  particular  rates;  and  that  "normally  the  industry  is  in  a  stage  of 
increasing  returns." 

These  economic  characteristics  of  the  industry,  quite  in  opposition  to 
popular  theory,  have  determined  our  policy  in  dealing  with  it.  We  have 
found  that  attempts  to  fix  rates  by  competition  have  resulted  in  alternate  pe- 
riods of  high  and  low  charges,  in  fluctuating  dividends  and  prices  of  secur- 
ities, in  speculation  and  "railroad  wrecking,"  in  unpredictable  items  of  future 
cost,  introducing  elements  of  grave  risk  into  every  business  enterprise.  We 
have  been  confronted  with  abundant  testimony  of  discriminations  in  favor  of 
large  shippers  and  particular  localities ;  and  have  concluded  that  "unreasonable 
rates"  were  interfering  with  the  "natural"  course  of  development  and  were 
favoring  monopoly.  And  more  than  once  we  have  suspected  that,  because  of 
its  peculiar  position,  the  railroad  was  inclined  to  charge  too  much.  These 
observations  we  have  translated  into  problems,  which  through  the  state,  we 
have  tried  to  solve. 

A  protracted  and  unpleasant  experience  has  convinced  us,  slowly  to  be 
sure,  that  the  problem  cannot  be  solved  in  terms  of  competition.  We  have 
never  been  quite  willing  formally  to  renounce  so  efficacious  an  instrument  of 
salvation ;  but,  unconventionally  at  any  rate,  we  have  little  by  little  quit  trying 
to  make  the  railroads  compete. 

Primarily,  perhaps,  because  discrimination  appeals  to  us  as  unjust,  we 
have  given  our  attention  to  the  problem  of  preventing  interference  with  the 
"natural"  course  of  development.     This  problem  is  still  in  process  of  solu- 

376 


PROBLEM  OF  RAILWAY  REGULATION  377 

tion.  The  outlawing  of  rebates  has  brought  forth  an  almost  infinite  variety 
of  ingenious  substitutes.  As  these  have  been  relegated  to  outer  darkness  their 
places  have  been  taken  by  others.  After  many  years  of  strenuous  effort  we 
have  not  as  yet  succeeded  in  ridding  ourselves  of  this  "evil."  In  fact,  it  seems 
that  its  extirpation  can  be  achieved  only  by  a  careful  supervision  of  such 
matters  as  billing,  the  collection  of  claims,  the  making  of  purchases,  etc.  At 
present  many  discriminations  are  concealed  in  differences  in  service.  We  are 
realizing  this,  and  service  is  beginning  to  be  standardized  by  governmental 
authority. 

The  problem  of  the  railroad  as  a  monopoly  is  also  "in  solution."  The 
grant  to  the  Interstate  Commerce  Commission  of  authority  to  set  aside  par- 
ticular rates  soon  grew  into  the  power  to  prescribe  whole  schedules  of  rates. 
With  this  process  has  come  many  new  "problems."  To  prescribe  "reasonable 
rates,"  the  Commission  has  had  to  know  costs.  To  determine  these,  it  has 
been  compelled,  with  the  assent  of  Congress,  to  prescribe  uniform  accounting 
systems.  The  problem  has  further  involved  a  determination  "of  what  the 
investment  would  bear."  This  has  necessitated  an  evaluation  of  the  railroad 
properties  of  the  country,  an  undertaking  that  will  not  be  completed  for  many 
years.  The  intention,  underlying  this  appraisal,  is  to  limit  profits,  by  a 
limitation  of  rates,  to  a  reasonable  return.  To  quite  a  different  effect,  soon 
after  the  European  war  began,  the  "eastern  railroads"  were  granted  permis- 
sion to  raise  rates,  their  plea  being  one  of  insufficient  profit.  Together  these 
things  are  indications  of  the  development  of  a  policy  of  limiting  railroad 
dividends  to  a  "fair  figure"  and  of  guaranteeing  this  modest  income. 

Before  this  line  of  development  had  run  its  course  and  the  outlines  of 
future  railroad  policy  were  assured,  several  unexpected  factors  entered  to 
confuse  both  of  these  problems.  Before  we  entered  the  war  the  country  was 
confronted  with  an  increased  demand  for  transportation  facilities;  greatly 
increased  prices  for  terminals,  extra  tracks,  and  other  extensions  and  im- 
provements ;  great  difficulty  in  finding  private  capital  for  such  expansion  of 
service ;  and  rapidly  mounting  costs  of  items  getting  into  "operating  costs." 
The  war  brought  an  increased  demand  for  service,  increased  cost  of  operation, 
and  the  necessity  of  a  unified  operation  of  railway  properties  under  govern- 
mental control.  The  requirements  of  service  forced  substantial  wage  increases 
as  a  means  of  keeping  labor  in  competition  with  war  industries.  The  demands 
found  a  passing  solution  in  what  is  roughly  described  as  "the  government's 
taking  over  the  railroads"  but  what  in  reality  is  private  operation  under  mild 
federal  supervision  with  an  assumption  of  all  the  risks  of  the  business  by  the 
government. 

As  a  result  there  has  come  a  change  in  the  terms,  if  not  the  form,  of  the 
railway  problem.  Some  plan  must  be  found  for  returning  the  railroads  to 
private  owners.  Some  scheme  of  supervision  must  be  devised  to  insure  unity  of 
operation  and  adequacy  of  service  from  them.  Roads  strategically  situated 
must  be  limited  to  a  reasonable  return  on  their  investments.  Roads  socially 
necessary  but  with  less  favorable  strategic  positions  must  be  given  an  adequate 
guaranty  of  earnings.  A  plan  must  be  devised  for  insuring  funds  sufficient 
to  provide  transportation  service  for  an  expanding  and  developing  country. 
Disputes  over  wages  and  hours  must  be  settled  without  impairing  the  service 
furnished  by  the  carriers.  Together  these  problems  constitute  the  railway 
problem  of  the  future,  but  they  make  of  it  a  somewhat  different  problem. 

These  implications  of  legislation,  of  administration,  of  war  control,  of 
industrial  policy  deserves  more  than  passing  notice.  Our  devotion  to  individual- 
ism is  still  strong;  our  faith  in  the  efficacy  of  competition,  even  if  shaken  a 
bit,  is  still  firm ;  we  still  refuse  to  discuss  government  ownership  as  a  practical 
question.  But  despite  all  this,  we  have  created  a  system  of  government  regula- 
tion which  involves  supervising  accounts,  evaluating  property,  fixing  rates,  and 
standardizing  service;  which  threatens  supervision  of  expenditures  and  in- 
vestments ;  and  which  tends  to  limit  the  railroad  to  a  definite  guaranteed  return 
on  its  investment.    Control  is  very  rapidly  passing  into  the  hands  of  the  state. 


378  CURRENT  ECONOMIC  PROBLEMS 

The  step  to  the  formal  assumption  of  management  by  the  state  may  be  a 
tedious,  but  it  is  logically  a  short  one.  At  present  we  face  the  alternative  of 
direct  public  control  or  private  control  under  greater  public  supervision  than 
has  been  exercised  before.  Because  of  an  impression  that  government  man- 
agement during  the  vi^ar  w^as  less  successful  than  it  might  have  been,  the 
public  is  likely,  formally  at  least,  to  prefer  the  latter.  But  increased  super- 
vision, guaranteed  returns,  and,  above  all  the  seeming  necessity  for  the  govern- 
ment to  furnish  capital  gives  a  decided  bent  tovi^ard  some  form  of  public 
control.  Eventually  the  transition  to  a  new  form  of  control  can  be  effected 
by  a  simple  substitution  of  government  bonds  for  the  waning  percentage  of 
privately  owned  railroad  securities.  Are  we  destined  to  take  it?  If  we  do, 
will  it  be  a  simple  matter  of  conscious  choice?  Or  will  it  be  a  solution  that  has 
been  forced  upon  us  unwittingly  through  our  attempt  to  solve  isolated  railroad 
problems  one  at  a  time? 

Before  it  has  come  about  that  one  "railroad  problem"  after  another  has 
been  "solved,"  only  to  leave  a  bigger  and  more  difficult  problem  in  its  place. 
The  question  of  government  ownership  is  more  intricate  than  any  of  its  prede- 
cessors. If  the  state  does  take  over  the  roads,  what  will  be  the  net  gain? 
Will  we  be  better  off  than  we  now  are?  Will  we  be  better  off  than  we  would 
have  been  had  we  never  embarked  on  a  course  of  regulation?  If  our  railroads 
are  socialized,  what  is  the  effect  likely  to  be  m  the  solution  of  our  other  prob- 
lems, for  instance  that  of  monoply?  What  influence  is  such  a  step  likely  to 
exert  upon  our  theory  of  the  relation  of  the  state  to  industry  and  upon  our 
fundamental  "principles"  and  "concepts"?  Are  we  thus  for  the  last  time 
dealing  with  the  railroad  problem  in  isolation,  or  is  it  likely  to  continue  with 
us  in  ever-varied  forms?  Is  government  ownership  a  mere  means  of  merg- 
ing a  particular  problem  in  the  larger  problem  of  the  socialization  of  industry? 
After  government  ownership — what? 

A.     THE  BASIS  OF  THE  PROBLEM 
170.     The  Dual  Nature  of  the  Railway  Corporation^ 

We  are  all  familiar  with  the  easygoing  classification  of  business 
enterprises  into  public  and  private.  There  is  something  quite  satis- 
fying about  the  ready  way  in  which  this  antithesis  permits  one  to 
call  the  corner  grocery  a  private  business  and  the  mail  service  a 
public  enterprise.  Since  the  two  classes  are  all-comprehensive  and 
mutually  exclusive,  it  is  quite  unfortunate  that  their  author  was 
not  possessed  of  the  supreme  pre-wisdom  to  make  provision  for 
the  railway  which  in  course  of  time  was  to  appear,  reach  gigantic 
proportions,  work  itself  into  the  whole  fabric  of  the  industrial  sys- 
tem, and  spoil  a  very  serviceable  antithesis.  For  the  railway  can 
be  properly  called  neither  a  private  nor  a  public  enterprise ;  it  par- 
takes of  the  nature  of  both. 

That  it  is  a  private  enterprise  is  the  more  evident.  You  know 
that  trains  are  run  by  a  private  corporation;  that  the  corporation 
sells  you  a  ticket,  thereby  making  a  contract  with  you,  to  transport 
you  from  New  York  to  Philadelphia;  that  when  Hiram  Rankin's 
cow  is  run  over,  he  brings  suit  against  the  New  York  Central  & 

^An  editorial  (1915). 


PROBLEM  OF  RAILWAY  REGULATION  379 

Hudson  River  Railroad  Company;  and  that  your  next-door  neigh- 
bor, James  Street,  regularly  receives  v^hat  he  calls  a  dividend  on 
the  three  shares  of  preferred  stock  which  he  ow^ns  in  the  Pennsyl- 
vania. So  far  as  its  actual  business  is  concerned,  it  appears  to  you 
that  a  railway  company  is  much  like  any  other  corporation. 

But  if  you  will  study  a  moment,  you  will  see  just  as  clearly 
that  the  business  is  of  a  public  nature.  You  remember  your  grand- 
father telling  you  how,  when  he  was  a  member  of  the  state  legis- 
lature back  in  the  forties,  he  helped  put  through  a  bill  which  appro- 
priated state  money  to  help  the  K.  &  W.  build  a  line  through  your 
part  of  the  state.  You  never  heard  of  the  state  helping  Simpkins, 
the  corner  grocer,  in  that  way.  You  remember,  too,  just  a  few 
years  ago,  that  when  the  L.  R.  &  Q.  was  running  the  spur  out  to 
Dalton,  Rufus  Lunsford  would  not  sell  the  narrow  strip  of  land 
through  his  farm,  which  the  company  wanted  to  make  a  part  of 
their  right  of  way.  You  remember  that  he  said  that  he  was  just 
as  much  entitled  to  that  land  as  any  private  corporation  was  entitled 
to  its  property ;  and  that  no  private  corporation  should  get  a  foot 
of  ground  belonging  to  him.  Yet  you  remember  how  it  turned 
out — that  there  was  a  trial ;  that  the  lawyers  representing  the  rail- 
way said  that  the  company  has  been  clothed  with  the  right  of  "emi- 
nent domain,"  and  that  this  gave  them  the  right  to  take  Lunsford's 
property,  if  they  needed  it,  to  complete  their  line,  provided  they 
paid  him  full  compensation  for  it.  You  know,  too,  that  the  rail- 
way has  no  right  to  refuse  to  handle  your  freight,  if  you  offer  it  to 
them  and  if  you  comply  with  all  the  conditions.  Perhaps  you  do 
not  know  that  when  the  railway  first  came,  it  was  thought  of  as  a 
"rail"  way,  as  a  public  highway  upon  which  each  man  should  be 
allowed  to  run  his  own  cars,  just  as  he  drove  his  own  carriage  or 
wagon  along  the  thoroughfare.  Of  course  you  see  that  technical 
difficulties  prevented  this  from  being  done  and  led  to  a  single  cor- 
poration being  granted  an  exclusive  right  to  run  trains  over  the 
road.  But,  in  making  the  grant  the  state  was  merely  meeting  the 
peculiar  situation.  It  was  not  surrendering  all  of  its  rights  to  the 
private  corporation.  Thus  you  see  that  the  railway  corporation  is 
of  a  public  as  well  as  of  a  private  nature. 

171.     The  Economic  Basis  of  Regulation- 

BY  I.  LEO  SHARFMAN 

The  need  of  a  system  of  governmental  control  arises  from  the 
economic  characteristics  of  the  railway.     Most  of  the  important 

^Adapted  from  an  unpublished  volume  entitled  Railway  Regulation,  soon 
to  be  published  by  the  LaSalle  Extension  University,  1913. 


380  CURRENT  ECONOMIC  PROBLEMS 

questions  involved  in  the  so-called  railroad  problem  can  be  traced 
to  the  economic  character  of  the  railway  business.  It  is  necessary 
therefore,  to  indicate  the  general  nature  of  those  economic  partic- 
ulars and  their  most  striking  consequences. 

The  monopolistic  character  of  the  railway  business. — The  need 
of  regulation  depends  chiefly  upon  the  monopolistic  character  of  the 
railway  business.  In  ordinary  industrial  enterprises  the  existence 
of  competition,  when  free  and  unrestricted  by  artificial  means,  pro- 
vides an  automatic  force  for  the  protection  of  the  public.  High 
prices  and  large  profits  in  a  given  industry  tend  to  attract  additional 
capital  to  that  industry,  which  results,  in  the  long  riin,  in  a  read- 
justment of  charges  and  a  reduction  of  net  returns.  In  like  manner, 
inefficient  service  and  goods  of  inferior  quality  cannot  permanently 
be  imposed  upon  the  public  because  a  policy  which  is  clearly  detri- 
mental to  the  interests  of  the  consumer  cannot  permanently  with- 
stand the  force  of  competition.  The  railway  business,  on  the  other 
hand,  tends  to  be  operated  under  monopolistic  conditions.  To  some 
extent  railways  are  entirely  exempt  from  the  operation  of  compe- 
tition. The  amount  of  capital  necessary  for  the  construction  of  a 
railway  is  so  large  and  the  task  of  railway  building  is  so  substantial 
that  competition  is  always  relatively  slow  in  becoming  active.  Cap- 
italists will  not  unite  so  promptly  in  building  a  parallel  road  because 
of  the  large  sums  that  must  be  risked  in  the  enterprise ;  and  even 
when  they  decide  to  enter  upon  such  an  undertaking,  the  work  of 
construction  requires  so  much  time  that  the  appearance  of  active 
competition  is  still  further  delayed.  Moreover,  even  when  the  par- 
allel road  is  built,  it  actually  competes  with  the  original  line  only  at 
certain  points,  usually  the  more  important  cities,  while  at  inter- 
mediate points  the  lines  separate  and  pass  tbn^^^  numerous  small 
communities  which  have  no  other  railw^^i^cilities.  At  these  non- 
competing  points,  then,  the  railways  usually  enjoy  a  monopoly  of 
local  traffic ;  and  while  the  number  of  non-competing  points  is  grad- 
ually being  reduced  by  the  construction  of  new  steam  roads  and  the 
multiplication  of  electric  railway  lines,  doubtless,  because  of  the 
very  nature  of  the  railway,  there  will  always  be  many  localities 
which,  in  the  absence  of  government  control,  will  be  at  the  mercy 
of  one  transportation  agency.  In  part,  therefore,  the  railway  busi- 
ness is  clearly  monopolistic  in  character. 

The  nature  of  railway  competition. — But  the  railway  business 
tends  to  be  carried  on  under  monopolistic  conditions  even  when 
competition  does  exist,  because  of  the  character  of  railway  competi- 
tion. Railway  rivalry  tends  to  be  abnormally  keen  and  competition 
ruinous.    This,  in  turn,  leads  to  cooperation  in  various  forms,  and 


PROBLEM  OF  RAILWAY  REGULATION  381 

the  inevitable  result  follows  that  railway  competition  becomes  self- 
destructive.  Competing  railway  companies,  weary  of  the  keen 
struggle  which  invariably  ensues  when  competition  becomes  active, 
either  assent  to  a  truce  whereby  competition  between  them  is  abol- 
ished and  an  agreement  is  reached  for  the  maintenance  of  rates, 
or  they  continue  their  warfare  until  one  of  the  roads  is  driven  to 
insolvency,  and  the  unsuccessful  line,  upon  reorganization,  is  taken 
over  by  its  victorious  rival.  In  either  case  effective  competition 
is  destroyed  and  monopoly  conditions  are  established.  The  basis 
of  this  ruinous  competition  is  to  be  found  in  two  fundamental  econ- 
omic characteristics  of  the  railway  business: 

Joitit  cost  and  railway  management. — The  services  of  a  rail- 
way are  rendered  to  a  very  large  degree  at  joint  cost.  From  one- 
half  to  three-quarters  of  a  railway's  expenditures  must  be  incurred 
regardless  of  the  performance  of  any  particular  service.  In  order 
to  conduct  transportation  at  all,  a  roadbed  must  be  provided,  tracks 
must  be  laid,  terminals  must  be  built.  This  plant  is  equally  neces- 
sary for  the  transportation  of  passengers  and  freight,  and  express 
and  mail  matter.  Moreover,  it  is  equally  necessary  for  the  trans- 
portation of  different  classes  of  passengers  and  different  kinds  of 
freight.  The  expenditures  for  the  fundamental  purpose  of  pro- 
viding the  plant  of  a  railway  enterprise  create  the  fixed  charges  of 
the  business:  and  these  fixed  charges,  the  interest  on  the  capital 
invested  in  the  construction  of  the  railway,  form  a  part  of  the 
cost  of  every  service  rendered  by  that  railway.  As  far  as  expendi- 
tures for  plant  are  concerned,  all  railway  operations  are  conducted 
at  joint  cost.  But  even  the  operating  expenses  are  largely  joint. 
The  roadbed  and  equipment  must  be  maintained  in  a  state  of  reason- 
able repair  and  efficiency,  and  many  of  the  employees  and  much  of 
the  material  necessary  for  conducting  transportation  must  be  pro- 
vided and  most  of  the  general  administrative  expenses  must  be 
met,  regardless  of  the  amount  or  the  kind  of  traffic  carried  by  the 
railway.  In  other  words,  a  substantial  proportion  of  the  operating 
expenses,  like  the  fixed  charges,  are  constant.  It  is  practically  im- 
possible, therefore,  for  the  railway  manager  to  ascertain  the  exact 
cost  of  a  given  service.  Rate  making  must  necessarily  involve  a 
large  degree  of  guesswork,  though  it  is  true  that  this  guesswork 
is  entrusted  to  experts.  Railway  officials  have  no  means  of  de- 
termining with  certainty  that  rates  have  been  reduced  to  unprofit- 
able limits.  Under  the  stress  of  keen  competition,  then,  conditions 
are  decidedly  favorable  to  ruinous  rate-cutting:  and  cutthroat  com- 
petition invariably  becomes  self-destructive. 


382  CURRENT  ECONOMIC  PROBLEMS 

Increasing  returns  and  railway  policy. — Railway  operations  are 
so  largely  conducted  at  joint  cost  because  a  very  large  proportion 
of  railway  expenditures  are  fixed  or  constant.  If  a  railway  is  built 
and  equipped  and  is  carrying  a  given  amount  of  traffic,  it  can  usually 
handle  a  vastly  increased  quantity  of  business  at  a  relatively  slight 
additional  expense.  Within  very  wide  limits,  a  given  plant  and 
equipment  will  accommodate  a  large  as  well  as  a  small  amount  of 
traffic,  and  the  only  additional  cost  involved  in  handling  an  in- 
crease in  traffic  will  consist  in  that  portion  of  the  operating  ex- 
penses which  varies  with  the  amount  and  kind  of  service  rendered. 
In  other  words,  the  expenditures  of  a  railway  company  do  not  keep 
pace  with  the  services  which  it  performs ;  an  increase  in  traffic  does 
not  involve  a  proportionate  increase  in  railway  expenditures.  It  fol- 
lows, then,  that  with  each  increase  in  the  amount  of  traffic  carried, 
the  cost  per  unit  decreases ;  and  the  net  revenues  of  a  railway  increase 
faster  than  the  growth  of  its  traffic.  The  railway  business  is  subject 
to  the  law  of  increasing  returns :  every  increase  in  traffic  results  in 
more  than  a  proportionate  increase  in  profits.  Railway  traffic  mana- 
gers, therefore,  work  under  a  powerful  incentive  to  increase  the 
volume  of  their  business,  and  the  competition  for  traffic  is  intense. 
In  fact,  the  passion  for  traffic  becomes  the  controlling  passion  of  the 
railway  business.  Traffic  managers  consider  it  their  most  urgent  duty 
to  get  business — to  get  it  at  the  highest  rates  possible,  but  in  any  event 
to  get  it.  The  profitable  limit  of  rate  reduction  is  so  uncertain,  be- 
cause railway  expenditures  are  largely  joint,  and  the  advantage  of 
extensive  traffic  is  so  great,  because  railway  expenditures  are  largely 
constant,  that  there  is  a  natural  and  compelling  tendency  on  the  part 
of  railway  officials  to  reduce  rates  to  whatever  point  may  be  necessary 
in  order  to  attract  business  from  competing  lines.  Ruinous  rate  wars 
follow  and  competition  tends  to  destroy  itself.  These  conditions  lie 
at  the  basis  of  the  abnormal  character  of  railway  competition  which 
almost  invariably  leads  to  railway  operation  under  monopolistic  con- 
ditions. 

Railway  competition  and  discriminatory  practices. — The  keen 
rivalry  for  business  leads  not  merely  to  rate  wars  and  general  rate 
cuttings,  but  to  discriminatory  practices  as  well.  The  passion  for 
business  is  so  intense  that  the  traffic  manager  will  resort  to  any 
means  in  order  to  get  it.  If  the  amount  of  railway  traffic  can  be 
extended  and  hence  the  size  of  railway  profits  disproportionately 
increased  by  means  of  granting  special  privileges  in  the  transpor- 
tation of  one  commodity  as  compared  with  another,  or  in  the  case 
of  one  person  or  locality  as  compared  with  competing  shippers  or 
markets,  railway  officials  will  not  hesitate  long  to  resort  to  these 


PROBLEM  OF  RAILWAY  REGULATION  383 

discriminatory  practices.  The  history  of  American  railways,  and 
of  our  monopoHstic  industrial  combinations  or  so-called  trusts,  di- 
vulges no  greater  evil  than  the  granting  of  railway  discriminations 
in  rates  and  service  for  the  benefit  of  one  person,  locality,  or  kind 
of  traffic,  to  the  prejudice  and  disadvantage  of  rival  shippers,  places, 
and  industries.  The  motive  or  stimulus  for  these  practices  lies  in 
the  keen  desire  for  additional  business,  with  its  disproportionate  in- 
crease in  railway  profits.  Discrimination  has  been  one  of  the  most 
baneful  as  well  as  one  of  the  most  certain  effects  of  railway  com- 
petition. 

Railway  discrimination  and  the  public  welfare. — The  danger  as 
well  as  the  injustice  of  discriminatory  practices  cannot  be  over- 
emphasized. If  our  industrial  life  is  to  reach  its  natural  and  most 
efficient  economic  development,  there  must  be  freedom  of  enter- 
prise and  fairness  of  treatment  for  all  persons,  all  sections,  and  all 
undertakings.  In  a  sense,  transportation  is  a  fundamental  industry, 
underlying  all  others ;  for  it  is  essential  to  the  conduct  of  all  business 
and  goes  far  towards  determining  the  direction  and  conditions  of 
industrial  activity.  The  item  of  transportation,  whatever  it  may  be, 
is  one  of  the  elements  in  all  costs,  and  the  outcome  of  cempetition  be- 
tween different  producers  may  be  largely  affected  by  any  divergence 
in  railway  rates  which  must  be  paid  by  each  of  two  or  more  com- 
petitors. It  follows  clearly,  then,  that  the  railway  officials  who  make 
transportation  rates  exercise  a  tremendous  power.  By  the  soundness 
of  their  adjustment  of  rates  and  by  the  degree  of  fairness  with  which 
established  rates  are  observed,  the  railways  may  profoundly  affect — 
or  absolutely  determine  even — the  prosperity  of  individuals,  of  in- 
dustries, of  cities  and  towns,  or  of  entire  sections  of  the  country. 
By  discriminating  between  competing  shippers,  they  may  destroy  the 
business  of  one  and  build  up  that  of  another,  making  one  man  rich 
and  another  poor.  By  stimulating  or  discouraging  a  particular  class 
of  traffic  they  may  increase  or  diminish  the  importance  of  industries 
and  the  extent  of  production  of  particular  articles  of  commerce,  shap- 
ing the  direction  of  industrial  activity.  By  discriminating  among 
cities  and  towns,  they  may  cause  one  to  grow  and  another  to  decay, 
determining  the  commercial  importance  of  business  centers.  By 
modifying  their  rate  schedules  in  special  instances,  they  may  de- 
termine the  location  of  industries,  guiding  the  movements  of  popu- 
lation and  affecting  the  prosperity  and  welfare  of  extensive  local- 
ities. By  these  unfair  practices  the  railways  also  have  it  within 
their  power  to  build  up  industrial  monopoly ;  and  the  most  power- 
ful of  the  trusts  against  which  the  people  are  now  struggling  made 
their  first  advances  towards  control  of  the  market  through  the 
agency  of  special  favors  in  the  form  of  railway  discriminations. 


384  CURRENT  ECONOMIC  PROBLEMS      ' 

172.     The  Futility  of  Railway  Competition^ 

BY  ARTHUR  T.  HADLEY 

We  have  been  taught  to  regard  competition  as  a  natural,  if  not 
necessary,  condition  of  all  healthful  business  life.  We  accept,  almost 
without  reserve,  the  theory  that,  under  open  competition,  the  value 
of  different  goods  will  tend  to  be  proportional  to  their  cost  of  pro- 
duction. According  to  this  idea,  if  the  supply  of  a  particular  kind 
of  goods  is  short,  and  the  price  comes  to  exceed  cost  of  production, 
outside  capital  will  be  attracted  int(T  the  business  until  the  supply 
is  sufficiently  increased  to  meet  the  wants  of  the  market.  But  as 
soon  as  this  point  is  passed,  and  the  price  begins  to  fall  below  the 
cost  of  production,  people  will  refuse  to  produce  at  a  disadvantage, 
the  supply  will  be  lessened,  and  the  price  will  rise  to  its  normal 
figure.  If  all  this  be  true,  competition  furnishes  a  natural  regulator 
of  prices,  with  which  it  is  wicked  to  interfere. 

This  may  once  have  been  true,  but  it  is  not  true  today,  that  people 
find  it  to  their  interest  to  refuse  to  produce,  if  price  drops  below 
cost.    To  stop  producing  often  involves  the  greater  loss. 

Let  us  take  an  example  from  the  railway  business.  A  railroad 
connects  two  places  not  far  apart,  and  carries  from  one  to  the  other 
100,000  tons  of  freight  a  month  at  25  cents  a  ton.  Of  the  $25,000 
thus  earned,  $10,000  is  paid  out  for  the  actual  expense  of  running 
the  train  and  loading  and  unloading  the  cars ;  $5,000  for  repairs  and 
general  expenses ;  the  remaining  $10,000  pays  the  interest  on  the 
cost  of  construction.  Only  the  first  of  these  items  varies  in  pro- 
portion to  the  amount  of  business  done ;  the  interest  is  a  fixed 
charge,  and  repairs  have  to  be  made  with  almost  equal  rapidity, 
whether  the  material  wears  out,  rusts  out,  or  washes  out.  Now 
suppose  a  parallel  line  is  built,  and  in  order  to  secure  some  of  the 
business  offers  to  take  it  at  20  cents  a  ton.  The  old  road  must  meet 
the  reduction  in  order  not  to  lose  its  business,  even  though  the  new 
figure  does  not  leave  it  a  fair  profit  on  the  investment ;  better  a 
moderate  profit  than  none  at  all.  The  new  road  reduces  to  15  cents ; 
so  does  the  old  road.  A  15-cent  rate  will  not  pay  interest  unless 
there  are  new  business  conditions  developed  by  it;  but  it  will  pay 
for  repairs  which  otherwise  would  be  a  dead  loss.  The  new  road 
makes  still  further  reduction  to  11  cents.  This  is  better  than 
nothing.  If  you  take  11  cents  freight  that  costs  you  25  cents  to 
handle,  you  lose  14  cents  on  every  ton  you  carry.  If  you  refuse  to 
take  it  at  that  rate,  you  lose  15  cents  on  every  ton  you  do  not  carry. 

^Adapted  from  Railroad  Transportation:  Its  History  and  Its  Laws,  pp. 
69-74.    Copyright  by  G.  P.  Putnam's  Sons,  1885. 


PROBLEM  OF  RAILWAY  REGULATION  385 

For  your  charges  for  interest  and  repairs  run  on,  while  the  other 
road  gets  the  business. 

Under  competition  such  cases  are  of  constant  occurrence;  and 
almost  as  a  matter  of  course  when  one  of  the  roads  is  bankrupt. 
"Business  at  any  price  rather  than  no  business  at  all"  is  the  motto 
of  such  a  road.  It  has  long  ceased  to  pay  interest;  it  can  pay  for 
repairs  by  receiver's  certificates ;  and  it  will  take  freight  at  almost 
any  price  that  will  pay  for  the  men  to  load  the  goods  and  the  coal 
to  burn  in  the  engine.  And  it  is  to  be  observed  that  when  a  com- 
peting road  does  not  carry  the  war  to  this  point,  it  is  not  a  com- 
petitive rate.  They  may  agree  on  a  25-cent  rate,  thinking  it  will  be 
a  reasonable  and  paying  one ;  but  such  a  rate  is  actually  determined 
by  combination,  even  though  they  take  cost  of  service  into  account. 
The  theory  that  when  payment  falls  below  cost  active  competition 
will  cease  fails.  This  is  because  far  below  the  point  where  it  pays 
to  do  your  own  business  it  pays  to  steal  business  from  another  man. 
This  influx  of  new  capital  will  cease ;  but  the  fight  will  go  on,  either 
until  the  old  investment  and  machinery  are  worn  out,  or  until  a  pool 
of  some  sort  is  arranged.  This  is  not  confined  to  the  railway  business. 
Wherever  there  are  large  permanent  investments  of  capital  we  see  the 
same  cause  at  work  in  the  same  way. 

There  is  a  marked  difference  between  mercantile  competition, 
such  as  was  considered  by  those  who  established  the  old  law  of 
competition,  and  the  competition  of  railroads  or  factories,  such  as 
we  have  been  considering.  In  the  former  case  its  action  is  prompt 
and  healthful,  and  does  not  go  to  extremes.  If  Grocer  A  sells  goods 
below  cost.  Grocer  B  need  not  follow  him,  but  simply  stop  selling  for 
a  time.  For  (i)  This  involves  no  great  present  loss  to  B.  When 
his  receipts  stop,  most  of  his  expenses  also  stop.  (2)  It  does  involve 
present  loss  to  A.  If  he  is  selling  below  cost,  he  loses  more  money, 
the  more  business  he  does.  (3)  It  cannot  continue  indefinitely.  If 
A  returns  to  paying  prices,  B  can  again  compete.  If  A  continues  to 
do  business  at  a  loss  he  will  become  bankrupt,  and  B  will  find  the 
field  clear  again. 

But  if  Railroad  A  reduces  charges  on  competitive  business, 
Railroad  B  must  follow,  (i)  It  involves  a  great  present  loss  to 
stop.  If  a  railroad's  business  shrinks  to  almost  nothing,  a  large 
part  of  its  expenses  run  on  just  the  same.  Interest  charges  accumu- 
late ;  office  expenses  cannot  be  suddenly  contracted ;  repairs  do  not 
stop  when  traffic  sinks ;  for  they  are  rendered  necessary  by  weather 
as  well  as  by  wear.  (2)  If  B  abandons  the  business,  A's  reductions 
of  rates  will  prove  no  loss.  The  expense  of  a  large  business  is 
proportionately  less  than  that  of  a  small  one.     A  rate  which  was 


386  CURRENT  ECONOMIC  PROBLEMS 

below  cost  on  100,000  tons  may  be  a  paying  one  on  200,000.  (3) 
Profitable  or  not,  A's  competition  may  be  kept  up  indefinitely.  The 
property  may  go  into  bankruptcy,  but  the  railroad  stays  where  it  is. 
It  only  becomes  a  more  reckless  and  irresponsible  competitor. 

The  competition  of  different  stores  finds  a  natural  limit.  It 
brings  rates  down  near  to  cost  of  service,  and  then  stops.  The  com- 
petition of  railroads  or  factories  finds  no  such  natural  limit.  Wher- 
ever there  is  a  large  permanent  investment,  and  large  fixed  charges, 
competition  brings  rates  down  below  cost  of  service.  The  competi- 
tive business  gives  no  money  to  pay  interest  or  repairs.  Sometimes 
the  money  to  pay  for  these  things  comes  out  of  the  pockets  of  other 
customers,  who  do  not  enjoy  the  benefit  of  the  competition,  and  are 
charged  much  higher  rates.  Then  we  have  the  worst  forms  of  dis- 
crimination. Sometimes  the  money  cannot  be  obtained  from  any 
customers  at  all.  Then  we  have  bankruptcy,  ruin  to  the  investor, 
and — when  these  things  happen  on  a  large  scale — a  commercial 
crisis. 

B.     ASPECTS  OF  RATE-MAKING 
173.     Freight  Classification* 

BY   WILLIAM    Z.   RIPLEY 

Imagine  the  Encyclopaedia  Britannica,  a  Chicago  mail-order 
catalogue,  and  a  United  States  protective  tariff  law  blended  in 
a  single  volume,  and  you  have  a  freight  classification  as  it  exists 
in  the  United  States  at  the  present  time.  Such  a  classification  is, 
first  of  all,  a  list  of  every  possible  commodity  which  may  move  by 
rail,  from  Academy  or  Artist's  Board  and  Accoutrements  to  Xylo- 
phones and  Zylonite.  In  this  list  one  finds  Algarovilla,  Bagasse, 
"Pie  Crust,  Prepared";  Artificial  Hams,  Cattle  Tails  and  Wombat 
Skins ;  Wings,  Crutches,  Cradles,  Baby  Jumpers  and  all ;  together 
with  Shoo  Flies  and  Grave  Vaults.  Everything  above,  on,  or  under 
the  earth  will  be  found  listed  in  such  a  volume.  To  grade  justly 
all  these  commodities  is  obviously  a  task  of  the  utmost  nicety.  A 
few  of  the  delicate  questions  which  have  puzzled  the  Interstate 
'Commerce  Commission  may  give  some  idea  of  the  complexity  of 
the  problem.  Shall  cow  peas  pay  freight  as  "vegetables,  N.  O.  S., 
dried  or  evaporated,"  or  as  "fertilizer" — being  an  active  agent  in 
>oil  regeneration?  Are  "iron-handled  bristle  shoe-blacking  daub- 
ers" machinery  or  toilet  appliances?  Are  patent  medicines  dis- 
tinguishable, for  purposes  of  transportation,  from  other  alcoholic 

^Adapted  from  Railroads,  Rates  and  Regulations,  pp.  297-304.  Copyright 
by  Longmans,  Green  &  Co.,  1912. 


PROBLEM  OF  RAILWAY  REGULATION  387 

beverages  used  as  tonics?  What  is  the  difference,  as  regards  rail 
carriage,  between  a  percolator  and  an  everyday  coffee  pot?  Are 
Grandpa's  Wonder  Soap  and  Pearline  to  be  put  in  different  classes, 
according  to  their  uses  or  their  market  price?  When  is  a  boiler  not 
a  boiler?  If  it  be  used  for  heating  purposes  rather  than  steam  gen- 
eration, why  is  it  not  a  stove?  What  is  the  difference  between 
raisins  and  other  dried  fruits? 

The  classification  of  all  these  articles  is  a  factor  of  primary  im- 
portance in  the  making  of  freight  rates  both  from  a  public  and 
private  point  of  view.  Its  public  importance  has  not  been  fully 
appreciated  until  recently  as  affecting  the  general  level  of  railway 
charges.  So  little  was  its  significance  understood,  that  supervision 
and  control  of  classification  were  not  apparently  contemplated  by 
the  original  Act  to  Regulate  Commerce  of  1887.  The  anomaly  ex- 
isted for  many  years  of  a  grant  of  power  intended  to  regulate  freight 
rates,  which,  at  the  same  time,  omitted  provision  for  control  over  a 
fundamentally  important  element  in  their  make-up.  Control  over  it 
has  now  been  assured  beyond  possibility  of  dispute. 

The  freight  rate  upon  a  particular  commodity  between  any  given 
points  is  compounded  of  two  separate  and  distinct  factors:  one 
having  to  do  with  the  nature  of  the  haul,  the  other  with  the  nature 
of  the  goods  themselves.  Two  distinct  publications  must  be  consulted 
in  order  to  determine  the  actual  charge.  Although  both  of  them 
usually  bear  the  name  of  the  railway  and  are  issued  over  its  signature, 
they  emanate,  nevertheless,  from  entirely  different  sources.  The 
first  of  these  is  known  as  the  Freight  Tariff.  It  specifies  rates  in 
cents  per  hundred  pounds  for  a  number  of  different  classes  of  freight, 
numerically  designated,  between  all  the  places  upon  each  line  or  its 
connections.  But  it  does  not  mention  specific  commodities.  The 
second  publication  which  must  be  consulted  supplies  this  defect.  This 
is  known  as  the  classification.  Its  function  is  to  group  all  articles 
more  or  less  alike  in  character,  so  far  as  they  affect  transportation 
cost,  or  are  affected  in  value  by  carriage  from  place  to  place.  These 
groups  correspond  to  the  several  numerical  classes  already  named  in 
the  freight  tariff.  Thus  dry  goods  or  boots  and  shoes  are  designated 
as  first  class.  It  thus  appears,  as  has  been  said,  that  a  freight  rate 
is  made  up  of  two  distinct  elements  equal  in  importance.  The  first 
is  the  charge  corresponding  to  the  distance ;  the  other  is  the  charge 
as  determined  by  the  character  of  the  goods.  Consequently,  a  vari- 
ation in  either  one  of  the  two  would  result  in  changing  the  final 
rate  as  compounded. 

Freight  tariffs  and  classifications  are  as  distinct  and  independent 
in  source  as  they  are  in  nature.    Tariffs  are  issued  by  each  railway, 


388  CURRENT  ECONOMIC  PROBLEMS 

by  and  for  itself  alone  and  upon  its  sole  authority.  Classifications, 
on  the  other  hand,  do  not  originate  with  particular  railways  at  all ; 
but  are  issued  for  them  by  co-operative  bodies,  known  as  classifi- 
cation committees.  These  committees  are  composed  of  represen- 
tatives from  all  the  carriers  operating  within  certain  designated 
territories.  In  other  words,  the  United  States  is  apportioned  among 
a  number  of  committees,  to  each  of  which  is  designated,  by  the  car- 
riers concerned,  the  power  over  classification.  New  editions  of 
these  classifications  are  published  from  time  to  time  as  called  for 
by  additions  or  amendments,  the  latest,  of  course,  superseding  all 
earlier  ones.  Thirty-seven  such  issues  have  already  appeared  in 
series  in  trunk  lines  and  southern  territory,  while  fifty  have  been 
put  forth  in  western  territory,  since  the  practice  was  standardized 
in  1888. 

174.     State  Regulation  and  Inefficient  Service^ 

BY   C.   O.   RUGGLES 

Federal  regulation,  or  the  lack  of  it,  is  not  the  only  hindrance  to 
efficient  and  sufficient  railway  service.  State  laws,  also,  which  have 
regulated  railway  operations  and  service,  have  prevented  an  equitable 
and  economical  use  of  railway  facilities. 

Some  states  have  attempted  through  legislation  to  give  shippers 
within  their  borders  an  advantage  over  their  competitors  in  other 
states.  This  can  be  done  by  low  intrastate  rates,  but  it  may  make 
such  inroads  on  railroad  revenue  that  a  carrier  will  have  insufficient 
funds  to  provide  adequate  facilities.  It  is  said  that  the  increase  in 
rates  given  by  the  Intrastate  Commerce  Commission  at  the  beginning 
of  the  European  war  was  practically  offset  in  the  state  of  Pennsyl- 
vania by  the  reduction  in  rates  on  coal  to  tidewater  points.  Carriers 
may  be  prevented  from  financing  their  properties  to  advantage  by 
state  regulation  of  security  issues.  Complaint  was  made  that  the 
New  York  Central,  which  has  a  total  right  of  way  of  only  140  miles 
in  the  state  of  Illinois,  was  taxed  $600,000  by  that  state  as  a  prece- 
dent to  its  approval  of  an  intended  financing;  also  that  Arizona  in 
return  for  approval  of  an  issue  of  securities  asked  that  litigation 
concerning  passenger  fares  be  dropped.  The  Hadley  Commission, 
in  commenting  upon  state  regulation  of  security  issues,  said  they 
believed  the  time  was  near  when  the  difficulties  of  the  present  system 
of  dual  control  and  the  conflict  of  state  laws  would  become  so  mani- 
fest that  further  legislation  would  be  imperative. 

State  industries  may  be  favored  by  legislation  regulating  directly 
the  service  which  carriers  must  furnish  to  shippers.     A  state  that 

^Adapted  from  "Railway  Service  and  Regulations,"  Quarterly  Journal  of 
Economics,  XXXIII,  162-66.     Copyright  b^  Harvard  University,  1918. 


PROBLEM  OF  RAILWAY  REGULATION  389 

fixes  low  carload  minima  may  benefit  some  of  its  industries  but  it 
will  absorb  more  than  its  fair  share  of  railway  equipment.  Likewise 
if  one  state  gives  much  free  time  to  shippers  this  means  that  equip- 
ment is  detained  and  shippers  in  other  states  are  deprived  of  its  use. 
It  is  said  that  no  railroad  in  Minnesota  will  permit  one  of  its  cars 
loaded  with  flour  to  go  into  the  New  England  states,  for  there  they 
are  permitted  four  days  free  time  for  unloading.  This,  of  course, 
means  delay  to  Minnesota  farmers  who  are  clamoring  for  cars.  It 
is  evident,  too,  that  anything  which  increases  detention  of  equipment 
at  the  same  time  increases  the  aggregate  supply  which  is  necessary 
to  move  a  given  tonnage.  The  unsatisfactory  character  of  regulation 
of  demurrage  by  the  separate  states  brought  about  the  adoption  of  a 
upiform  demurrage  code  by  the  National  Association  of  Railway 
Commissioners  in  1909,  and  the  Interstate  Commerce  Commission 
approved  this  code  in  the  same  year.  By  March,  191 5,  twenty-  four 
states  had  adopted  the  uniform  code  for  intrastate  traffic.  While  in 
the  other  twenty-four  there  was  a  tendency  to  conform  more  nearly 
to  the  provisions  of  the  code,  the  exceptions  thereto  and  the  number 
of  special  provisions  in  state  codes  were  important. 

Our  early  railway  legislation  prohibited  discrimination  on  the  part 
of  the  railways.  It  is  equally  important  to  eliminate  discrimination 
which  results  from  state  regulation.  Something  more  is  required  than 
an  increase  in  railway  facilities.  What  is  needed  is  a  thoroughgoing 
control  of  railway  service.  This  is  necessary  whether  the  railroads 
are  restored  to  private  operation,  continued  under  some  plan  of  gov- 
ernment operation,  or  taken  over  by  the  government  through  public 
ownership. 

175-'  The  Futility  of  Costs  as  a  Basis  for  Rates^ 

BY  SIDNEY  CHARLES  WILLIAMS 

The  theory  of  price-determination  according  to  cost  of  produc- 
tion is  usually  interpreted  to  mean  that  the  price  of  each  unit  is 
determined  ultimately  by  the  cost  of  production  of  that  unit.  Where 
the  unit  is  large  and  simple,  e.  g.,  in  the  case  of  a  boat  constructed 
entirely  by  hand  by  one  man,  the  only  items  of  expense  will  be  the 
material,  the  man's  labor,  and  some  trifling  sum  to  cover  the  cost 
and  wear  and  tear  of  his  tools ;  and  the  price  he  will  ask  will  be 
determined  accordingly.  Modern  industrial  conditions,  however, 
are  much  more  complicated.  A  factory  or  workshop  will  turn  out 
very  many  units  of  many  different  kinds;  involving  raw  material 

^Adapted  from  The  Economics  of  Railway  Transport,  pp.  189-98.  Copy- 
right 1909  by  Macmillan  &  Co. 


390  CURRENT  ECONOMIC  PROBLEMS 

of  varying  values,  processes  of  all  kinds,  simple  and  elaborate, 
machinery  and  labor  of  many  sorts,  and  each  unit  of  each  kind 
must  bear  some  proportion  of  those  general  charges  which  cannot 
be  attributed  to  any  one  class  of  product,  but  must  be  borne  by  the 
whole. 

Now  to  what  extent  is  it  the  case  that  the  price  charged  for  each 
unit  of  railway  transport  is  determined  by  the  cost  of  producing 
that  unit?  At  first  sight  it  may  seem  a  very  simple  and  satisfactory 
method  of  arriving  at  railway  charges.  The  commodity  produced 
is  one — and  its  cost  per  unit  can  be  arrived  at,  and  the  price  to  be 
charged  fixed  accordingly.  But  this  seeming  simplicity  is  very  far 
from  being  present  in  reality.  For  when  we  begin  to  think  of  con- 
crete instances  of  railway  transport  we  see  that  they  include  com- 
modities very  diverse  indeed.  There  are  in  the  first  place  very 
many  kinds  of  haulage,  pure  and  simple — for  long  distances,  me- 
dium distances,  and  short  distances,  with  a  cost  per  mile  varying 
according  to  the  distance;  there  is  haulage  of  all  kinds  of  goods, 
from  coal  and  limestone  to  fruit,  flowers,  dynamite,  and  cigars,  and 
of  all  manner  of  passengers,  from  a  Royal  party  in  a  special  train, 
or  first-class  express  traffic  to  the  Scotch  moors,  to  workmen's  jour- 
neys at  12  miles  a  penny  or  half -day  seaside  trips  at  similar  low 
charges ;  there  are  also  many  subsidiary  services  sometimes  given, 
sometimes  expressly  withheld — cartage,  delivery,  liability  for  dam- 
age or  loss,  refrigeration,  use  of  company's  wagons,  express  speed 
or  slow  travel,  and  so  forth.  In  short,  we  see  that  the  use  of  the 
purely  abstract  word  "transport"  gives  a  quite  misleading  air  of  sim- 
plicity to  what  is  really  a  congeries  of  operations  of  the  most  diverse 
kind.  Railways  in  fact  produce  a  far  greater  variety  of  commodities 
than  most  industrial  undertakings. 

But  it  may  be  urged,  this  does  not  demonstrate  the  impossibility 
of  basing  your  railway  charges  on  respective  costs  of  production. 
This  may  be  done  in  one  or  other  of  two  ways.  The  first  and  most 
obvious  method  is  to  classify  your  different  services  and  apportion 
to  each  the  peculiar  expenses  connected  with  it.  Then  take  the  whole 
of  the  remaining  expenditure  of  a  general  kind  and  apportion  that 
among  the  different  services  according  to  their  respective  prime  costs. 
You  will  now  know  the  expenditure  involved  by  each  service,  and  as 
you  know  the  extent  of  this  traffic  you  will  be  able  to  fix  a  fair  and 
reasonable  charge  which  will  just  give  you  your  expenditure  with  a 
reasonable  margin  of  profit. 

If  the  matter  is  so  simple  it  should  be  child's  work  to  apply  it 
to  the  first  great  division  of  railway  work,  that  between  passenger 
and  goods  traffic.    The  simplest  and  clearest  subdivision  of  railway 


PROBLEM  OF  RAILWAY  REGULATION  391 

working  expenditure  is  as  follows:  General  Charges,  Ways  and 
Works,  Rolling-Stock,  Traffic  Department  Expenditure. 

Now  of  all  these  a  good  deal  is  not  merely  independent  of  any 
particular  kind  of  traffic  but  is  independent  of  traffic  altogether. 
Among  such  heads  of  expenditure  are  directors'  fees,  the  salaries 
of  the  managing  and  legal  staff,  the  rates  and  taxes  paid,  the  greater 
part  of  the  cost  of  maintenance  of  way  and  works,  and  some  part  of 
the  traffic  working  expenses.  These  items  clearly  cannot  be  directly 
connected  with  the  respective  amounts  of  goods  or  passenger  traffic. 
The  cost  of  passenger  and  goods  locomotives  and  rolling-stock  can, 
however,  be  so  allocated ;  so  also  the  cost  of  their  respective  train- 
staffs;  and  some  part  of  the  expenditure  of  buildings.  Indeed,  the 
very  variety  of  methods  adopted  to  secure  this  allocation  themselves 
testify  to  the  difficulty  of  the  operation ;  train-mileage  has  been  tried 
and  abandoned,  working  engine  hours  are  believed  in  by  some,  but 
the  only  unanimity  among  experts  is  as  to  the  caution  with  which  the 
figures  arrived  at  must  be  viewed  and  utilized. 

The  varying  speeds,  the  different  kinds  of  accommodation,  the 
great  variety  in  the  number  and  complexity  of  the  services  rendered, 
the  different  sizes  of  consignments,  the  different  distances  for  which, 
the  different  directions  in  which,  and  the  different  times  at  which  they 
travel — all  these  mean  some  difference  in  cost ;  but  since  this  cost  is 
made  up  of  so  many  countless  items,  who  can  undertake  to  reduce  it 
to  a  definite  schedule  of  fair  prices,  however  long  and  complicated? 
To  achieve  a  result  of  even  useful  accuracy  when  these  difficulties  are 
borne  in  mind,  and  at  the  same  time  it  is  remembered  that  the  schedule 
must  be  simple,  uniform,  impartial,  semi-permanent,  and,  moreover, 
must  be  known  before,  not  after  the  consignment  has  been  handled — 
is,  it  will  be  recognized,  indeed  a  hopeless  task. 

But  it  may  be  claimed  that  there  is  an  alternative  method  with 
which  no  such  accuracy  is  expected  or  desired.  All  that  need  be 
done  is  to  take  the  number  of  units  of  works  done,  the  passenger- 
miles  and  ton-miles,  and  dividing  these  by  the  aggregate  expenses, 
so  obtain  an  average  figure  which  will  give  a  working  basis  for  all 
rates.  But  even  for  this  less  ambitious  project  there  are  insuperable 
difficulties.  The  average  ton-mile  will  link  together  such  dissimilar 
units  as  one  ton  of  coal  out  of  a  train  load  of  800  tons  carried,  say,  200 
miles  without  a  stop  and  with  no  auxiliary  services,  and  a  ton  of 
cream  cheese  carried  in  small  consignments  over  a  few  miles  with 
many  subsidiary  services,  collection,  delivery,  packing,  weighing,  and 
so  forth.  The  respective  rates  charged  will  be  as  dissimilar  as  the 
services  rendered.  The  coal  pays*^  very  low  rate,  but  the  size,  regu- 
larity, and  easy  handling  of  the  traffic  make  it  most  acceptable;  the 


392  CURRENT  ECONOMIC  PROBLEMS 

cheese  traffic  payi,  a  high  rate,  but  not  too  high  in  view  of  the  care 
and  work  it  involves.  Its  very  small  and  variable  dimensions,  and  the 
high  value  of  the  cheese,  make  the  cost  of  the  transit  an  appreciable 
item,  besides  say  the  profits  of  the  retail  trader,  and  an  addition  to 
the  price  which  the  well-to-do  consumer  willingly  if  unconsciously 
pays.  Apply  such  an  average  figure  in  defiance  of  all  these  differing 
conditions,  and  the  result  will  only  be  to  kill  the  low  grade  traffic  and 
to  let  off  too  lightly  the  high  grade  traffic,  thereby  seriously  impairing 
the  prosperity  of  the  railway  and  ultimately  injuring  the  trading  pub- 
lic which  needs  its  services. 

176.     Charging  What  the  Traffic  Will  Bear^ 

BY   W.  M.   ACWORTH 

The  phrase  "charging  what  the  traffic  will  bear"  has,  for  some 
not  very  obvious  reason,  undoubtedly  acquired  an  ill  repute.  On 
the  face  of  it,  it  surely  seems  to  represent  a  principle,  not  of  extor- 
tion, but  of  moderation.  To  charge  what  the  traffic  can  bear  is,  in 
other  words,  not  to  charge  what  the  traffic  cannot  bear.  Yet  the 
phrase  is  commonly  understood  quite  differently.  It  has  been  as- 
serted that  railway  managers  claim  to  estimate  for  themselves  pro- 
duction cost  at  A  and  selling  price  at  B,  and  to  appropriate  as  rail- 
way rate  the  entire  difference.  The  truth  is  that,  whatever  rash  state- 
ments have  been  made  by  individual  railway  men  under  peculiar 
conditions,  no  railway  administration  has  ever  acted  on  any  such 
principle. 

The  real  meaning  of  the  phrase  is  that  within  limits — the  supreme 
limit  of  what  any  particular  traffic  can  afford  to  pay,  and  the  inferior 
limit  of  what  the  railroad  can  afford  to  carry  it  for — railway  charges 
for  different  categories  of  traffic  are  fixed,  not  according  to  an  esti- 
mated cost  of  service,  but  roughly  on  the  principle  of  equality  of 
sacrifice  by  the  payer.  So  regarded,  "what  the  traffic  will  bear"  is  a 
principle,  not  of  extortion,  but  of  equitable  concession  to  the  weaker 
members  of  the  community.  Had  railway  managers  in  the  past 
declared  that  their  principle  was  "tempering  the  wind  to  the  shorn 
lamb,"  their  descriptive  accuracy  would  have  been  great,  while  their 
popularity  might  have  been  even  greater.  Somehow  the  total  cost  of 
maintaining  and  operating  the  railway  has  to  be  paid  for;  broadly 
and  in  the  long  run,  the  capital  invested  in  railway  construction  must 
be  remunerated  at  the  normal  rate  of  interest.  Can  any  system  of 
apportionment  of  this  necessary  expenditure  be  more  equitable  than 

^Adapted  from  The  Elements  of  Railway  Economics,  pp.  75-78.  Copy- 
right by  the  Clarendon  Press,  Oxford,  1904. 


PROBLEM  OF  RAILWAY  REGULATION 


393 


one  under  which  the  rich — well-to-do  passengers,  valuable  freight, 
traffic  with  the  advantage  of  geographical  situation  close  to  the 
markets,  and  the  like — contribute  of  their  abundance ;  while  the  poor 
— immigrant  passengers,  bulky  articles  of  small  value,  traffic  that  has 
to  travel  far  to  find  a  market,  and  so  forth — are  let  off  lightly  on  the 
ground  of  their  poverty?  Translated  into  railway  language  the  prin- 
ciple means  this :  the  total  railway  revenue  is  made  up  of  rates  which, 
in  the  case  of  traffic  unable  to  bear  a  high  rate,  are  so  low  as  to  cover 
hardly  more  than  the  actual  out-of-pocket  expenses;  which,  in  the 
case  of  medium-class  traffic,  cover  both  out-of-pocket  expenses  and 
a  proportionate  part  of  the  unappropriated  cost;  and  which  finally,  in 
the  case  of  high-grade  traffic,  after  covering  the  traffic's  own  out-of- 
pocket  expenses,  leaves  a  large  and  disproportionate  surplus  available 
as  a  contribution  toward  the  unappropriated  expenses  of  the  low-class 
traffic,  which  such  traffic  itself  could  not  afford  to  pay. 

This,  in  principle  and  in  outline,  is  the  system  of  charging  what 
the  traffic  can  bear.  It  is  the  system  which  is,  always  has  been,  and 
always  must  be  adopted  on  all  railways,  whether  they  be  state  enter- 
prises or  private  undertakings.  It  is  a  system  at  once  in  the  interest 
of  the  railway,  because  even  the  lowest  class  traffic,  by  whatever 
small  amount  its  rates  exceed  the  additional  cost  of  doing  the  business, 
contributes  to  the  general  expenses  of  the  undertaking ;  in  the  interest 
of  the  public,  because  traffic  is  thereby  made  possible  which  could  not 
come  into  existence  at  all,  if  each  item  of  traffic  were  required  to  bear, 
not  only  its  direct  expenses,  but  its  full  share  of  all  the  standing 
charges ;  and  in  the  interest  of  the  high-grade  traffic,  because  every- 
thing which  the  low-grade  traffic  pays  beyond  its  own  actual  out-of- 
pocket  cost  helps  to  defray  the  general  expenses  of  the  undertaking, 
which  otherwise  the  high-grade  traffic  would  have  to  bear  unaided. 

177.     The  Rate  Theory  of  the  Interstate  Commerce  Commission^ 

BY  M.  B.   HAMMOND 

The  tendency  of  the  Interstate  Commerce  Commission's  decisions 
is,  on  the  whole,  toward  a  cost  of  service  theory  of  rate  making.  The 
following  is  an  attempt  at  the  task  of  so  stating  a  theory  of  rates 
as  to  bring  in  the  various  considerations  which  the  Commission  has 
emphasized  as  factors  in  rate  making,  and  show  how  they  can  be 
related  to  the  fundamental  principle.  It  is  perhaps  well  to  say  that 
nowhere  has  the  Commission  undertaken  to  state  such  a  compre- 
hensive theory  of  rate  making. 

^Adapted  from  Railroad  Rate  Theories  of  the  Interstate  Commerce  Com- 
mission, pp.  192-95.  Copyright  by  the  Quarterly  lournal  of  Economics  and  by 
Harvard  University,  191 1. 


394  CURRENT  ECONOMIC  PROBLEMS 

I.  In  any  system  of  government-made  or  government-regulated 
railway  rates,  it  would  seem  that  this  fundamental  economic  principle 
should  be  kept  in  mind :  to  perform  the  service  of  transporting  per- 
sons and  goods  with  the  least  possible  expenditure  of  social  energy. 
-v^  2.  One  transportation  route  or  one  transportation  system  should 
never  be  allowed  to  take  from  another  route  or  system,  merely  as  a 
consequence  of  competition,  traffic  which  the  latter  route  or  system 
can  carry  at  less  expense, 

3.  Rates  should  be  so  adjusted  as  never  to  take  from  a  place  its 
natural  geographical  advantages  of  location ;  but  natural  advantages 
should  not  be  so  construed  as  to  mean  monopoly  privileges. 

4.  Railway  rates  as  a  whole  should  just  cover  costs  as  a  whole, 
allowing  for  a  normal  rate  of  return  on  capital  actually  invested,  a 
normal  return  for  labor  of  all  sorts,  and  for  depreciation,  but  not  for 
betterments.  This  would  not  mean  that  superior  efficiency  in  railway 
management  was  not  entitled  to  reap  the  rewards  of  its  superiority 
in  the  same  way  it  does  in  the  ordinary  industrial  establishment  where 
competition  rules.  On  the  other  hand,  the  rule  must  not  be  construed 
to  mean  that  any  investment  in  a  railroad,  no  matter  how  foolishly  or 
recklessly  made,  is  entitled  to  exact  high  rates  from  persons  and  in- 
dustries along  the  line  in  order  to  earn  current  interest  rates  or  divi- 
dends. Railway  property  is  not  more  sacred  than  other  property,  nor 
are  railway  investors  immune  from  the  consequences  of  their  own 
acts. 

5.,  Each  commodity  transported  should,  as  far  as  possible,  be 
made  to  defray  its  own  share,  not  only  of  operating  and  terminal 
costs,  but  also  of  the  fixed  costs  and  dividends.  It  is  possible  under 
modern  accounting  methods  to  determine  these  costs  with  an  ap- 
proximate degree  of  accuracy  for  the  principal  commodities  and 
classes  of  traffic.  The  rates  on  other  commodities  may  be  determined 
by  comparing  their  ascertainable  costs  with  those  of  the  principal 
commodities,  and  to  a  lesser  extent  by  a  comparison  of  the  relative 
values  of  the  commodities. 

6.  Differences  in  distance  may  be  made  a  test  of  the  reasonable- 
ness of  differences  in  rates  where  other  conditions  appear  to  be 
similar;  yet  the  general  rule  must  be  kept  in  mind  that  though  the 
aggi"egate  charge  should  increase  as  distance  increases,  the  ton-mile 
rate  should  decrease. 

7.  Where  the  application  of  none  of  the  above  principles  seems 
practicable,  competition,  which  has  been  conducted  in  a  normal  man- 
ner over  a  period  of  several  years,  may  be  assumed  to  have  established 
a  fair  relation  of  rates. 


PROBLEM  OF  RAILWAY  REGULATION  395 

8.  A  reasonable  rate  is  one  which  yields  a  reasonable  compen- 
sation for  the  service  rendered.  If  a  given  rate  is  reasonable  in  this 
sense,  an  increase  in  the  price  of  the  commodity  or  in  the  profits  to 
the  producer  will  not  be  a  valid  excuse  for  increasing  the  railway 
rate.  The  carrier  will  justly  share  in  the  increased  prosperity  of  the 
producer  by  securing  a  larger  traffic  in  this  commodity. 

The  possibility  of  applying  these  rules  to  the  business  of  railway 
transportation  is  proved  by  the  fact  that  the  application  of  every  one 
of  them  can  be  shown  by  illustrations  taken  from  the  Commission's 
decisions.  Their  consistent  application  would  mean  that  the  rail- 
roads would  neither  tax  the  industries  of  the  country  nor  have  their 
own  investments  sacrificed;  they  would  not  build  up  one  place  of 
industry;  they  would  not  take  from  some  persons  or  commodities 
their  proportionate  share  of  the  costs  of  transportation  and  impose 
them  upon  other  persons  and  commodities ;  and  finally  they  would 
not  by  their  system  of  rate  making  retard  industrial  progress  or  have 
their  own  development  hindered  by  failing  credit  or  lack  of  revenue. 

C.     THE  NATURE  AND  EXTENT  OF  REGULATION 
~'\     178.     Complaints  against  the  Railroad  System^ 

1.  That  local  rates  were  unreasonably  high,  compared  with 
through  rates. 

2.  That  both  local  and  through  rates  were  unreasonably  high 
at  noncompeting  points,  either  from  the  absence  of  competition  or 
in  consequence  of  pooling  agreements  that  restricted  its  operation. 

3.  That  rates  were  established  without  apparent  regard  to  the 
actual  cost  of  the  service  performed,  and  are  based  largely  on  "what 
the  traffic  will  bear." 

4.  That  unjustifiable  discriminations  were  constantly  made  be- 
tween individuals  in  the  rates  charged  for  like  service  under  similar 
circumstances. 

5.  That  improper  discriminations  were  made  between  articles 
of  freight  and  branches  of  business  of  a  like  character,  and  between 
different  quantities  of  the  same  class  of  freight. 

6.  That  unreasonable  discriminations  were  made  between  locali- 
ties  similarly  situated. 

/  7.^  That  the  effect  of  are  prevailing  policy  of  railroad  manage- 
mbnf^'as,  by  an  elaborate  system  of  secret  special  rates,  rebates, 
drawbacks  and  concessions,  to  foster  monopoly,  to  enrich  favored 

^Adapted  from  the  Report  of  the  Senate  Select  (Cullom)  Committee  on 
Interstate  Commerce  (1886),  I,  180-81. 


396  CURRENT  ECONOMIC  PROBLEMS 

shippers,  and  to  prevent  free  competition  in  many  lines  of  trade  in 
which  the  item  of  transportation  is  an  important  factor. 

'~^. — Thsrt~6«Gh-favoritism  and  secrecy  introduced  an  element  of 
uncertainty  into  legitimate  business  that  greatly  retarded  the  develop- 
ment-sof  our  industries  and  commerce. 

9. )  That  the  secret  cutting  of  rates  and  the  sudden  fluctuations 
that1:onstantly  took  place  were  demoralizing  to  all  business  except 
that  of  a  purely  speculative  character,  and  frequently  occasioned  great 
injustice  and  heavy  losses. 

10.  That,  in  the  absence  of  national  and  uniform  legislation,  the 
railheads  were  able,  by  various  devices,  to  avoid  their  responsibility 
as  carriers,  especially  on  shipments  over  more  than  one  road,  or  from 
one  State  to  another,  and  that  shippers  found  great  difficulty  in  recov- 
ering damages  for  loss  of  property  or  for  injury  thereto. 

11.  That  railroads  refused  to  be  bound  by  their  own  contracts, 
and  arbitrarily  collected  large  sums  in  the  shape  of  overcharges,  in 
addition  to  the  rates  agreed  upon  at  the  time  of  shipment. 

12.  That  railroads  often  refused  to  recognize  or  be  responsible 
for  acts  of  dishonest  agents  acting  under  their  authority. 

13.  That  the  common  law  failed  to  afford  a  remedy  for  such 
grievances  and  that  in  cases  of  dispute  the  shipper  was  compelled 
to  submit  to  the  decision  of  the  railroad  manager  or  pool  commis- 
sioner, or  run  the  risk  of  incurring  further  losses  by  greater  dis- 
criminations. 

14.  That  the  differences  in  the  classifications  in  use  in  various 
parts  of  the  country,  and  sometimes  for  shipments  over  the  same 
roads  in  different  directions,  were  a  fruitful  source  of  misunder- 
standings, and  were  often  made  a  means  of  extortion. 

15.  That  a  privileged  class  was  created  by  the  granting  of  passes, 
and  that  the  cost  of  the  passenger  service  was  largely  increased  by 
the  extent  of  this  abuse. 

16.  That  the  capitalization  and  bonded  indebtedness  of  the  roads 
largely  exceeded  the  actual  cost  of  their  construction  or  their  present 
value,  and  that  unreasonable  rates  were  charged  in  the  effort  to  pay 
divi^eads  on  watered  stock  and  interest  on  bonds  improperly  issued. 

[17. J  That  railroad  corporations  had  improperly  engaged  in  lines 
of  business  entirely  distinct  from  that  of  transportation,  and  that 
undue  advantages  had  been  afforded  to  business  enterprises  in  which 
railroad  officials  were  interested. 

(18^  That  the  management  of  the  railroad  business  was  extrava- 
gant and  wasteful,  and  that  a  heedless  tax  was  imposed  upon  the  ship- 
ping and  traveling  public  by  the  unnecessary  expenditure  of  large 
sums  in  the  maintenance  of  a  costly  force  of  agents  engaged  in  a 
reckless  strife  for  competitive  business. 


PROBLEM  OF  RAILWAY  REGULATION  397 

179.     The  Provisions  of  the  Interstate  Commerce  Act^" 

BY  LOGAN  G.  MC  PHERSON 

The  Interstate  Commerce  Act,  taking  effect  April  5,  1887,  prac- 
tically applied  the  principles  of  the  common  law  which  inhere  in 
the  unlimited  jurisdiction  of  the  state  courts  to  the  regulation  of  inter- 
state traffic  by  the  federal  courts.    It  provided : 

First — That  charges  tor  transportation  must  be  reasonable  and 
just;  prohibiting  any  unjust  discrimination  by  special  rates,  rebates, 
or  other  devices,  and  any  undue  or  unreasonable  preferences ; 

Second — That  there  should  not  be  a  greater  charge  for  a  short 
haul  than  for  a  long  haul  over  the  same  line  in  the  same  direction 
under  substantially  similar  circumstances  and  conditions ; 

Third — Prohibited  the  pooling  of  freights  and  the  division  of 
earnings ; 

Fourth — Prohibited  any  device  to  prevent  the  continuous  carriage 
of  freights; 

Fifth — Provided  for  the  publicity  and  filing  with  the  Commis- 
sioner of  all  tariffs ; 

Sixth — The  Interstate  Commerce  Commission  created  by  the  Act 
is  given  power  to  investigate  complaints  against  carriers  and  to  make 
reports  of  its  investigation  in  writing; 

Seventh — The  Interstate  Commerce  Commission  is  authorized,  in 
case  it  finds  that  the  carrier  has  violated  the  law,  to  order  it  to  desist 
and  make  reparation  for  injury  done.  In  case  these  orders  are  not 
obeyed  the  Commission  is  empowered  to  proceed  in  a  summary  way 
to  have  the  Circuit  Court  of  the  United  States  enforce  them. 

180.     The  Provisions  of  the  Elkins  Act'' 

The  Elkins  law,  approved  February  19,  1903,  is  an  amendment 
to  the  Act  to  Regulate  Commerce,  and  the  only  important  amend- 
ment since  1889.  The  former  act  is  directed  against  wrongdoing  both 
in  the  fixing  of  tariff  rates  and  in  the  failure  to  apply  them  when  they 
have  been  fixed.  Broadly  speaking  it  is  the  latter  class  of  offenses 
only  which  are  affected  by  the  recent  legislation.  Its  provisions  are 
designed  more  effectually  to  reach  infractions  of  law  such  as  the 
payment  of  rebates  and  kindred  practices. 

In  the  first  place  it  makes  the  railroad  corporation  itself  liable 
to  prosecution  in  all  cases  where  its  officers  or  agents  are  liable  under 
the  former  law.     Such  officers  and  agents  continue  to  be  liable  as 

lOAdapted  from  The  Working  of  the  Railroads,  pp.  248-50.  Copyright  by 
Henry  Holt  &  Co.,  1907. 

i^Adapted  from  the  Seventeenth  Annual  Report  of  the  Interstate  Com- 
merce Commission  (1903),  pp.  8-10. 


398  CURRENT  ECONOMIC  PROBLEMS 

heretofore,  but  this  liability  is  now  extended  to  the  corporation  which 
they  represent. 

The  amended  law  has  abolished  the  penalty  of  imprisonment,  and 
the  only  punishment  now  provided  is  the  imposition  of  fines.  As 
the  corporation  cannot  be  imprisoned  or  otherwise  punished  than 
by  money  penalties,  it  was  deemed  expedient  that  no  greater  punish- 
ment be  visited  upon  the  offending  officer  or  agent. 

Under  the  former  law  it  was  not  sufficient  to  show  that  a  secret 
and  preferential  rate  had  been  allowed  in  a  particular  case ;  there 
had  to  be  further  proof  of  the  payment  of  higher  charges  by  some 
other  person  on  like  and  contemporaneous  shipments.  The  result 
was  to  render  successful  prosecutions  almost  impossible.  This  defect 
seems  to  have  been  remedied.  The  new  law  in  most  explicit  terms 
makes  the  published  tariff  the  standard  of  lawfulness,  and  any  de- 
parture therefrom  is  declared  to  be  a  misdemeanor.  It  is  sufficient 
now  to  show  that  a  lower  rate  than  that  named  in  the  tariff  has  been 
accorded. 

A  further  provision  of  the  law  makes  it  lawful  to  include  as  par- 
ties, in  addition  to  the  carrier  complained  of,  all  persons  interested  in 
or  affected  by  the  matters  involved  in  the  proceeding.  Under  the 
former  law  carriers  only  could  be  made  parties  defendant ;  under  the 
amended  law  shippers  may  also  be  included. 

Another  provision  confers  jurisdiction  upon  the  circuit  courts  of 
the  United  States  to  restrain  departure  from  published  rates,  or  "any 
discriminations  forbidden  by  law,"  by  writ  of  injunction,  or  by  other 
appropriate  process. 

_^     181.     The  Provisions  of  the  Hepburn  BilP^ 

BY  LOGAN  G.  MC  PHERSON 

The  Hepburn  Bill  took  effect  on  August  28,  1906.  The  bill  pro- 
vides : 

a)  That  as  "common  carriers"  under  the  Interstate  Commerce 
Law  shall  be  included  companies  transporting  oil  by  pipe  lines,  express 
companies,  sleeping  car  companies,  all  switches,  tracks,  terminal 
facilities,  and  that  "transportation"  under  the  law  shall  include  all 
cars  regardless  of  their  ownership,  and  all  service  in  transit. 

b)  Prohibits  the  issue  of  passes,  with  certain  specified  excep- 
tions that  cover  mainly  employes,  fixing  a  penalty  in  case  of  violation 
that  shall  apply  to  both  the  giver  and  the  recipient. 

i^Adapted  from  The  Working  of  the  Railroads,  pp.  155-59.  Copyright  by 
Henry  Holt  &  Co.,  1907. 


PROBLEM  OF  RAILWAY  REGULATION  399 

c)  Makes  it  unlawful  after  May  i,  1908,  for  any  railroad  com-* 
pany  to  transport  for  sale  any  commodities  in  which  it  may  have  a 
proprietary  interest,  except  lumber  and  its  products. 

4)  Provides  that  a  common  carrier  shall  provide,  when  prac- 
ticable, and  upon  reasonable  terms,  a  switch  connection  for  any  appli- 
cant who  shall  furnish  sufficient  business  to  justify  its  operation. 

e)  Makes  more  explicit  the  specification  as  to  the  filing  of  tariffs, 
especially  providing  for  the  posting  and  filing  of  through  tariffs; 
fixing  penalty  for  violation. 

f)  Provides  that  "every  person  or  corporation,  whether  carrier 
or  shipper,  who  shall  knowingly  offer,  grant,  give  or  solicit,  or  accept, 
or  receive  rebates,  concession,  or  discrimination,  shall  be  deemed 
guilt}^  of  a  misdemeanor,  and  on  conviction  thereof  shall  be  punished 
by  a  fine  of  not  less  than  one  thousand  or  more  than  twenty  thousand 
dollars."  Moreover,  any  person,  whether  officer  or  director,  agent 
or  employe,  convicted  of  such  misdemeanor,  "shall  be  liable  to  im- 
prisonment in  the  penitentiary  for  a  term  not  exceeding  two  years, 
or  both  fine  and  imprisonment  in  the  discretion  of  the  court."  In 
addition,  the  acceptor  of  any  rebate  shall  forfeit  to  the  United  States 
three  times  the  amount  of  the  rebate. 

g)  Provides  for  the  publication  of  the  reports  and  the  decisions 
of  the  Commission  and  their  acceptance  as  evidence. 

h)  Empowers  the  Commission,  if  upon  complaint  it  finds  that 
a  rate,  or  any  regulation  or  practice  affecting  a  rate,  is  "Unjust  or 
unreasonable,  or  unjustly  discriminatory,  or  unduly  preferential  or 
prejudicial,"  to  determine  and  prescribe  a  maximum  rate  to  be 
charged  thereafter  and  modify  the  regulation  or  practice  pertaining 
thereto. 

i)  Empowers  the  Commission  to  award  damages  against  a  car- 
rier in  favor  of  a  complainant. 

j)  Provides  for  forfeit  to  the  United  States,  in  case  of  neglect 
to  obey  an  order  of  the  Commission,  in  the  sum  of  five  thousand 
dollars  for  each  offense,  each  violation  and  each  day  of  its  continuance 
to  be  deemed  a  separate  offense. 

k)  Empowers  the  Commission  to  apply  to  a  circuit  court  for  the 
enforcement  of  its  order,  other  than  for  the  payment  of  money;  for 
the  appeal  by  either  party  to  the  Supreme  Court  of  the  United  States ; 
and  that  no  order  of  the  Commission  shall  be  suspended  or  restrained, 
except  on  hearing,  after  not  less  than  five  days'  notice  to  the  Com- 
mission. 

I)  Provides  for  the  rehearing  by  the  Commission,  upon  applica- 
tion, at  its  discretion. 


400  CURRENT  ECONOMIC  PROBLEMS 

m)  Authorizes  the  Commission  to  require  annual  reports  from 
all  common  carriers,  that  shall  contain  specified  information ;  to  pre- 
scribe the  form  of  any  and  all  accounts,  records  and  memoranda  to 
be  kept  by  carriers,  making  it  unlawful  for  the  carriers  to  keep  any 
other  accounts,  records,  or  memoranda  than  those  prescribed  and 
approved  by  the  Commission ;  provides  that  all  accounts  of  the  car- 
riers shall  be  open  to  the  inspection  of  the  special  agents,  or  examiners 
employed  by  the  Commission, 

n)  Provides  that  a  common  carrier  issuing  a  through  bill  of 
lading  shall  be  responsible  for  loss,  damage  or  injury  to  the  prop- 
erty covered  thereby  upon  the  lines  of  any  company  over  which  it 
may  pass,  leaving  it  to  the  line  issuing  the  way-bill  to  gain  recovery 
from  another  line  upon  which  the  loss,  damage,  or  injury  may  have 
occurred. 

o)  Enlarges  the  Interstate  Commerce  Commission  from  five  to 
seven  members,  with  terms  of  seven  years,  increasing  the  salary  from 
seven  thousand  five  hundred  to  ten  thousand  dollars  per  annum, 

182.     The  Mann-Elkins  Act^^ 

The  Interstate  Commerce  Bill,  as  it  was  reported  out  of  confer- 
ence on  June  14,  contains  the  following  provisions : 

1.  It  creates  a  court  of  commerce  for  the  enforcement  of  orders 
of  the  Interstate  Commerce  Commission.^* 

2.  It  provides  that  no  railroad  shall  charge  any  greater  compen- 
sation for  a  shorter  than  for  a  longer  haul,  except  in  case  where  such 
action  is  authorized  after  investigation  by  the  Interstate  Commerce 
Commission. 

3.  It  provides  that  railroads  shall  be  required  to  state  in  writing 
the  rate  or  charge  applicable  to  a  described  shipment. 

4.  The  Interstate  Commerce  Commission  upon  complaint  is 
authorized  to  determine  and  prescribe  the  just  and  reasonable  indi- 
vidual or  joint  rate  as  the  maximum  to  be  charged  and  to  specify 
the  individual  or  joint  classification,  regulation,  or  practice  which  it 
deems  to  be  fair,  just,  and  reasonable. 

5.  The  commission  may  suspend  the  operation  of  any  new  rate, 
classification,  regulation,  or  practice  for  a  period  not  exceeding  120 
days,  and  extend  the  time  of  suspension  for  a  further  period  of  six 
months,  after  which  time  the  new  rate,  classification,  regulation  or 
practice  will  become  effective  unless  the  commission  orders  to  the 
contrary, 

i^Adapted  from  articles  in  the  Railway  and  Engineering  Review,  L  (1910), 
546-47,  587- 

i*This  court  was  practically  abolished  in  1912  by  the  failure  of  Congress 
to  make  financial  provision  for  its  support. 


PROBLEM  OF  RAILWAY  REGULATION  401 

6.  The  commission  may  establish  through  routes  and  joint  classi- 
fications and  joint  rates  as  to  the  maximum  to  be  charged  whenever 
the  carriers  themselves  refuse  to  do  so. 

7.  The  right  is  given  to  the  shipper  to  designate  one  of  several 
through  routes  by  which  his  property  shall  be  transported  to  its  desti- 
nation. 

8.  Every  failure  to  obey  an  order  of  the  commission  shall  be 
punished  by  a  fine  of  $5,000. 

9.  Copies  of  classification,  tariffs,  etc.,  furnished  to  the  commis- 
sion shall  be  public  records. 

10.  Authority  is  granted  for  the  appointment  of  a  commission  to 
report  upon  the  advisability  of  the  physical  valuation  of  roads  and  the 
control  of  railroad  capitalization. 


^    183.     The  Adamson  Act'= 

Two  systems  controlled  in  March,  191 6,  wages  of  railroad  em- 
ployees ;  one,  an  eight-hour  standard  of  work  and  wages  with  addi- 
tional pay  for  overtime,  governing  on  about  15  per  cent  of  the  rail- 
roads ;  the  other,  a  stated  mileage  task  of  one  hundred  miles  to  be 
performed  during  ten  hours  with  extra  pay  for  any  excess,  in  force 
on  about  85  per  cent  of  the  roads.  The  organizations  representing  the 
employees  of  the  railroads  in  that  month  made  a  formal  demand  on 
the  employers  that  as  to  all  engaged  in  the  movement  of  trains  except 
passenger  trains  the  lOO-mile  task  be  fixed  for  eight  hours,  provided 
that  it  was  not  so  done  as  to  lower  wages  and  provided  that  an  extra 
allowance  for  overtime  calculated  by  the  minute  as  one  and  one-half 
times  the  rate  of  the  regular  hour's  service  be  established.  The  de- 
mand made  this  standard  obligatory  on  the  railroads  but  optional  on 
the  employees,  as  it  left  the  right  of  the  employees  to  retain  their 
existing  system  on  any  particular  road  if  they  elected  to  do  so. 

The  principal  terms  of  the  demand  were  as  follows: 

"i.  In  all  road  service  100  miles  or  less,  eight  hours  or  less  will 
constitute  a  day,  except  in  passenger  service.  Miles  in  excess  of  100 
will  be  paid  for  at  the  same  rate  per  mile. 

"2.  On  runs  of  100  miles  or  less  overtime  will  begin  at  the  ex- 
piration of  eight  hours. 

"3.  On  runs  of  over  100  miles  overtime  will  begin  when  the  time 
on  duty  exceeds  the  miles  run  divided  by  12^  miles  per  hour. 

"4.  All  overtime  to  be  computed  on  the  minute  basis  and  paid 
for  at  one  and  one-half  times  the  pro  rata  rate. 

i^Adapted  from  the  opinion  of  the  court  in  the  case  of  Wilson  v.  New, 
243  U.  S.  340-342.    On  March  19,  1917,  the  court  found  the  Adamson  Act  valid. 


402  CURRENT  ECONOMIC  PROBLEMS 

"5.  No  one  shall  receive  less  for  eight  hours  or  100  miles  than 
they  now  receive  for  a  minimum  day  or  100  miles  for  the  class  of 
engines  used  or  for  the  service  performed. 

"6.  Time  will  be  computed  continuously  from  time  required  for 
duty  until  release  from  duty  and  responsibility  at  end  of  day  or 
run."  ^^ 

The  employers  refused  the  demand  and  the  employees  through 
their  organizations  by  concert  of  action  took  the  steps  to  call  a  general 
strike  of  all  railroad  employees  throughout  the  whole  country. 

The  President  of  the  United  States  invited  a  conference  between 
the  parties.  He  proposed  arbitration.  The  employers  agreed  to  it 
and  the  employees  rejected  it.  The  President  then  suggested  the 
eight-hour  standard  of  work  and  wages.  The  employers  rejected  this 
and  the  employees  accepted  it.  Before  the  disagreement  was  resolved 
the  representatives  of  the  employees  abruptly  called  a  general  strike 
throughout  the  whole  country  fixed  for  an  early  date.  The  President, 
stating  his  efforts  to  relieve  the  situation  and  pointing  out  that  no 
resources  at  law  were  at  his  disposal  for  compulsory  arbitration,  to 
save  the  commercial  disaster,  the  property  injury,  and  the  personal 
suffering  of  all,  not  to  say  starvation,  which  would  be  brought  to 
many  among  the  vast  body  of  the  people  if  the  strike  were  not  pre- 
vented, asked  Congress,  first,  that  the  eight-hour  standard  of  work 
and  wages  be  fixed  by  law,  and,  second,  that  an  official  body  be  created 
to  observe  during  a  reasonable  time  the  operation  of  the  legislation 
and  that  an  explicit  assurance  be  given  that  if  the  result  of  such  ob- 
servation established  such  an  increased  cost  to  the  employers  as  justi- 
fied an  increased  rate,  the  power  would  be  given  to  the  Interstate 
Commerce  Commission  to  authorize  it.  Congress  responded  by  enact- 
ing the  statute  whose  validity  we  are  called  upon  to  consider. 

D.     VALUATION  OF  THE  RAILROADS 

184.     Necessity  for  Valuation  of  Railway  Property^'^ 

The  Commission  desires  to  reaffirm  its  opinion  that  it  would  be 
wise  for  Congress  to  make  provision  for  a  physical  valuation  of  rail- 
way property.  The  increased  responsibilities  imposed  upon  the  Com- 
mission make  continually  clearer  the  importance  of  an  authoritative 
valuation  of  railway  property,  made  in  a  uniform  manner  for  all 
carriers  in  all  parts  of  the  country. 

1^  The  language  is  that  of  the  railroad  brotherhoods,  not  of  the  Supreme 
Court  of  the  United  States. 

^'''Adapted  from  the  Twenty-second  Annual  Report  of  the  Interstate  Com- 
merce Commission  (1908),  pp.  83-85. 


PROBLEM  OF  RAILWAY  REGULATION  403 

In  the  first  place,  the  Commission  has  been  called  upon  to  pass 
judgment  upon  certain  rate  cases,  in  which  the  reasonableness  of  a 
general  level  of  rates  was  brought  into  question,  and  for  such  cases 
one  of  the  most  important  considerations  is  the  amount  of  profit 
secured  to  the  investment.  The  actual  investment  in  an  enterprise 
needed  for  giving  the  public  adequate  transportation  facilities  is  en- 
titled to  a  reasonable  return,  and  no  more  than  a  reasonable  return,  in 
the  form  of  a  constant  profit ;  and  a  reasonable  schedule  of  rates  is 
one  that  will  produce  such  a  return. 

There  is  a  growing  tendency  on  the  part  of  carriers  to  meet 
attacks  upon  their  rates  by  making  proof,  through  their  own  experts, 
of  the  cost  of  reproducing  their  physical  properties.  It  is  obviously 
impossible  for  shippers  who  are  complainants  in  such  cases  to  meet 
and  rebut  such  testimony,  or  even  intelligently  cross-examine  the  rail- 
road witness  by  whom  such  proof  is  made.  In  addition  to  the  large 
expense  of  retaining  experts  competent  to  make  such  investigations, 
the  shippers  have  no  access  to  the  property  of  the  carriers  or  to  their 
records  showing  the  cost  of  construction  and  other  necessary  informa- 
tion. The  carriers,  on  the  other  hand,  having  access  to  the  records 
and  property,  can  use  the  information  compiled  from  them  or  not, 
in  any  given  case,  as  their  interests  may  require. 

A  second  consideration  is  the  importance  which  the  question  of 
capitalization  has  assumed  in  recent  years.  No  one  at  the  present 
time  can  say  whether  railways  are  undercapitalized  or  overcapitalized. 
A  valuation  adequate  to  this  problem  should  not  stop  with  the  simple 
statement  of  an  amount ;  on  the  contrary,  it  should  analyze  the  amount 
ascertained  according  to  the  sources  from  which  the  value  accrues 
and  show  the  economic  character  as  well  as  the  industrial  significance 
of  the  several  forms  of  value. 

A  third  argument  is  found  in  the  present  unsatisfactory  condi- 
tion of  railway  balance  sheets.  The  balance  sheet  is,  perhaps,  the 
most  important  of  the  statements  that  may  be  drawn  from  the  ac- 
counts of  corporations ;  for,  if  correctly  drawn,  it  contains  not  only 
a  classified  statement  of  corporate  assets  and  corporate  liabilities, 
but  it  provides  in  the  balance,  that  is  to  say,  the  "profit  and  loss,"  a 
quick  and  trustworthy  measure  of  the  success  that  has  attended  the 
operation  and  management  of  the  property.  Every  balance  sheet 
begins  with  "cost  of  property,"  against  which  is  set  a  figure  which 
purports  to  stand  for  the  investment.  At  present  no  court,  commis- 
sion, accountant,  or  financial  writer  would  for  a  moment  consider  the 
present  balance  sheet  statement,  purporting  to  give  the  "cost  of  prop- 
erty," even  in  a  remote  degree,  as  a  reliable  measure  either  of  the 
money  invested  or  of  present  value.    Thus,  at  the  first  touch  of  critical 


404  CURRENT  ECONOMIC  PROBLEMS 

analysis,  the  balance  sheets  of  American  railways  are  found  to  be 
inadequate.  They  are  incapable  of  rendering  the  service  which  may 
rightly  be  demanded  of  them.  The  only  possible  cure  for  such  a  situa- 
tion is  for  the  government  to  make  an  authoritative  valuation  of  rail- 
way property,  and  to  provide  that  the  amounts  so  determined  be 
entered  upon  the  books  of  the  carriers  as  the  accepted  measure  of 
capital  assets.^^ 

185.     Market  Value  as  a  Basis  for  Rates^^ 

BY  ROBERT   H.   WHITTEN 

The  theory  that  rates  should  be  based  upon  market  value  would 
allow  the  railroad  a  return  on  monopoly  value  from  favorable  loca- 
tion. Such  a  monopoly  value  is  not  usually  claimed  for  utilities.  It 
is  somewhat  similar  to  the  claim  that  location  in  the  city  streets  under 
a  franchise  can  be  capitalized  for  rate  valuation  purposes.  A  closer 
parallel,  however,  is  the  case  of  a  water  supply  plant  that  has  secured 
the  most  economical  source  of  supply.  It  is  inconsistent  with  what 
is  believed  to  be  the  governing  principle  of  justice  and  equity  which 
forms  the  basis  of  public  service  control,  that  rates  should  be  in- 
creased, in  order  to  pay  a  return  on  the  capitalized  value  of  exclusive 
location  or  other  monopoly  advantage  that  represents  no  actual  in- 
vestment. A  railroad  exercises  the  right  of  eminent  domain  to  secure 
its  location  and  the  right  of  eminent  domain  can  only  be  lawfully 
exercised  for  a  public  purpose.  The  location  secured  by  this  method 
for  a  public  purpose  cannot  justly  create  a  monopoly  that  will  be 
capitalized  against  the  very  public  purpose  that  it  was  intended  to 
serve — the  transportation  of  freight  and  passengers. 

By  the  foregoing  method  rates  are  based  on  cost,  but  not  neces- 
sarily on  the  cost  of  the  road  itself,  but  in  many  cases  on  the  cost  of  a 
competing  or  hypothetical  road.  Market  value  has  nothing  to  do 
with  the  rate  question  as  thus  considered.  It  is  only  set  up  after  the 
rates  are  in  fact  determined.  To  be  sure,  the  theory  is  that  rates  are 
based  on  a  fair  return  on  the  market  value  of  the  road  under  reasona- 
ble rates.  The  impossibility  of  basing  reasonable  rates  on  a  market 
value  that  is  itself  determined  by  reasonable  rates  is  apparent.  It  is 
a  clear  case  of  reasoning  in  a  circle.  We  have  the  evident  absurdity 
of  requiring  the  answer  to  the  problem  before  we  can  undertake  its 
solution.     Market  value  is  not  really  a  part  of  the  process  but  the 

^^An  Act  of  Congress,  of  March  i,  1913,  provided  for  the  valuation  of  the 
property  of  all  common  carriers  in  the  United  States  under  the  direction  of 
the  Interstate  Commerce  Commission. 

i^Adapted  from  Valuation  of  Public  Service  Corporations,  pp.  53-55. 
Copyright  by  the  author,  1912. 


PROBLEM  OF  RAILWAY  REGULATION  405 

final  result.  It  includes  in  many  cases  a  capitalization  of  certain 
monopoly  profits  and  the  monopoly  value  thus  created  is  set  up  as 
justifying  the  higher  rates  which  have  in  fact  created  the  monopoly 
value. 

186.     Physical  Valuation  as  the  Basis  of  Rates^° 

BY  SAMUEL  0.  DUNN 

In  recent  years  a  new  theory  of  the  proper  way  to  ascertain  the 
reasonableness  of  rates  has  gained  wide  acceptance.  Many  believe 
that  the  railways  of  this  country  are  overcapitalized.  They  think, 
therefore,  that  the  return  on  their  capitalization  is  not  a  criterion 
of  the  reasonableness  of  their  rates.  The  sole  true  criterion,  they 
believe,  is  a  "fair  return"  on  the  "fair  value"  of  the  properties  of 
the  railways;  a  "fair  return"  is  the  current  rate  of  inerest;  and 
therefore  the  government  should  make  a  valuation  of  the  properties, 
and  in  future  so  regulate  rates  as  to  restrict  net  earnings  to  the  current 
rate  of  interest  on  this  valuation. 

Many  believe  that  large  amounts  of  net  earnings,  that  legally 
might  have  been  paid  out  to  the  stockholders,  have  instead  been  in- 
vested in  the  properties.  The  properties  also  contain  a  large  amount 
of  so-called  "unearned  increment."  It  is  argued  that,  as  railways  are 
public  service  corporations,  their  owners  are  not  entitled  to  receive 
a  return  on  those  parts  of  their  value  which  have  been  created  by  the 
investment  of  earnings  or  by  increases  in  the  value  of  real  estate 
caused  by  the  industrial  development  of  the  country. 

The  owners  and  managers  contend,  on  the  other  hand,  that  in  any 
estimate  that  may  be  made  of  the  value  of  the  properties  on  which  a 
return  should  be  allowed  to  be  earned,  every  factor  entering  into 
their  present  value  should  be  considered.  The  net  earnings,  they  say, 
belong  to  the  stockholders.  They  may  either  invest  them  or  pay 
them  out  as  dividends ;  and  where  they  have  chosen  to  invest  them  the 
value  thereby  added  belongs  to  them.  They  also  own  the  real  estate 
used  for  railway  purposes  as  absolutely — so  long  as  it  is  used  for  rail- 
way purpose — as  the  farmer  owns  his  farm  ;  and  therefore  they  have 
the  same  right,  it  is  said,  to  profit  by  increases  in  its  value. 

From  a  legal  standpoint  the  spokesmen  for  the  railways  seem  to 
have  the  better  of  the  argument.  The  fifth  and  fourteenth  amend- 
ments to  the  federal  Constitution  prohibit  the  nation  and  the  states 
from  taking  private  property  for  public  use  without  due  process  of 
law  and  just  compensation.  When  the  railway,  in  the  exercise  of  the 
power'of  eminent  domain,  takes  the  farmer's  land,  these  provisions 

20Adapted  from  The  American  Transportation  Question,  pp.  84-95.  Copy- 
right by  D.  Appleton  &  Co.,  1912. 


4o6  CURRENT  ECONOMIC  PROBLEMS 

are  construed  to  mean  that  it  must  pay  him  for  it — not  what  it  cost 
him — but  its  reasonable  market  value  at  the  time  that  it  is  taken.  A 
similar  construction  of  the  same  provisions  as  they  apply  to  railways 
would  require  that  rates  should  be  so  regulated  as  to  enable  the  rail- 
ways to  earn  a  return  on  the  value  of  their  properties  at  the  time  that 
the  rates  are  being  regulated,  however  the  value  may  have  been  cre- 
ated. For  if  the  rates  were  so  regulated  as  to  disable  the  company 
from  earning  a  return  on  any  part  of  the  value  of  its  property  this 
would  be,  in  effect,  to  take  so  much  of  its  value. 

Any  plan  for  valuation,  other  than  present  value,  is  indefensible. 
Cost  of  reproduction  is  no  exception.  It  costs  on  the  average  from 
one  and  one-third  to*  three  times  as  much  to  get  land  for  railway 
as  for  other  purposes.  This  is  because  its  acquisition  and  use  for 
railway  purposes  involve  damage  to  adjacent  property  which  must 
be  paid  for,  and  because  land  that  is  directly  in  the  path  of  a  com- 
ing railway  attains  a  monopoly  value.  The  Railroad  Commission  of 
Minnesota,  in  making  its  valuation  of  the  railways  of  that  state,  held 
that  the  appraisal  of  railway  land  should  be  based  on  the  value  of 
adjacent  land  used  for  other  purposes. 

But  how,  railway  men  ask,  can  what  the  farmer  would  have  to 
pay  for  land  properly  be  used  as  a  factor  in  estimating  what  it  would 
cost  to  reproduce  the  railway?  Suppose  that  adjacent  farm  land 
were  worth  $ioo  an  acre ;  that  the  valuation  of  an  established  railway 
were  made  on  this  basis ;  and  that  afterward  there  was  built  a  new 
and  competing  line,  to  which  the  actual  cost  of  land  was  $200  an  acre. 
The  competitive  rates  on  competing  railways  must  be  the  same.  If 
the  rates  of  the  older  railway  were  to  be  so  fixed  as  to  restrict  it  to  a 
return  on  $100  an  acre,  the  new  railway  would  have  to  meet  them 
and  might  thereby  be  deprived  of  the  opportunity  to  earn  a  return  on 
part  of  its  actual  investment.  This  would  tend  to  discourage  new 
railway  construction. 

The  Railroad  Commission  of  Washington  met  a  situation  similar 
to  this  when  it  made  its  valuation  of  the  railways  of  that  state.  The 
Northern  Pacific,  many  years  ago,  acquired  land  for  extensive  ter- 
minals on  Puget  Sound  at  a  low  price.  The  Harriman  lines  recently 
built  to  Puget  Sound,  and  because  of  the  increase  in  the  value  of  land 
had  to  pay  very  much  more  for  it.  The  two  systems  were  competitors, 
and  had  to  make  the  same  competitive  rates.  To  have  based  the  valua- 
tion of  the  Northern  Pacific's  land  on  its  original  cost,  or  on  its 
estimated  value  for  other  than  railway  purposes,  might  have  pre- 
vented the  Harriman  lines  from  earning  a  fair  return  on  the  actual 
cost  of  their  land.     The  Commission,  therefore,  based  the  valua- 


PROBLEM  OF  RAILWAY  REGULATION  407 

tion  of  the  land  of  both  roads  on  its  present  estimated  cost  of  acquisi- 
tion for  railway  purposes. 

Another  important  point  in  estimating  the  cost  of  reproducing  the 
physical  plants  of  railways  is  what  deduction  should  be  made  for 
depreciation,  and  what  addition  should  be  made  for  appreciation,  in 
the  value  of  their  various  parts.  The  moment  a  rail  or  tie  is  laid,  or  a 
signal  tower  or  station  is  finished,  it  begins  to  deteriorate,  owing  to 
use,  and  the  ordinarily  insidious,  but  often  violent,  ravages  of  the 
elements.  But  while  the  depreciation  is  going  on  there  is  also  ap- 
preciation going  on.  As  soon  as  a  new  line  is  finished  maintenance 
forces  are  put  to  work,  if  it  is  well  managed,  which  limit  the  deprecia- 
tion that  takes  place  by  making  constant  repairs  and  renewals.  If  a 
deduction  from  the  cost  of  reproduction  should  be  made  because  of 
depreciation,  an  addition  to  it  should  be  made  because  of  apprecia- 
tion. 

According  to  the  widely  accepted  theory,  as  soon  as  an  estimate 
of  the  cost  of  physical  reproduction  is  finished,  we  should  go  ahead 
and  so  regulate  rates  on  a  road  as  to  limit  each  carrier  to  the  same 
return.  But  is  such  an  estimate  a  valuation?  Indubitably,  other 
things  being  equal,  a  railway  having  a  good  physical  plant  is  more 
valuable  than  one  having  a  poor  one.  But,  surely,  the  estimated 
cost  of  reproducing  a  railroad's  plant  is  not  the  value  of  the  plant; 
and  the  value  of  the  plant  is  not  the  value  of  the  railroad. 

A  railway  through  mountainous  country  might  be  more  expen- 
sive to  reproduce  than  one  built  through  easy  prairie  country ;  but 
the  latter's  plant  may  be  the  more  valuable,  simply  because  it  is  the 
better  machine  for  rendering  transportation. 

Again,  of  two  roads  having  equally  good  physical  plants,  that 
having  the  larger  net  earnings  is  plainly  the  more  valuable.  Now, 
net  earnings  do  not  depend  solely  on  rates.  They  are  the  margin 
between  gross  earnings  and  operating  expenses.  Gross  earnings  de- 
pend not  only  on  the  rates  charged,  but  on  the  nature  and  density  of 
traffic.  These,  in  turn  result  largely  from  the  energy  and  skill  used 
by  the  traffic  department  of  the  railway  in  attracting  population 
to  its  lines,  teaching  the  farmers  how  to  increase  the  productivity 
of  the  soil,  securing  the  opening  of  mines  and  the  location  of  factories 
and  so  adjusting  rates  as  to  enable  producers  in  the  territory  to 
compete  successfully  in  the  markets  of  the  entire  country  and  of  the 
world  against  the  producers  in  other  sections  and  countries.  Whether 
operating  expenses  shall  be  high  or  low  in  proportion  to  gross  earn- 
ings depends  on  the  enterprise  and  skill  used  by  the  management  in 
reducing  the  grades  and  eliminating  the  curvature  in  track,  in  en- 
larging terminals,  developing  esprit  de  corps  among  officers  and  em- 


4o8  CURRENT  ECONOMIC  PROBLEMS 

ployees,  increasing  shop  efficiency,  augmenting  tonnage  per  car  and 
per  train  load,  and  in  a  hundred  other  elements  of  good  management. 
A  road  whose  traffic  is  large  and  whose  operating  expenses  are  re- 
latively small  obviously  would  have  larger  net  earnings,  and,  therefore, 
be  a  more  valuable  property  than  a  road  on  which  the  traffic  is  re- 
latively small  and  the  operating  expenses  relatively  high,  on  any  basis 
of  rates  whatever  that  might  be  applied  on  both. 

Large  traffic  and  relatively  low  operating  expenses  are  strong 
evidences  of  good  management.  If  valuation  were  based  entirely 
on  the  cost  of  physical  reproduction,  and  the  net  earnings  of  each 
road  could  be,  and  were,  limited  to  the  same  amount,  the  better 
managed  roads  would  be  deprived  of  the  fruits  of  their  good  man- 
agement. 

As  a  matter  of  fact,  such  regulation  probably  would  be  entirely 
impracticable;  for  the  competitive  rates  on  different  roads  must  be 
the  same;  and,  owing  to  the  differences  in  density  of  traffic  and 
operating  expenses,  no  two  roads  charging  the  same  rates  could 
be  made  to  earn  the  same  percentages  on  their  valuations. 

187.     The  "Railway  Value"  of  Land^^ 

It  is  manifest  that  an  attempt  to  estimate  what  would  be  the 
actual  cost  of  acquiring  the  right  of  way  if  the  railroad  were  not 
there  is  to  indulge  in  mere  speculation.  The  railroad  has  long  been 
established;  to  it  have  been  linked  the  activities  of  agriculture,  in- 
dustry, and  trade.  Communities  have  long  been  dependent  upon 
its  service,  and  their  growth  and  development  have  been  conditioned 
upon  the  facilities  it  has  provided.  The  uses  of  property  in  the 
communities  which  it  serves  are  to  a  large  degree  determined  by 
it.  The  values  of  property  along  its  line  largely  depend  upon  its 
existence.  It  is  an  integral  part  of  the  communal  life.  The  assump- 
tion of  its  non-existence,  and  at  the  same  time  that  the  values  that 
rest  upon  it  remain  unchanged,  is  impossible  and  cannot  be  enter- 
tained. The  conditions  of  ownership  of  the  property  and  the  amounts 
which  would  have  to  be  paid  in  acquiring  the  right  of  way,  supposing 
the  railroad  to  be  removed,  are  wholly  beyond  reach  of  any  process 
of  rational  determination.  The  cost-of-reproduction  method  is  of 
service  in  ascertaining  the  present  value  of  the  plant,  when  it  is 
reasonably  applied  and  when  the  cost  of  reproducing  the  property 
may  be  ascertained  with  a  proper  degree  of  certainty.  But  it  does 
not  justify  the  acceptance  of  results  which  depend  upon  mere  con- 
jecture. 

2iAdapted  from  the  opinion  of  the  court  in  Simpson  v.  Shepard,  33  Supreme 
Court  Reporter  761   (1913).     This  is  the  well-known  "Minnesota  Rate  Case." 


PROBLEM  OF  RAILWAY  REGULATION  409 

The  question  is  whether,  in  determining  the  fair  present  value 
of  the  property  of  the  railroad  company  as  a  basis  of  its  charges  to 
the  public,  it  is  entitled  to  a  valuation  of  its  right  of  way  not  only 
in  excess  of  the  amount  invested  in  it,  but  also  in  excess  of  the 
market  value  of  contiguous  and  similarly  situated  property.  For 
the  purpose  of  making  rates,  is  its  land  devoted  to  the  public  use 
to  be  treated  (irrespective  of  improvements)  not  only  as  increasing 
in  value  by  reason  of  the  activities  and  general  prosperity  of  the 
community,  but  as  constantly  outstripping  in  this  increase  all  neigh- 
boring lands  of  like  character,  devoted  to  other  uses?  If  rates  laid 
by  competent  authority,  state  or  national,  are  otherwise  just  and 
reasonable,  are  they  to  be  held  to  be  unconstitutional  and  void  be- 
cause they  do  not  permit  a  return  upon  an  increment  so  calculated? 

It  is  clear  that  in  ascertaining  the  present  value  we  are  not  limit- 
ed to  the  consideration  of  the  amount  of  the  actual  investment.  If 
that  has  been  reckless  or  improvident,  losses  may  be  sustained 
which  the  community  does  not  underwrite.  As  the  company  may 
not  be  protected  in  its  actual  investment,  if  the  value  of  its  property 
be  plainly  less,  so  the  making  of  a  just  return  for  the  use  of  the 
property  involves  the  recognition  of  its  fair  value  if  it  be  more 
than  its  cost.  The  property  is  held  in  private  ownership,  and  it  is 
that  property,  and  not  the  original  cost  of  it,  of  which  the  owner 
may  not  be  deprived  without  due  process  of  law.  But  still  it  is 
property  employed  in  a  public  calling,  subject  to  governmental  reg- 
ulation, and  while,  under  the  guise  of  such  regulation,  it  may  not 
be  confiscated,  it  is  equally  true  that  there  is  attached  to  its  use  the 
condition  that  charges  to  the  public  shall  not  be  unreasonable.  And 
where  the  inquiry  is  as  to  the  fair  value  of  the  property,  in  order 
to  determine  the  reasonableness  of  the  return  allowed  by  the  rate- 
making  power,  it  is  not  admissible  to  attribute  to  the  property 
owned  by  the  carriers  a  speculative  increment  of  value,  over  the 
amount  invested  in  it  and  beyond  the  value  of  similar  property 
owned  by  others,  solely  by  reason  of  the  fact  that  it  is  used  in  the 
public  service.  That  would  be  to  disregard  the  essential  conditions 
of  the  public  use,  and  to  make  the  public  use  destructive  of  the 
public  right. 

The  increase  sought  for  "railway  value"  in  these  cases  is  an 
increment  over  all  outlays  of  the  carrier  and  over  the  values  of 
similar  land  in  the  vicinity.  It  is  an  increment  which  cannot  be 
referred  to  any  known  criterion,  but  must  rest  on  a  mere  expression 
of  judgment  which  finds  no  proper  test  or  standard  in  the  transac- 
tions of  the  business  world. 


410  CURRENT  ECONOMIC  PROBLEMS 

Assuming  that  the  company  is  entitled  to  a  reasonable  share  in 
the  general  prosperity  of  the  communities  which  it  serves,  and  thus 
to  attribute  to  its  property  an  increase  in  value,  still  the  increase  so 
allowed,  apart  from  any  improvements  it  may  make,  cannot  properly 
extend  beyond  the  fair  average  of  the  normal  market  value  of  land 
in  the  vicinity  having  a  similar  character.  Otherwise  we  enter  the 
realm  of  mere  conjecture.  We  therefore  hold  that  it  was  error  to 
base  the  estimates  of  value  of  the  right  of  way,  yards,  and  terminals 
upon  the  so-called  "railway  value"  of  the  property.  The  company 
would  certainly  have  no  ground  of  complaint  if  it  were  allowed  a 
value  for  these,  lands  equal  to  the  fair  average  market  value  of  sim- 
ilar land  in  the  vicinity. 

E.     THE  RAILROADS  IN  WAR  TIME 

188.     The  Beginning  of  Federal  Control" 

Probably  the  most  far-reaching  action  with  reference  to  transpor- 
tation taken  by  public  authority  in  a  generation  or  more  has  been  the 
President's  proclamation  on  December  26,  directing  the  practical 
transfer  of  the  railroads  of  the  country  to  government  control.  The 
course  thus  determined  upon  follows  the  publication  of  the  findings 
of  the  Interstate  Commerce  Commission  on  December  5,  wherein 
it  is  set  forth,  in  reply  to  the  roads'  plea  for  higher  rates,  that  such 
higher  rates  would  not  materially  assist  their  present  condition. 
From  the  standpoint  of  the  government  three  principal  reasons  are 
seen  for  the  taking  over  of  the  lines : 

1.  The  avoidance  of  obstructions  to  transportation  due  to  the 
routing  and  division  of  freight,  intended  to  give  a  fair  share  to  each 
line  in  a  given  territory. 

2.  The  abolition  of  preferences  to  given  shippers  and  kinds  of 
freight,  and  the  centralization  of  control  over  priority  in  shipment. 

3.  The  practical  termination  of  rate  controversies  and  labor 
discussions  as  between  private  individuals  and  the  placing  of  the 
roads  on  a  semi-military  basis. 

The  railroads  themselves  have  received  the  announcement  of  the 
President's  action  with  much  greater  equanimity  than  could  have 
been  expected.  They  undoubtedly  see  in  the  step  the  following 
advantages : 

I.  Assurance  of  a  moderate  if  not  generous  income  in  a  period 
of  great  uncertainty  and  difficulty,  during  which  they  have  been 

22Adapted  from  "Washington  Notes,"  Journal  of  Political  Economy, 
XXVI   (1918),  91. 


PROBLEM  OF  RAILWAY  REGULATION  411 

caught  between  the  upper  and  nether  millstones  of  fixed  rates  and  ad- 
vancing costs  and  wages. 

2.  Termination  of  the  danger  that  threatened  them  from  the  con- 
tinually maturing  obligations  which  ordinarily  they  would  have  little 
trouble  in  refinancing,  but  which,  under  existing  conditions,  can 
scarcely  be  provided  for  on  any  basis. 

3.  Provision  of  means  for  betterment  and  improvement  at  a  time 
when  such  provision  can  be  had  practically  only  through  government 
orders  designed  to  place  such  requirements  ahead  of  those  of  private 
concerns. 

Due  to  recognition  of  these  considerations,  investors  who  had 
previously  regarded  the  situation  with  the  utmost  pessimism  have 
shown  much  greater  confidence  and  enthusiasm  with  respect  to  rail- 
road securities,  as  is  indicated  by  a  rise  of  from  five  to  ten  points  in 
general  values. 

189.     The  Policy  of  the  Railroad  Administration^^ 

BY  WILLIAM  CMC  ADOO 

The  policy  of  the  United  States  Railroad  Administration  has  been 
informed  and  shaped  by  a  desire  to  accomplish  the  following  pur- 
poses, which  are  named  in  what  I  conceive  to  be  the  order  of  their 
importance : 

First,  the  winning  of  the  war,  which  includes  the  prompt  move- 
ment of  the  men  and  the  material  that  the  government  requires. 
To  this  everything  else  must  be  subordinated. 

Second,  the  service  of  the  public,  which  is  the  purpose  for  which 
the  railways  were  built  and  given  the  privileges  accorded  them.  This 
implies  the  maintenance  and  improvement  of  the  railroad  properties 
so  that  adequate  transportation  facilities  will  be  provided  at  the  lowest 
cost,  the  object  of  the  government  being  to  furnish  service  rather 
than  to  make  money. 

Third,  the  promotion  of  a  spirit  of  sympathy  and  a  better  under- 
standing between  the  administration  of  the  railways  and  their  two 
million  employees,  as  well  as  their  one  hundred  million  patrons,  which 
latter  class  includes  every  individual  in  the  nation,  since  transporta- 
tion has  become  a  prime  and  universal  necessity  of  civilized  existence. 

Fourth,  the  application  of  sound  economies,  including: 

The  elimination  of  superfluous  expenditures. 

The  payment  of  a  fair  and  living  wage  for  services  rendered  and 
a  just  and  prompt  compensation  for  injuries  received. 

23Adapted  from  "Doings  of  the  United  States  Railroad  Administration." 
Statement  by  the  Director-General  on  June  15,  1918. 


412  CURRENT  ECONOMIC  PROBLEMS 

The  purchase  of  material  and  equipment  at  the  lowest  prices  con- 
sistent with  a  reasonable,  but  not  an  excessive,  profit  to  the  producer. 

The  adoption  of  standardized  equipment  and  the  introduction  of 
approved  devices  that  will  save  life  and  labor. 

The  routing  of  freight  and  passenger  traffic  with  due  regard  to 
the  fact  that  a  straight  line  is  the  shortest  distance  between  two  points. 

The  intensive  employment  of  all  equipment  and  a  careful  record 
and  scientific  study  of  the  results  obtained,  with  a  view  to  determin- 
ing the  comparative  efficiency  secured. 

The  development  of  this  policy  will,  of  course,  require  time.  The 
task  to  which  the  Railroad  Administration  has  addressed  itself  is  an 
immense  one.  It  is  as  yet  too  early  to  judge  of  the  results  obtained, 
but  I  believe  that  great  progress  has  been  made  toward  the  goal  of 
our  ideals.  All  those  who  have  had  a  share  in  this  great  work,  includ- 
ing especially  the  members  of  my  staff  and  the  officers  and  employees 
of  the  railways,  have  shown  intelligence,  public  spirit,  loyalty,  and 
enthusiasm  in  dealing  with  problems  that  have  already  been  solved 
and  in  attacking  those  that  still  await  solution. 

With  their  continued  co-operation  I  feel  assured  of  a  future  in 
which  the  lessons  of  our  accumulating  experience  will  be  effectively 
employed  to  humanize  the  science  of  railroading  and  negative  the  idea 
that  corporations  have  no  souls. 

190.     The  Results  of  Federal  Control-* 

BY  J.  MAURICE  CLARK 

I.  Finance. — The  three  most  important  financial  acts  of  the  new 
Railroad  Administration  in  its  first  half-year  were :  ( i )  the  allotment 
of  nearly  a  billion  dollars  for  betterments  and  extensions,  (2)  in- 
creases in  wages  which  are  expected  to  amount  to  $300,000,000  in 
191 8,  and  (3)  sweeping  increases  in  freight  and  passenger  rates. 

The  total  amount  allowed  for  capital  expenditures  for  1918  was 
$937»96i,3i8,  while  proposed  outlays  amounting  to  over  a  third  more 
were  eliminated  in  the  final  revision.  Of  this  sum,  only  eighteen 
millions  go  to  extensions,  the  rest  being  fairly  evenly  divided  between 
the  two  heads  of  equipment,  and  additions  and  betterments  to  existing 
plant.  The  result  should  be  to  enable  the  roads  to  cut  down  their 
expense  of  conducting  transportation,  which  have  been  unduly 
swollen  by  the  past  season's  congestion  of  freight.  The  funds  for 
these  plant  outlays  come  partly  from  the  surpluses  of  the  roads 

2*Adapted  from  a  selection  in  Clark,  Hamilton  and  Moulton,  Readings  in 
the  Economics  of  War,  pp.  358-59.  Copyright  by  the  University  of  Chicago, 
1918. 


PROBLEM  OF  RAILWAY  REGULATION  413 

themselves  and  partly  from  the  "revolving  fund"  of  $500,000,000 
appropriated  by  act  of  Congress. 

The  advances  in  v^ages  were  based  on  the  report  of  a  v\^age  com- 
mission, with  minor  changes,  and  the  largest  percentage  of  increase 
goes  to  those  receiving  the  lowest  wages.  The  increases  are  cal- 
culated from  the  wages  of  December,  191 5,  and  since  that  time  the 
roads  themselves  have  increased  wages  more,  in  some  cases,  than  the 
McAdoo  order  increases  them,  especially  in  the  higher  grades  of  work, 
where  the  men  are  strongly  organized.  The  Adamson  eight-hour  law 
has  undoubtedly  had  the  effect  of  raising  wages.  The  advances  were 
made  retroactive,  taking  effect  January  i,  1918,  though  the  order  was 
issued  May  26.  The  wage  question  is  of  course  always  open  to 
further  adjustment. 

The  increase  in  rates  and  fares  was  made  for  the  purpose  of 
meeting  extraordinary  increases  in  operating  expenses,  estimated  at 
from  $830,000,000  to  $860,000,000  for  1918,  including  the  rise  in 
wages.  Freight  rates  were  ordered  increased  by  25  per  cent,  except 
so  far  as  specific  increases  were  ordered  for  particular  commodities, 
such  as  coal,  coke,  and  iron  ores.  The  same  order  levels  state  rates 
up  to  the  interstate  basis  and  cancels  all  export  and  import  rates,  thus 
putting  an  end  to  the  practice  of  charging  less  for  the  same  haul  on 
goods  that  are  going  abroad  or  coming  from  abroad  than  on  domestic 
freight.  Passenger  fares  are  increased  to  3  cents  per  mile,  or  3^ 
cents  in  Pullmans  (in  addition  to  the  Pullman  charge),  and  com- 
mutation fares  are  raised  10  per  cent.  These  new  rates  should  yield 
enormous  increases  in  operating  revenues  over  the  $3,824,419,739 
earned  by  the  roads  in  1917.  There  is  little  danger  that  the  roads 
will  suffer  serious  loss  by  reason  of  any  shrinkage  of  traffic  resulting 
from  the  increased  charges.  Passenger  fares  may  prove  high  enough 
to  discourage  unnecessary  travel,  but  the  administration  appears 
quite  ready  to  take  advantage  of  this  opportunity  to  reduce  passenger 
schedules  and  free  the  roads  for  the  more  essential — and  more  profit- 
able— movement  of  freight. 

2.  Operation. — It  was  a  black  time  when  the  federal  admin- 
istration took  over  the  roads,  so  far  as  operation  was  concerned.  The 
lines  were  congested  to  the  point  of  breakdown,  and  blizzards  and 
severe  cold  (which  cuts  down  the  ability  of  locomotives  to  make 
steam)  furnished  the  finishing  touches.  The  traffic  became  so  thor- 
oughly blocked  that  in  the  first  month  of  federal  control  the  eastern 
lines  did  not  move  enough  freight  to  pay  their  operating  expenses. 

The  priority  system  permitted  the  yards  to  fill  up  with  more 
freight  than  could  be  hauled,  and  one  of  the  first  acts  of  the  new 
administration  was  to  put  in  its  place  a  policy  of  embargoing  traffic 


414  CURRENT  ECONOMIC  PROBLEMS 

which  it  thought  it  could  not  move.  The  measure  that  the  Railroads* 
War  Board  had  taken  to  increase  operating  efficiency  were  carried 
farther  under  the  new  management.  Freight  cars  were  made  to 
carry  even  heavier  loads,  cars  were  more  freely  ordered  from  one  road 
to  another,  and  the  administration's  control  of  the  routing  of  freight 
was  made  absolute,  regardless  of  shippers'  preferences  or  of  the 
earnings  of  particular  roads.  The  policy  is  to  route  freight  over  the 
shortest  line,  or,  if  that  is  congested,  then  over  the  shortest  line  that 
is  open.  A  "train-lot  plan"  of  freight  moving  has  been  used  with 
great  success,  the  plan  hinging  on  the  willingness  of  the  roads  to  give 
up  their  privilege  of  getting  what  traffic  they  can  and  moving  it  when 
they  find  it  advisable  not  to  keep  the  shippers  waiting  any  longer, 
whether  the  train  is  full  or  not.  Passenger  schedules  have  been  still 
further  cut,  and  perhaps  to  better  effect  than  before.  Under  competi- 
tive conditions  the  temptation  is  strong  to  keep  the  through  train,  let 
us  say,  between  Chicago  and  Minneapolis,  which  competes  with  the 
rival  road's  through  train,  and  to  let  some  less  profitable  or  less 
strategic  train  go.  Competitive  duplications  in  passenger  schedules 
were  by  no  means  eliminated  under  the  Railroads'  War  Board,  though 
many  trains  were  taken  off  relatively  unprofitable  branch  lines  where 
there  was  no  duplication.  Freight  solicitation  has  been  stopped  and 
the  city  ticket  offices  of  the  different  roads  are  being  consolidated, 
while  terminal  facilities  are  being  pooled  to  such  an  extent  that  some 
observers  doubt  if  they  can  ever  be  "unscrambled." 

One  of  the  most  hotly  debated  moves  of  the  Railroad  Adminis- 
tration has  been  the  introduction  of  standardized  cars  and  engines. 
The  chief  arguments  in  favor  of  this  policy  are :  ( i )  It  will  facilitate 
the  free  movement  of  equipment  from  one  line  to  another  and  make 
possible  the  economies  of  pooled  equipment  without  the  waste  that 
results  if  rolling  stock  has  to  be  sent  home  for  repairs  or  be  repaired 
in  shops  not  fitted  for  it.  (2)  Economies  in  construction  are  expected 
from  quantity  output.  The  chief  arguments  against  the  plan  are: 
(i)  The  models  will  be  compromises  and  less  efficient  than  the  best 
now  in  use.  Locomotives  in  particular  are  now  adapted  to  the  grades 
and  operating  conditions  of  each  particular  line  far  more  closely  than 
standardized  engines  could  possibly  be.  (2)  Delay  inevitably  results 
when  new  plans  must  be  prepared  instead  of  utilizing  those  already 
available.  It  appears  that  many  of  the  plans  for  standardization 
have  had  to  be  abandoned.  Meanwhile  the  ordering  of  new  engines 
and  cars  was  delayed  for  several  months,  with  the  result  that  no 
new  rolling  stock  can  be  delivered  in  1918  until  late  in  the  autumn, 
and  then  probably  less  than  100,000  cars,  and  this  in  the  face  of  an 
annual  death  toll  of  approximately  150,000  cars. 


PROBLEM  OF  RAILWAY  REGULATION  415 

One  excellent  example  of  the  difference  between  the  way  things 
can  be  done  under  federal  operation  and  the  way  they  have  had  to  be 
done  under  private  operation  is  furnished  by  the  raising  of  demurrage 
rates.  Demurrage  is  a  charge  made  to  shippers  who  hold  cars 
unloaded  beyond  a  specified  time,  and  the  rate  was  formerly  $1.00 
per  day.  The  roads  had  long  been  negotiating  with  a  view  to  sub- 
stituting a  sliding  scale  of  from  $2.00  to  $5.00  per  day,  and  had 
finally  got  permission  from  the  Interstate  Commerce  Commission  and 
several  state  commissions.  Under  war  conditions  shippers  often 
held  cars  in  spite  of  demurrage  (especially  contractors  whose  pay  was 
to  be  a  percentage  above  their  costs).  The  Director  General  was 
able,  without  waiting  for  negotiations  and  consents,  to  establish  a 
sliding  scale,  $3.00  for  the  first  day,  $4.00  for  the  second,  and  so  on 
up  to  a  maximum  of  $10.00  for  the  eighth  and  subsequent  days, 
while  offending  shippers  were  put  under  embargoes. 

Such  sweeping  action  as  this  or  the  increase  in  freight  and  pas- 
senger charges  was  made  possible  by  three  facts:  (i)  A  central 
authority  had  taken  the  place  of  the  "system  of  checks  and  balances" 
between  privately  owned  roads  and  state  and  federal  commissions 
with  their  essential  conflict  of  jurisdiction.  This  central  power  could 
act  swiftly,  but  even  so,  in  certain  states,  there  were  "vested  interests" 
in  existing  differentials  between  state  and  interstate  rates,  and  these 
were  strong  enough  to  bring  about  a  modification  of  the  rate  order  so 
far  as  it  disturbed  these  differentials.  (2)  The  responsibility  was 
taken  by  an  agency  of  government,  not  by  the  railroad  companies. 
(3)  It  could  not  increase  the  profits  of  the  companies,  since  these  were 
fixed  under  the  federal  guaranty.  These  last  two  facts  tended  to 
allay  popular  opposition,  perhaps  even  more  powerfully  than  the 
general  recognition  of  the  need  of  "putting  up  with  things"  in  the 
emergency  of  war. 

191.     The  Outcome  and  the  Future" 

BY  T.  W.  VAN  METRE 

There  is  a  general  impression  that  the  laws  of  the  country  have 
prevented  unity  of  operation  among  railways,  and  a  consistent  at- 
tempt has  been  made  to  lay  at  the  door  of  the  government  the  failure 
of  the  carriers  to  co-operate  in  the  use  of  their  physical  equipment. 
The  railroads  have  failed  to  "get  together"  merely  because  in  every- 
thing except  the  fixing  of  rates  the  railroad  business  is  required  by 
law  to  be  a  highly  competitive  business. 

25Adapted  from  "Failures  and  Possibilities  in  Railroad  Regulation," 
Annals  of  the  American  Academy  of  Political  and  Social  Science,  LXXXVI, 
3-13.  Copyright  by  the  American  Academy  of  Political  and  Social  Science, 
1918. 


41 6  CURRENT  ECONOMIC  PROBLEMS 

It  is  useless  to  assume  that  the  repeal  of  the  anti-pooling  clause 
of  the  Act  to  Regulate  Commerce  and  the  modification  of  the  Sherman 
Law  would  by  themselves  be  enough  to  bring  about  voluntary  railroad 
unity.  These  laws  have  not  stood  in  the  way  of  the  operating  unit) 
sorely  needed  at  many  terminals,  and  the  mere  repeal  of  these  acts  will 
not  affect  this  situation.  There  is  no  doubt  that  the  formation  of  pool- 
ing agreements  would  make  it  easier  for  the  railroad  companies  to 
effect  the  financial  arrangements  necessary  to  a  plan  of  united  opera- 
tion under  private  ownership,  if  the  private  owners  want  such  a  plan. 
Hence,  if  private  operation  is  to  be  resumed,  it  is  desirable  that  pool- 
ing should  be  permitted ;  but  the  mere  toleration  of  pools  and  rate 
agreements  will  not  lead  to  the  voluntary  unification  of  physical 
facilities  so  long  as  railroad  managers  desire  to  continue  their  hold 
on  their  particular  monopoly  advantages. 

That  some  adequate  system  of  railroad  regulation  can  be  devised 
which  will  permit  the  railroads  to  prosper  and  give  efficient  service 
at  reasonable  rates  is  not  to  be  doubted,  and  it  is  with  this  goal  in 
view  that  the  next  steps  in  railroad  regulation  must  be  taken.  The 
United  States  is  not  prepared  to  adopt  a  program  of  government 
ownership  of  railroads,  and  it  is  to  be  hoped  that  once  the  present 
crisis  is  passed  the  railroads  will  be  returned  to  private  management 
and  a  system  of  regulation  be  devised  under  which  satisfactory  results 
may  be  obtained.  We  certainly  shall  never  return  to  the  policy 
recently  abandoned,  which  has  proved  such  a  lamentable  failure,  and 
if  government  ownership  is  to  be  avoided  we  should  begin  at  once  to 
take  stock  of  failures  and  successes  and  to  make  plans  for  the  future. 
There  are  a  number  of  radical  changes  that  can  be  safely  made  which 
would  go  far  toward  establishing  our  regulative  system  on  a  funda- 
mentally sound  basis  and  would  render  easy  the  working  out  of  the 
details  of  a  harmonious  and  constructive  policy. 

The  dual  system  of  regulation  as  carried  on  at  present  inevitably 
leads  to  a  violation  of  the  fundamental  principles  upon  which  regula- 
tion is  based :  that  rates  shall  be  just  and  reasonable,  and  that  they 
shall  not  be  unduly  discriminatory.  While  it  is  possible  technically 
to  distinguish  between  interstate  and  intrastate  traffic,  there  is  in  an 
economic  sense  no  real  distinction  between  them.  The  fact  that 
nine-tenths  of  railroad  traffic  is  interstate  and  consequently  already 
under  the  jurisdiction  of  the  federal  commission  would  seem  to  indi- 
cate that  the  remaining  tenth  could  be  safely  entrusted  to  its  authority 
without  any  undue  increase  of  its  work  and  with  a  considerable  gain 
in  the  efficiency  and  uniformity  of  regulation. 

The  urgent  need  for  a  unified  system  of  regulating  the  issue  of 
securities  by  railroad  corporations  and  the  almost  unanimous  belief 


PROBLEM  OF  RA ILWA  Y  REGULA  TION  4 1 7 

that  this  function  should  be  intrusted  to  federal  authority  lead  one 
to  wonder  why  it  takes  so  long  to  secure  a  law  by  which  this  much- 
needed  change  may  be  accomplished.  When  such  a  law  is  enacted 
it  is  to  be  hoped  that  it  will  also  include  provision  for  some  supervision 
of  the  expenditure  of  funds  derived  from  the  sale  of  authorized  secur- 
ities. There  is  a  serious  question  in  many  minds  as  to  the  wisdom 
with  which  the  large  investments  placed  in  the  railroad  business  in 
recent  years  have  been  used.  The  wholesale  expenditure  for  the 
construction  of  huge  passenger  terminals  at  a  time  when  the  need  for 
improved  freight  terminal  facilities  was  probably  much  more  pressing 
has  been  looked  upon  with  some  disfavor,  both  on  account  of  the 
disparity  of  income  from  the  freight  and  passenger  business  and 
because  in  many  cases  the  passenger  terminals  represent  costly 
duplications  of  effort  with  results  that  do  not  show  much  progress 
toward  an  ultimate  solution  of  the  problem  of  handling  a  rapidly 
congesting  passenger  traffic. 

There  should  be  devised  some  plan  by  which  needed  increases  in 
rates  can  be  secured  with  more  expedition  and  promptness  than  ap- 
pears to  be  possible  under  present  conditions.  It  is  not  advisable  that 
the  authority  of  regulative  agencies  to  suspend  proposed  increases  be 
withdrawn,  but  it  would  probably  be  helpful  if  the  time  of  rate  suspen- 
sions were  made  shorter  than  is  now  customary.  It  is  of  the  utmost 
importance  that  the  credit  of  soundly  financed  railroads  be  main- 
tained, and  this  can  be  done  only  if  methods  are  devised  for  meeting 
promptly  sudden  emergencies.  Rates  are  now  flexible  in  but  one 
direction,  and  it  is  extremely  difficult  for  the  carriers  to  adjust 
their  charges  so  as  to  meet  the  rapid  increases  in  wages  and  prices 
of  materials. 

And  finally,  as  a  sine  qua  non  of  a  resumption  of  private  operation, 
provision  must  be  made  for  the  permanency  of  the  operating  unity 
now  going  into  effect.  Two  things  will  have  to  be  done :  ( i )  The 
carriers  must  be  permitted  to  enter  pooling  agreements  by  means  of 
which  the  financial  adjustments  necessary  to  operating  untiy  may  be 
effected;  (2)  the  carriers  must  be  required  to  combine  their  physical 
facilities  wherever  such  combination  will  result  in  improved  service. 

There  is  no  reason  for  limiting  the  unified  "continental  railway 
system"  to  the  duration  of  the  war ;  its  proved  advantages  will  be  all 
the  more  valuable  with  the  return  of  peace.  It  must  not  be  expected 
that  the  railroad  companies  will  voluntarily  enter  agreements  for 
unity  of  operation,  though  it  is  highly  probable  that  the  present 
experience  with  unification  under  government  control  will  render 
compulsion  less  difficult.  In  the  main  the  joint  use  of  facilities  will 
be  confined  to  terminals,  where  the  wastes  of  competition  have  been 


4i8  CURRENT  ECONOMIC  PROBLEMS 

greatest.  Saving  must  be  accomplished,  however,  through  a  more 
elastic  system  of  routing  shipments;  the  expensive  duplication  in 
passenger  service  may  be  cut  down,  and  the  necessity  for  private 
car  lines  and  express  companies — parasitic  organizations  which  came 
into  existence  solely  because  of  the  lack  of  a  unified  system  of  opera- 
tion— will  be  entirely  eliminated ;  such  companies  have  performed  a 
real  public  service  in  the  past,  but  with  unity  of  railroad  operation  they 
will  exist  for  no  useful  purpose.  The  chief  economy  will  be  effected, 
however,  through  the  reconstruction  and  reorganization  of  terminals ; 
it  begins  to  appear  that  the  time  is  forever  past  when  the  shamefully 
wasteful  terminal  operation,  which  exists  merely  as  an  evidence  of 
the  monopolistic  power  of  a  strongly  entrenched  special  privilege,  will 
be  permitted  to  stand  unchallenged.  The  willingness  or  the  unwilling- 
ness of  the  carriers  to  acquiese  in  co-operation  arrangements  which 
plainly  make  for  increased  efficiency  will  be  the  deciding  factor  in  the 
coming  controversy  over  government  ownership. 

F.     THE  CRISIS  IN  RAILWAY  POLICY 
192.     Solution  by  Experimentation-*' 

BY  WILLIAM  CMC  ADOO 

Upon  the  efficiency  of  our  transportation  machine  in  America 
depends  in  great  measure  the  future  prosperity  of  the  nation.  Our 
transportation  system  must  function  at  the  highest  point  of  efficiency 
and  at  the  lowest  possible  cost  if  we  are  to  get  our  reasonable  share 
of  the  world's  trade  and  in  turn  be  able  to  keep  a  prosperous,  con- 
tented, and  happy  population  at  home. 

To  attempt  to  continue  federal  control  under  the  inadequate 
provisions  of  the  present  act,  and  for  the  very  brief  period  that  it 
authorizes  would  be  to  multiply  our  difficulties  and  to  invite  failure. 
On  the  other  hand  the  return  of  the  railroads  to  the  old  competitive 
conditions  will  be  hurtful  alike  to  the  public  interest  and  to  the  rail- 
roads themselves.  This  course,  however,  will  bring  fewer  evils  than 
the  unsatisfactory  federal  control  provided  for  by  the  present  act. 
The  railroads  were  taken  over  as  a  war  measure.  They  have  been 
operated  during  the  past  year  for  the  paramount  purpose  of  winning 
the  war.  I  think  that  it  will  be  generally  admitted  that  the  war  service 
has  been  successfully  rendered.  I  am  sure  that  experience  of  great 
value  has  been  gained  not  only  for  the  public  but  for  the  railroads 
themselves  during  this  brief  test. 

26Adapted  from  a  letter  addressed  to  Hon.  Ellison  D.  Smith,  of  the  Com- 
mittee of  Interstate  Commerce  of  the  United  States  Senate,  on  December 
II,  1918^    Published  in  The  Commercial  and  Financial  Chronicle,  CVII,  2249. 


PROBLEM  OF  RAILWAY  REGULATION  419 

There  is  one,  and  to  my  mind  only  one,  practical  alternative.  That 
is  to  extend  the  period  of  federal  control  from  the  one  year  and  nine 
months  provided  by  the  present  law  to  five  years,  or  until  January 
I,  1924.  This  extension  would  take  the  railroad  question  out  of 
politics  for  a  reasonable  period.  It  would  give  composure  to  railroad 
officers  and  employees.  It  would  admit  of  the  preparation  and  carry- 
ing out  of  a  comprehensive  program  for  improvements  of  the  rail- 
roads and  their  terminal  facilities  which  would  immediately  increase 
the  efficiency  of  the  transportation  machine.  It  would  put  back  of 
the  railroads  the  credit  of  the  United  States  during  the  five-year 
period,  so  that  these  improvements  could  be  successfully  financed.  It 
would  offer  the  opportunity  to  test  unified  control  under  proper  con- 
ditions and  the  experience  thus  gained  would  of  itself  indicate  the 
permanent  solution  of  the  railroad  problem. 

The  American  people  have  a  right  to  this  test.  They  should  not 
be  denied  it.  In  my  opinion  it  is  the  only  practical  and  reasonable 
method  of  determining  the  right  solution  of  this  grave  economic 
problem. 

I  am  not  interested  in  proving  or  disproving  the  theory  of  gov- 
ernmental ownership  or  any  other  kind  of  theory.  I  have  formed 
no  opinion  myself  as  to  the  best  disposition  of  the  railway  problem 
because  the  test  has  not  been  sufficient  to  prove  conclusively  the 
right  solution  of  the  problem.  I  believe  that  a  five-year  test  will 
give  the  American  people  the  right  answer.  An  ounce  of  experience 
is  jworth  a  ton  of  theory.  With  the  start  already  made  under  war 
conditions  it  would  be  a  simple  matter  to  complete  the  test. 

There  are  those  who  may  say  that  an  extension  of  five  years  for 
such  a  test  will  mean  government  ownership.  Personally  I  do  not 
believe  it.  But,  whatever  its  outcome  we  should  not  hesitate.  In  a 
democracy  like  ours,  where  public  opinion  must  finally  control,  the 
plain  duty  is  to  take  those  steps  which  will  fully  inform  public  opinion, 
so  that  judgment  may  be  based  upon  knowledge  rather  than  upon 
theory.  Any  test  which  will  illumine  the  subject  so  that  public  opin- 
ion may  operate  upon  it  intelligently  would  seem  desirable  in  any 
circumstances. 

Those  who  may  oppose  an  extension  of  five  years  should  face  the 
situation  squarely  and  acknowledge  that  they  prefer  the  immediate 
return  of  the  railroads  to  private  control  under  the  old  conditions 
without  remedial  legislation.  It  is  idle  to  talk  of  a  return  to  private 
control  under  legislation  which  will  cure  the  defects  of  the  existing 
laws.  There  is  neither  time  nor  opportunity  for  such  legislation  at 
present.  It  is  impossible  and  hopeless  for  the  government  to  at- 
tempt the  operation  of  the  railroads  for  twenty-one  months  after 


420  CURRENT  ECONOMIC  PROBLEMS 

peace  under  the  present  law.  Therefore,  the  country  should  squarely 
face  the  condition  that  the  railroads  must  promptly  go  back  into 
private  control  with  all  existing  legal  difficulties  unless  the  only 
practical  alternative,  namely,  an  extension  of  time,  is  promptly 
granted. 

193.     The  Plan  of  the  "Railroads"" 

On  January  9,  a  committee  representing  the  railroad  executives 
of  the  country  submitted  to  the  Interstate  Commerce  Committee  of 
the  United  States  Senate  a  definite  program  on  the  subject  of  the 
relations  of  the  government  and  the  railroads.  The  railroads'  plan 
calls  for  a  return  to  their  private  owners  of  the  railroad  operating 
properties  in  the  near  future  under  a  system  comprising  principles 
which  may  be  summarized  as  follows  : 

1.  Private  ownership,  management,  and  operation  of  the  roads. 

2.  Transfer  of  all  powers  of  control  over  transportation,  whether 
interstate  or  intrastate,  to  the  national  government  and  the  exercise 
of  these  functions  by  it  on  a  definite  system. 

3.  Relief  of  the  Interstate  Commerce  Commission  from  ad- 
ministrative duties  and  re-establishment  of  its  functions  as  a  quasi- 
judicial  body. 

4.  Establishment  of  a  Department  of  Transportation  headed  by 
a  cabinet  officer  charged  with  the  administrative  duties  now  exercised 
by  the  Interstate  Commerce  Commission  as  well  as  with  others  to  be 
specified. 

5.  Control  of  the  investment  of  capital  by  roads  in  branches, 
costly  terminals,  and  like  things,  by  the  Secretary  of  Transportation. 

6.  Valuation  of  railroad  properties  and  control  of  railroad  ac- 
counting to  be  exercised  by  the  Interstate  Commerce  Commission. 
All  other  executive  and  administrative  duties  to  go  to  the  new  De- 
partment of  Transportation. 

7.  Carriers  to  be  allowed  to  initiate  rates,  such  rates  to  be 
permitted  to  go  into  effect  by  the  Secretary  of  Transportation,  or  else 
to  be  suspended  by  the  same  officer  and  in  either  case  arrangements 
to  be  made  for  the  reference  of  rate  controversies  to  the  Interstate 
Commerce  Commission. 

8.  Principles  of  rate-making  to  be  laid  down  in  the  new  legis- 
lation subject  to  the  requirements  that  all  rates  shall  be  not  only 
reasonable  but  adequate  to  attract  the  necessary  capital  to  keep  up 
the  roads. 

27Adapted  from  "Washington  Notes"  in  Journal  of  Political  Economy, 
XXVII,  129-31.    Copyright  by  the  University  of  Chicago,  1918. 


PROBLEM  OF  RA ILWA  Y  REGULA  TION  42 1 

9.  Appeal  to  the  Interstate  Commerce  Commission  with  refer- 
ence to  rates  to  be  permitted  to  any  party  in  interest  who  desires  to 
lodge  a  complaint. 

10.  The  Interstate  Commerce  Commission  to  have  power  to 
prescribe  minimum  as  well  as  maximum  rates. 

11.  Existing  rates  to  be  continued  in  effect  until  changed  by  the 
Interstate  Commerce  Commission. 

12.  Carriers  to  be  authorized  to  complain  of  the  charges  of  other 
carriers  if  they  desire. 

13.  The  Interstate  Commerce  Commission  to  divide  the  country 
into  zones,  each  such  zone  to  be  under  the  direction  of  a  local  com- 
mission controlling  transportation  therein. 

14.  Express  rates  to  be  regulated  in  the  same  way  as  freight 
rates. 

15.  The  Clayton  Act  to  be  modified  so  as  not  to  hamper  the 
transaction  of  business. 

16.  The  Sherman  Act  to  be  modified  so  as  to  permit  pooling 
and  interline  agreements. 

17.  A  Board  of  Arbitration  between  railroad  capital  and  labor 
to  be  formed  under  the  direction  of  the  Secretary  of  Transportation. 

18.  Debt  incurred  by  carriers  during  the  period  of  federal  con- 
trol to  be  funded. 

19.  Government  control  of  railroad  security  issues. 

20.  Federal  incorporation  of  all  roads. 

194.     Socializing  the  Railroads"® 

BY  JOHN  A.  FITCH 

Washington  is  fairly  alive  with  plans  for  disposing  of  the  rail- 
roads. The  proposal  involving  the  most  radical  departure  from  the 
past  is  that  of  Glenn  E.  Plumb,  attorney  for  the  railway  brother- 
hoods. This  proposal  has  the  approval  of  the  "Big  Four,"  and  the 
ten  shop  organizations  affiliated  with  the  American  Federation  of 
Labor,  whose  members  are  in  railway  employ.  It  is  a  plan  of  gov- 
ernment ownership  with  private  operation.  An  operating  corpora- 
tion is  proposed  whose  "sole  capital"  would  consist  of  "operating 
ability,"  or  "the  skill,  industry,  and  application  of  every  employee 
from  president  down  to  office  boy." 

This  corporation  would  be  authorized  to  take  over  and  operate 
the  railroads  of  the  country  as  a  single  unified  system.  The  cor- 
poration would  be  required  to  meet  all  operating  expenses  and  fixed 

28Adapted  from  an  article  with  the  foregoing  caption  in  the  Survey,  XLI, 
823-25.     Copyright,  1919. 


422  CURRENT  ECONOMIC  PROBLEMS 

charges,  and  the  net  income  would  be  divided  evenly  between  the  cor- 
poration and  the  government.  The  corporation's  share  would  be 
distributed  as  a  "dividend  on  the  pay-roll."  Whenever  the  share 
received  by  the  government,  under  this  arrangement,  exceeds  5  per 
cent  of  the  gross  operating  revenue,  the  Interstate  Commerce  Com- 
mission is  to  lower  rates  sufficiently  to  absorb  the  entire  amount.  It 
is  contended  that  every  such  reduction  will  produce  a  greater  volume 
of  traffic  and  thus  increase  the  volume  of  net  earnings.  The  reduc- 
tion in  rates  it  is  suggested,  would  therefore  be  automatic. 

Nothing  is  said  about  a  depreciation  account ;  probably  that  is 
included  in  "fixed  charges."  But  no  surplus  would  be  required  for 
extensions.  Under  the  plan  they  would  be  taken  care  of,  in  part 
at  least,  by  special  assessments  on  the  localities  where  the  extensions 
are  called  for,  just  as  the  cost  of  sidewalks  and  sewers  is  generally 
assessed  against  the  property  benefited.  Where  a  community  desired 
an  extension  and  was  willing  to  assume  the  whole  cost,  it  would  be 
obligatory  on  the  government  to  provide  the  extension.  Where  a 
community  wished  to  pay  only  a  part  of  the  cost,  the  extension  would 
be  discretionary.  Whatever  sums  are  to  be  expended  in  this  manner 
by  the  government  are  to  be  raised  by  taxation.  Sums  to  be  expended 
cannot,  through  capitalization,  become  the  basis  of  additional  charges 
against  income.  Of  course  the  theory  back  of  the  idea  of  special 
assessments  is  that  the  benefit  derived  would  fully  justify  them,  and 
the  property  owners  would  be  reimbursed  by  the  rise  in  real  estate 
values. 

Interesting  as  these  features  of  the  brotherhood  plan  are,  they 
are  not  the  things  which  set  it  oflF  in  a  class  by  itself.  That  is  done 
by  the  basic  idea  behind  it  all,  that  management  in  its  fullest  sense 
is  to  be  in  the  hands  of  the  railway  workers.  Next  in  importance  is 
the  fact  that  the  higher  officials  are  included  and  accepted  as  workers. 
Those  excluded  are  the  stockholders  and  financiers.  There  would 
be  no  more  stock  manipulation  under  this  plan,  and  the  stockholders 
would  have  their  rights  as  citizens  and  bondholders  and  nothing 
more. 

The  board  of  directors  is  to  consist  of  fifteen  persons,  five  to  be 
chosen  by  the  appointed  officers,  five  by  the  classified  employees, 
and  five  to  be  appointed  by  the  President  of  the  United  States. 
Thus  labor  would  have  a  two-thirds  majority.  There  would  no 
longer  be  any  division  of  interest  between  officials  and  rank  and  file. 

Any  such  arrangement  as  this  raises  the  question  of  the  adjust- 
ment of  labor  disputes.  The  brotherhood  plan  would  continue  in 
effect  the  present  wage  boards  which  have  functioned  with  great 


PROBLEM  OF  RAILWAY  REGULATION  423 

success  during  the  war.  These  boards  have  been  composed  of  operat- 
ing officials  and  employees,  with  no  "neutral"  outsiders.  The  brother- 
hoods would  have  a  general  wage  board  with  subsidiary  boards  to 
hear  and  pass  upon  all  matters  of  dispute,  their  decision  to  be  final, 
except  that  in  case  of  deadlock  the  matter  would  be  passed  on  to  the 
board  of  directors. 

The  plan  is  not  sufficiently  explicit  to  enable  one  to  judge  of  the 
extent  to  which  the  interests  of  the  people  as  a  whole  would  be 
served.  Certain  advantages  seem  obvious.  There  would  be  an  end 
of  inflated  capitalization.  Rates  would  be  based  upon  actual  values 
and  services  rendered.  Development  would  be  natural  and  extensions 
would  go  where  they  were  needed.  It  is  not  clear,  however,  that 
rates  would  be  automatically  reduced.  With  the  employees  the  sole 
judges  of  their  own  demands,  what  would  prevent  a  constant  increase 
in  wages  that  would  add  to  operating  expenses  and  become  the  basis 
for  a  claim  for  higher  rates  ? 

Yet  it  is  possible  that  the  advocates  of  this  plan  have  discovered 
the  greatest  possible  antidote  to  unrest,  the  greatest  possible  stimulus 
to  efficiency.  Advocates  of  profit-sharing  contend  that  their  ideas, 
if  adopted,  would  work  a  revolution  in  industry.  Men  would  be 
loyal,  more  industrious,  more  in  earnest  if  they  were  joint  owners. 
Few  employers  have  ever  cared  to  permit  the  scheme  to  go  far  enough 
for  anybody  to  find  out  whether  the  theory  was  sound. 

Here  is  a  plan  that  goes  the  whole  way.  It  proposes  to  give  real 
responsibility  to  a  group  of  workers  which  happens  incidentally  to 
be  as  intelligent,  resourceful,  and  capable  as  can  be  found  anywhere. 
For  groups  that  are  less  advanced  no  method  has  yet  been  discovered 
so  efficacious  in  developing  leadership  and  responsibility  as  the  impos- 
ing of  confidence,  the  assigning  of  duties  that  call  for  resourcefulness 
and  decision.  Can  anyone  doubt  that  what  is  true  of  men  of  lesser 
ability  will  not  be  true  of  men  who  have  already  proved  themselves 
to  be  men  of  capacity?  Piecework  rates,  bonus  plans,  premiums, 
Christmas  presents — all  have  failed  as  stimuli  to  maximum  efficiency. 
It  would  be  interesting  to  find  out  what  the  effect  would  be  if  the 
worker  were  given  a  real  stake  in  the  job. 

195.    The  Supply  of  CapitaP» 

BY  ALVIN  JOHNSON 

We  do  not  want  the  old  system  restored.  This  does  not  mean 
that  we  believe  private  management  as  it  existed  before  the  war  was 

^^Adapted  from  "Instead  of  Public  Ownership"  in  the  New  Republic, 
XIV,  345-47-     Copyright,  1918. 


424  CURRENT  ECONOMIC  PROBLEMS 

corrupt  or  incompetent,  or  that  public  regulation  was  unintelligent 
or  obtrusive.  On  the  contrary  the  very  facts  that  the  railways  were 
on  the  whole  so  efficiently  and  honestly  managed  and  the  Interstate 
Commerce  Commission  was  so  competent  and  clear-sighted  are  pre- 
sumptive evidence  against  a  system  that  nevertheless  grew  progres- 
sively more  inadequate  until  it  broke  down  altogether  under  the 
stress  of  war.  It  rested  upon  a  false  conception  of  the  nature  of 
the  transportation  industry  and  its  relation  to  the  state. 

Railway  men  never  tire  of  expiating  upon  the  part  the  railway 
plays  in  sustaining  the  prosperity  of  our  entire  industrial  structure. 
They  do  not  exaggerate  the  importance  of  the  railway  in  the  national 
economy.  If  anything  they  underestimate  it,  through  modesty  or 
sheer  lack  of  imagination.  After  our  public  school  system  the  railway 
has  been  by  far  our  most  important  instrument  of  national  develop- 
ment. It  will  be  a  still  more  important  instrument  in  the  develop- 
ment of  the  coming  decades.  Would  it  not  then  be  anomolous  to 
attempt  to  restore  a  system  of  railway  operation  and  control  that 
creates  only  an  accidental  relation  between  the  function  of  the  rail- 
way in  developing  the  country  and  the  motives  leading  to  their  con- 
struction and  improvement? 

The  construction  of  a  railway  builds  up  the  territory  through 
which  it  passes.  But  the  traffic  resulting  from  the  building  up  of  the 
community  is  the  roughest  and  most  inadequate  measure  of  the 
values  created  by  the  railway.  The  community  may  gain  in  values 
many  times  the  cost  of  a  railway,  and  yet  the  traffic  may  remain  in- 
sufficient to  keep  the  railway  company  out  of  the  receiver's  hands. 
The  private  railway  companies  are  in  no  position  to  capitalize  national 
and  civic  gains.  All  that  they  can  take  into  account  is  the  apparently 
inadequate  promise  of  increased  revenue  from  transportation. 

But,  it  may  be  said,  if  we  had  granted  the  railways  more  generous 
transportation  rates  they  could  have  afforded^ to  undertake  improve- 
ments that  from  a  private  business  point  of  view  were  uneconomic. 
No  doubt  they  could  have  aflforded  to  make  such  improvements ;  but 
private  business  does  not  nominally  sink  money  in  ventures  that  are 
unproductive  of  profit  merely  because  it  can  afford  to  do  so.  This  is 
natural  and  proper.  If  the  public  wishes  capital  to  be  invested  for 
other  than  private  financial  reasons,  it  is  incumbent  upon  the  public 
to  devise  appropriate  institutions  for  attaining  this  end. 

While  public  ownership  would  answer  the  purpose,  it  is  not  the 
only  conceivable  system  under  which  it  would  be  possible  to  make 
the  railways  a  fully  efficient  instrument  of  national  development. 
What  is  of  primary  importance  is  that  the  public  need  of  railways 


PROBLEM  OF  RAILWAY  REGULATION  425 

should  be  determined  by  public  authority.  Private  capital  might  be 
called  upon  to  supply  the  need  under  a  guaranty  of  earnings,  or  under 
some  form  of  partnership  arrangement  by  which  the  government 
would  supply  so  much  of  the  capital  as  could  not  be  assured  a  pecu- 
niary return.  Such  an  arrangement  has  recently  been  outlined  by 
Mr.  Theodore  P.  Shonts,  who  is  qualified  to  speak  by  his  experience 
with  the  analogous  subway  system  of  New  York. 

In  essence  the  plan  is  very  simple.  Let  a  certain  sum — say,  the 
present  guaranteed  net  income — be  made  a  preferential  charge  upon 
the  railway  system  to  satisfy  the  claims  of  the  present  holders  of  rail- 
way securities.  Ilet  extensions  and  improvements  be  financed  by  the 
companies  and  the  government  in  partnership,  the  railways  furnish- 
ing for  each  project  so  much  capital  as  can  be  guaranteed  an  adequate 
income,  the  government  furnishing  the  rest.  When  the  total  net 
income  exceeds  the  preferential  claims  of  the  private  owners  of  rail- 
way property,  let  a  fair  interest  be  paid  on  the  government  invest- 
ment. If  a  surplus  still  appears,  let  it  be  divided  between  the  com- 
panies and  the  government  in  the  ration  of  their  investments.  As  for 
control,  the  supreme  authority  should  be  vested  in  a  central  board 
consisting  of  representatives  of  the  public,  of  the  railway  investors, 
and  of  railway  labor. 

Under  this  plan  the  government  would  determine  what  transporta- 
tion facilities  should  be  furnished.  It  would  have  the  final  determina- 
tion of  the  charges  to  be  made  for  the  use  of  such  facilities.  In  so 
far  the  plan  meets  the  same  requirements  as  would  public  ownership. 
The  plan  lays  upon  the  railways  a  preferential  charge  equal  to  the 
present  guaranteed  net  income.  Public  ownership  would  be  burdened 
with  an  interest  charge  on  the  bonds  that  would  have  to  be  sold  to 
acquire  the  railways.  The  difference  between  the  two  charges  would 
probably  not  be  great.  Under  public  ownership  the  two  interests  rep- 
resented in  control  would  be  the  general  public  and  railway  labor. 
Under  this  plan  there  would  be  a  third  interest,  the  railway  investors. 
But  in  the  course  of  the  development  of  our  transportation  system 
the  government  investment  would  probably  increase  more  rapidly 
than  the  private  investment,  and  government  control  would  become 
more  nearly  absolute. 

There  was  a  time  when  the  controversy  over  railway  ownership 
was  bound  to  be  acrimonious.  The  present  generation  is  ready  for  a 
discussion  of  the  railway  problem  on  a  new  plane.  An  adequate 
transportation  system  is  essential  to  the  national  health  and  pros- 
perity. We  cannot  get  such  a  system  through  purely  private  enter- 
prise, whether  subject  to  government  regulation  or  not.  We  can  get 
it  through  public  ownership  or  through  some  plan  of  partnership 


426  CURRENT  ECONOMIC  PROBLEMS 

between  the  government  and  private  companies.  Which  shall  it  be  ? 
We  shall  have  to  make  up  our  minds  soon  or  slip  back  into  chaos  when 
our  twenty-one  months  of  grace  have  expired. 

196.    The  Requisites  of  a  National  Policy^" 

BY  JAMES  D.   MAGEE 

The  intent  of  the  following  paragraphs  is  to  bring  together  sug- 
gestions for  our  future  railway  policy. 

The  railroads  should  be  returned  to  their  owners  as  soon  as  needful 
changes  have  been  made  in  the  methods  of  regulation.  The  aim  of  the 
changes  should  be  to  permit  more  unified  action  on  the  part  of  the 
railroads ;  to  set  a  definite  basis  for  wages ;  to  provide  a  method  for 
settling  wage  disputes ;  and  to  provide  adequate  facilities  both  in  the 
way  of  extensions  and  new  terminals  and  with  respect  to  service. 

The  federal  government  should  be  the  regulating  body.  The  state 
commissions  should  be.  deprived  of  all  control  over  rates,  classifica- 
tions, and  rules.  These  are  national  problems  and  should  be  solved 
on  that  basis.  We  admit  the  early  usefulness  of  the  state  commis- 
sions, the  valuation  of  railroad  property  for  purposes  of  state  taxa- 
tion, and  perhaps  a  minimum  of  regulation  under  the  state  police 
power  in  the  interest  of  health  and  safety. 

The  old  policy  of  attempting  to  check  combination  should  give 
place  to  the  policy  of  fostering  combination.  Probably  the  best 
method  of  procedure  would  be  federal  incorporation.  The  anti-trust 
laws  might  be  amended  by  exempting  from  their  provisions  railroads 
with  federal  charters  granted  after  a  certain  date.  The  federal  char- 
ters should  contain  provisions  for  any  desired  regulation  of  capitaliza- 
tion, rates,  accounts,  service,  and  the  terms  upon  which  mergers 
might  be  made.  In  making  the  combination  perhaps  it  would  be  neces- 
sary to  permit  the  federal  corporation  to  be  a  holding  company ;  but 
as  soon  as  possible  the  corporate  structure  should  be  simplified.  The 
minority  stockholders  should  be  protected  against  any  attempt  to 
acquire  their  property  at  an  undervaluation,  and  the  company  should 
be  protected  against  any  attempt  of  the  minority  to  hold  up  the 
merger  unless  their  holdings  were  taken  over  at  an  overvaluation. 
The  probable  result  of  such  permission  to  combine  would  be  the 
formation  of  a  relatively  small  number  of  large,  strong  companies. 

In  this  country  we  have  never  had  any  control  over  railroad  build- 
ing in  the  sense  of  preventing  roads  from  being  built.  In  the  early 
days,  when  special  charters  were  necessary,  the  public  was  interested 

s<*Adapted  from  "What  Shall  We  Do  with  the  Railroads?"  Journal  of 
Political  Economy,  XXJVII,  348-53.  Copyright  by  the  University  of  Chicago, 
1919. 


PROBLEM  OF  RAILWAY  REGULATION  427 

in  promoting  the  building  of  roads.  In  later  days,  under  general  in- 
corporation laws,  there  has  been  practically  no  restraint  upon  the 
building  of  roads.  This  policy  must  come  to  an  end  if  we  adept  the 
program  of  public  or  private  monopoly,  or  of  a  government  guaranty ; 
for  we  could  not  permit  private  individuals  to  encroach  on  the 
monopoly,  and  it  would  be  ruinous  to  ask  the  government  to  stand 
ready  to  guarantee  a  return  on  any  road  that  anyone  might  care  to 
build. 

One  form  of  co-operation  from  which  much  may  be  expected  is 
pooling.  All  the  gains  which  the  Railroad  Administration  has  made 
by  eliminating  competitive  traffic  can  be  obtained  by  allowing  the 
roads  to  pool  their  traffic.  It  is  presumed  that  the  pooling  contract 
will  be  based  on  freight  or  passenger  rates  which  have  been  sanctioned 
by  public  authorities  and  that  the  terms  of  the  agreement  have  been 
approved  by  the  regulating  body,  which  would  have  the  power  to 
cancel  the  agreement  should  it  appear  for  any  reason  not  to  promote 
the  public  welfare.  The  railroads  allege  that  great  savings  can  be 
made  if  they  can  send  the  freight  by  the  line  which  is  least  congested 
or  which  reaches  nearest  the  point  of  delivery. 

The  problem  of  the  general  rate  level  is  very  complex.  The  rail- 
road has  a  relatively  large  fixed  investment,  which  makes  its  net 
earnings  fluctuate  greatly,  as  the  result  of  moderate  changes  in  the 
amount  of  business.  The  volume  of  traffic  varies  greatly  from  year 
to  year,  though  the  general  trend  in  the  United  States  has  been 
upward.  Obviously  a  rate  system  to  be  fair  must  be  based  upon  an 
average  of  a  number  of  years.  The  large  amount  of  fixed  capital 
also  brings  difficulties  in  connection  with  the  variety  of  services  per- 
formed by  the  railroads.  The  general  expenses  are  apportioned  to 
the  various  classes  of  traffic  and  to  the  traffic  from  the  various  locali- 
ties in  accordance  with  the  principle  of  charging  what  the  traffic  will 
bear.  There  come  to  be  adjustments  between  different  places  or  dif- 
ferent commodities  expressed  as  differentials.  The  differential  may 
be  a  fixed  sum  or  a  certain  percentage  above  or  below  the  other  rate. 
Any  change,  such  as  a  general  percentage  increase  in  rates,  is  bound 
to  upset  many  of  these  long-established  differentials.  The  railroad 
thus  differs  from  a  public  utility  furnishing  but  one  or  a  few  prod- 
ucts, where  rates  may  be  charged  easily  up  or  down  if  the  earnings 
are  too  small  or  too  large. 

The  chief  need  in  relation  to  the  adequacy  of  rates  is  a  definition 
by  Congress  of  the  amount  upon  which  a  road  is  to  be  allowed  a  fair 
return,  and  which  road's  valuation  is  to  be  taken  in  case  more  than 
one  road  exists  in  the  territory  under  discussion.  In  trunk-line  terri- 
tory, for  example,  a  given  rate  level  might  give  the  Pennsylvania  more 


428  CURRENT  ECONOMIC  PROBLEMS 

than  adequate  earnings  and  the  Baltimore  &  Ohio  less  than  adequate 
earnings.  There  is  no  way  to  escape  the  fact  that  a  given  set  of  rates 
will  permit  different  roads  to  earn  varying  returns.  The  present 
valuation  being  carried  on  by  the  Interstate  Commerce"  Commission 
does  not  set  a  definite  value  for  ratemaking.  Congress  should  decide 
which  one  of  the  many  values  found  is  to  be  the  basis,  and  then  the 
Interstate  Commerce  Comission  should  prescribe  the  accounting 
methods  necessary  to  keep  it  up  to  date. 

The  wage  question  involves  finding  methods  to  prevent  the  tie-up 
of  the  railroads  in  case  of  disagreement  and  insuring  that  increases 
or  decreases  in  wages  shall,  if  other  items  of  expense  do  not  com- 
pensate, cause  readjustment  in  rates.  Compulsory  arbitration  might 
help  in  the  solution  of  the  first  problem ;  but  we  must  remember  that 
in  a  democratic  country  there  is  no  effective  way  to  enforce  a  decision 
adverse  to  the  employees.  If  the  law  based  rates  on  costs,  then  wages 
would  necessarily  be  considered  by  the  Interstate  Commerce  Com- 
mission in  the  adjustment  of  rates. 

To  improve  service  we  need  adequate  rates  to  make  possible  the 
provision  of  terminals,  trackage,  and  equipment,  and  the  development 
of  standards  of  service.  The  Interstate  Commerce  Commission  should 
be  given  power  to  enforce  the  standards  of  service.  This  is  a  new 
field.  We  have  developed  machinery  to  prevent  discrimination  in  the 
distribution  of  coal  cars,  but  have  no  definition  of  adequate  supply, 
and  no  way  to  force  the  roads  to  furnish  such  a  supply.  "Sailing  day" 
plans  for  1.  c.  1.  freight  saves  train  mileage,  but  it  is  doubtful  whether 
they  would  be  considered  as  offering  adequate  service.  As  yet  we 
have  no  definition  of  what  constitutes  adequate  service  for  the  various 
kinds  of  traffic.    The  need  for  such  definition  is  obvious. 

The  conclusion  is  that  we  should  return  to  private  operation  of 
railroads,  giving  them  a  chance  to  act  unitedly  under  the  direction  of 
the  Interstate  Commerce  Commission,  unhampered  by  state  regula- 
tion. Wage  and  rate  control  should  be  in  the  same  hands.  We  wish 
to  get  as  far  as  possible  the  advantages  of  private  initiative  along 
with  any  savings  resulting  from  united  action  supervised  by  public 
authorities.  We  should  avoid  any  government  guaranty  or  any  sad- 
dling upon  the  public  of  unprofitable  roads. 


IX 
THE  PROBLEM  OF  CAPITALISTIC  MONOPOLY 

Corners,  rings,  patents  of  monopoly,  pools,  cartels,  trusts,  holding  com- 
panies, "Gary  dinners."  interlocking  directorates,  "communities  of  interest." 
"gentlemen's  agreements,"  closed  shops,  codes  of  "professional  ethics" — such 
terms  serve  to  emphasize  the  venerable  age.  the  cosmopolitan  character,  and 
the  motley  form  of  the  monopoly  problem.  It  is  as  old  as  industrial  society 
and  as  new  as  the  latest  court  decision.  Other  ages  have  met  this  "hydra- 
headed  monster" ;  but  they  have  possessed  neither  a  collection  as  varied  as 
ours  nor  such  a  prize  specimen  as  our  "capitalistic  monopoly."  This  for  us  is 
the  real  monopoly.  The  "corner"  is  an  aspect  of  speculation.  Copyrights  and 
patents  exist  by  grace  of  the  state.  The  "natural"  monopolies  of  such  things 
as  gas,  vi^ater,  and  telephone  service,  and  even  of  forest  lands  and  iron  deposits, 
present  much  the  same  aspects  and  give  rise  to  much  the  same  problems  as  the 
railroads.  But  it  is  otherwise  with  "capitalistic  monopoly,"  a  phenomenon  of 
modern  industrialism,  an  offshoot  of  the  machine  system. 

To  act  with  wisdom  we  must  first  determine  whether  so  "unnatural"  and 
so  obvious  a  thing  is  "inevitable."  To  do  this  we  must  carefully  consider  the 
"conditions  of  monopolization."  But  the  institution  is  new ;  its  life  history 
does  not  as  yet  stand  revealed  in  its  entirety ;  our  experience  is  limited ;  and 
our  view  is  too  close  for  perspective.  Our  answer  is,  therefore,  hesitating. 
However,  there  seem  to  be  three  "groups  of  forces"  which  have  conspired  to 
produce  this  phenomenon.  First,  the  machine  process  must  be  charged  with 
partial  responsibility.  It  has  made  large-scale  production  possible ;  it  h.is 
caused  industries  of  tremendous  size  to  operate  in  a  "stag  of  increasing  re- 
turns"; it  has  developed  in  the  corporation  an  impersonal  form  of  business 
organization ;  it  has  concentrated  in  the  hands  of  the  pecuniarily'  efficient  few 
huge  aggregates  of  wealth;  and  in  many  lines  it  has  reduced  the  number  re- 
iponsilDle  for  production  to  a  small  handtul  who  can  Know  each  other  per- 
sonally and  among  whom  a  group  spirit  can  develop.  Even  if  monopoly  and 
large-scale  production  are  distinct  economic  phenomena,  the  problem  of  "capi- 
talistic monopoly"  arises  only  where  wealth  is  concentrated.  Second,  the  high 
rate  of  development  in  the  industrial  system  cannot  completely  escape  respon- 
sibility. New  technique  is  often  forced  into  use  before  old  technique  has 
paid  for  itself.  The  development  of  demand  in  our  constantly  expanding 
market  has  had  the  most  vacillating  course.  Under  competition  and  inde- 
pendent action  of  rival  producers  the  market  has  experienced  alternate  dearth 
and  glut.  These  uncertainties,  seriously  threatening  profits,  and  even  sol- 
vency, have  been  greatly  increased  by  the  violent  and  unpredictable  rhythm  of 
the  business  cycle.  Competing  producers  have  thus  been  compelled  "to  get 
together."  Third,  "artificial"  conditions  have  contributed  their  influence  to 
the  transformation.  The  "concentration  of  cash"  and  the  "restriction  of 
credit,"  the  fickleness  and  special  favors  of  the  tariff,  and  the  clever  "manipula- 
tion" of  railway  rates  have  contributed  to  the  general  result.  Were  we  able 
properly  to  impute  responsibility  to  these  various  "forces,"  we  should  perhaps 
know  what  to  do.  Were  responsibility  entirely  upon  those  last  mentioned,  the 
monopoly  problem  would  resolve  itself  into  such  problems  as  the  money  trust, 
the  tariff,  and  railroad  rates.  Were  sole  responsibility  upon  the  second,  our 
question  would  become  a  mere  aspect  of  the  problem  of  the  economic  cycle. 
Only  the  first  directly  promises  an  independent  problem.  Yet,  were  the  causes 
wholly  artificial,  a  removal  of  them  would  not  solve  the  problem ;  their  in- 
fluence has  been  too  organic  and  too  wide-reaching  for  that.     There  is  a 

429 


430  CURRENT  ECONOMIC  PROBLEMS 

monopoly  problem,  involving  these  various  factors,  yet  far  more  comprehensive 
than  a  mere  aggregation  of  them. 

Public  attention  seems  to  be  directed  very  largely  to  some  few  minor 
aspects  of  this  larger  problem.  It  concerns  itself  with  monopoly  price,  the 
use  of  "unfair  competitive  methods,"  and  the  "power"  of  big  business  in 
politics.  Only  vaguely  is  it  seen  that  the  institution  of  monopoly  is  intimately 
associated  with  the  stratification  of  society,  the  concentration  of  wealth,  the 
distribution  of  income,  and  other  aspects  of  social  development.  Very  little 
attention  is  given  to  the  institutional  aspects  of  monopoly;  its  influence  in  the 
determination  of  the  kind  of  a  society  we  would  like  to  realize;  its  influence 
upon  the  ethics  underlying  distribution ;  the  effect  it  is  likely  to  have  upon  the 
attempt  of  class-  and  group-conscious  labor  to  incorporate  their  interests 
into  the  institutional  system ;  its  effect  upon  the  distribution  of  opportunity, 
and  similar  questions.  But  all  these  are  important  aspects  of  the  larger 
problem. 

In  our  partial  attempt  to  control  monopoly  we  have  used  very  largely  the 
agencies  of  the  state.  The  law  has  given  the  form  of  monopoly  organization  a 
merry  chase.  Perhaps  "the  complete  merger,"  now  the  popular  style,  is  a 
permanent  garb  rather  than  a  temporary  disguise.  In  that  event,  our  attentions 
may  have  been  justified  in  putting  the  problem  in  terms  in  which  it  can  be 
reached.  The  application  of  the  Sherman  law  has  doubtless  given  us  the  begin- 
ning of  a  "standard  of  reasonableness"  in  terms  of  which  the  conduct  of  large 
business  units  can  be  judged,  despite  the  obvious  fact  that  trusts  have  waxed 
fat  on  the  invigorating  tonic  of  dissolution.  By  more  sharply  defining  "unfair 
competition,"  the  Clayton  bill  should  raise  the  "plane"  of  industrial  rivalry. 
The  promises  of  the  Trade  Commission  are  vague  and  indefinite  as  yet,  though 
they  bristle  with  possibilities. 

But  as  yet  the  real  problem  of  monopoly  has  not  been  solved.  What 
shall  we  do  about  it  all?  It  is  possible  that  monopoly  is  a  mere  "passing 
phase"  of  a  larger  industrial  movement,  born  of  competition,  and  with  a  short 
span  of  life.  It  may  be  that  legislation  and  administration  can  achieve  a 
"restored"  regime  of  unimpeded  competition,  even  if  such  a  regime  never 
existed.  Or  it  may  be  that  monopoly  is  "inevitable,"  and  that  all  we  can  do  is 
to  regulate  it  before  it  regulates  us. 

What  we  most  need  is  a  far-sighted  vision  and  patience  carefully  to  cal- 
culate anticipated  gains  and  losses.  That  "competition  is  wasteful"  does  not 
make  out  a  case  for  regulated  monopoly.  The  costs  of  regulation  must  be 
balanced  against  the  costs  of  waste.  But  regulation  once  started  is  likely 
to  be  carried  to  unforeseen  and  perhaps  unwarranted  lengths,  both  in  the 
minuteness  of  its  control  and  in  the  number  of  industries  affected.  These  costs 
incident  to  this  extension  must  find  a  place  in  our  calculation.  Our  judgment, 
too,  must  not  be  too  immediate.  Our  capacity  for  devlopment  may  be  quite 
differently  utilized  under  regimes  of  monopoly  and  competition.  We  know, 
for  example,  that  an  incentive  to  monopoly  has  been  a  desire  to  escape  the 
rigors  of  changing  technique.  Is  it  not,  therefore,  more  than  possible  that 
monopolistic  industries  will  introduce  technical  improvements  much  less  rap- 
idly than  competitive  industries?  Is  it  not  further  possible  that  new  technique 
may  not  succeed  in  getting  itself  invented?  The  question  must  be  settled  by 
a  long-time  calculation  of  relative  gains  and  sacrifices.  But  this  is  not  the 
whole,  but  only  the  economic  aspect  of  the  larger  problem  of  monopoly.  It 
must  be  subordinated  to  the  more  general  question.  Are  the  general  social 
tendencies  inherent  in  regulated  monopoly  more  compatible  with  our  realizable 
social  ideals  than  those  implicit  in  a  system  of  competition? 

This  is  the  beginning  of  the  problem.  If  our  decision  favors  a  restoration 
of  a  competitive  society,  we  are  face  to  face  with  the  problem  of  ways  and 
means.  If  we  decide  in  favor  of  regulated  monopoly,  we  must  determine, 
perhaps  as  we  go,  the  extent  to  which  monopoly  shall  be  recognized,  the  means 
and  extent  of  regulation,  and  the  "good  of  it  all."  The  problem  awaits  a 
progressive  solution. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  431 

A.     IS  MONOPOLY  INEVITABLE? 

197.     The  Perennial  Problem  of  Monopoly 

a)     An  Early  Corner  in  Grain  ^ 

And  Joseph  went  out  from  the  presence  of  Pharaoh,  and  went 
throughout  all  the  land  of  Egypt.  And  in  the  seven  plenteous  years 
the  earth  brought  forth  by  handfuls.  And  he  gathered  up  all  the 
food  of  the  seven  years  which  were  in  the  land  of  Egypt,  and  laid 
up  the  food  in  the  cities:  the  food  of  the  field,  which  was  round 
about  every  city,  laid  he  up  in  the  same.  And  Joseph  laid  up  grain 
as  the  sand  of  the  sea,  very  much,  until  he  left  off  numbering;  for 
it  was  without  number. 

And  the  seven  years  of  plenty,  that  was  in  the  land  of  Egypt, 
came  to  an  end.  And  the  seven  years  of  famine  began  to  come, 
according  as  Joseph  had  said :  and  there  was  famine  in  all  lands ; 
but  in  all  the  land  of  Egypt  there  was  bread.  And  when  all  the  land 
of  Egypt  was  famished,  the  people  cried  to  Pharaoh  for  bread :  and 
Pharaoh  said  unto  all  the  Egyptians,  Go  unto  Joseph :  what  he  saith 
unto  you,  do.  And  the  famine  was  over  all  the  face  of  the  earth: 
and  Joseph  opened  all  the  storehouses,  and  sold  unto  the  Egyptians ; 
and  the  famine  was  sore  in  the  land  of  Egypt.  And  all  countries 
came  unto  Egypt  to  Joseph  to  buy  grain,  because  the  famine  was  sore 
in  all  the  earth. 

And  there  was  no  bread  in  all  the  land ;  for  the  famine  was  very 
sore,  so  that  the  land  of  Egypt  and  the  land  of  Canaan  fainted  by 
reason  of  the  famine.  And  Joseph  gathered  up  all  the  money  that 
was  found  in  the  land  of  Egypt,  and  in  the  land  of  Canaan,  for  the 
grain  which  they  bought;  and  Joseph  brought  the  money  into 
Pharaoh's  house.  And  when  the  money  was  all  spent  in  the  land 
of  Egypt,  and  in  the  land  of  Canaan,  all  the  Egyptians  came  unto 
Joseph,  and  said.  Give  us  bread :  for  why  should  we  die  in  thy  pres- 
ence ?  for  our  money  f aileth.  And  Joseph  said.  Give  your  cattle ;  and 
I  will  give  you  for  your  cattle,  if  money  fail.  And  they  brought 
their  cattle  unto  Joseph;  and  Joseph  gave  them  bread  in  exchange 
for  the  horses,  and  for  the  flocks,  and  for  the  herds,  and  for  the  asses : 
and  he  fed  them  with  bread  in  exchange  for  all  their  cattle  for  that 
year.  And  when  the  year  was  ended  they  came  unto  him  the  second 
year,  and  said  unto  him.  We  will  not  hide  from  my  lord,  how  that 
our  money  is  all  spent ;  and  the  herds  of  cattle  are  my  lord's ;  there  is 
naught  left  in  the  sight  of  my  lord,  but  our  bodies  and  our  lands: 
wherefore  should  we  die  before  thine  eyes,  both  we  and  our  land? 

1  From  Gen.  41 :46-49,  53-57 ;  47 :  13-22  (800  B.c.) . 


432  CURRENT  ECONOMIC  PROBLEMS 

buy  us  and  our  land  for  bread,  and  we  and  our  land  will  be  servants 
unto  Pharaoh :  and  give  us  seed,  that  we  may  live,  and  not  die,  and 
that  the  land  be  not  desolate. 

So  Joseph  bought  all  the  land  of  Egypt  for  Pharaoh;  for  the 
Egyptians  sold  every  man  his  field,  because  the  famine  was  sore  upon 
them:  and  the  land  became  Pharaoh's.  And  as  for  the  people  he 
removed  them  to  the  cities  from  one  end  of  the  border  of  Egypt  even 
to  the  other  end  thereof.    Only  the  land  of  the  priests  bought  he  not. 

h)     A  Vindication  of  Philosophy  ^ 

BY  ARISTOTLE 

It  would  be  well  also  to  collect  the  scattered  stories  of  the  ways 
in  which  individuals  have  succeeded  in  amassing  a  fortune ;  for  all 
this  is  useful  to  persons  who  value  the  art  of  making  money.  There 
is  the  anecdote  of  Thales  the  Milesian  and  his  financial  device,  which 
involves  a  principle  of  universal  application,  but  is  attributed  to  him 
on  account  of  his  reputation  for  wisdom.  He  was  reproached  for  his 
poverty,  which  was  supposed  to  show  that  philosophy  was  of  no  use. 
According  to  the  story,  he  knew  by  his  skill  in  the  stars  while  it  was 
yet  winter,  that  there  would  be  a  great  harvest  of  olives  in  the  com- 
ing year ;  so,  having  a  little  money,  he  gave  deposits  for  the  use  of  all 
the  olive  presses  in  Chios  and  Miletus,  which  he  hired  at  a  low  price 
because  no  one  bid  against  him.  When  the  harvest-time  came,  and 
many  wanted  them  all  at  once  and  of  a  sudden,  he  let  them  out  at  any 
rate  which  he  pleased,  and  made  a  quantity  of  money.  Thus  he 
showed  the  world  that  philosophers  can  easily  be  rich  if  they  like,  but 
that  their  ambition  is  of  another  sort.  He  is  supposed  to  have  given 
a  striking  proof  of  his  wisdom,  but,  as  I  was  saying,  his  device  for 
getting  money  is  of  universal  application,  and  is  nothing  but  the 
creation  of  a  monopoly.  It  is  an  art  often  practiced  by  cities  when 
they  are  in  want  of  money ;  they  make  a  monopoly  of  provisions. 

c)     An  Early  Use  of  Class  Price  ^ 

BY  JOHN  GOWER 

Wouldst  thou  have  closer  knowledge  of  Trick  the  Taverner? 
Thou  shalt  know  him  by  his  piment,  his  cleree,  and  his  new  ypocras, 
that  help  to  fatten  his  purse  when  our  city  dames  come  tripping  at 
dawn  to  his  tavern  as  readily  as  to  minister  or  to  market.  Then 
doth  Trick  make  good  profit;  for  be  sure  that  they  will  try  every 

2From  The  Politics,  I,  ii  7-10  (357  b.c.)  ;  translated  by  B.  Jowett. 

^Adapted  from  Mirour  de  I'Onime  (1376-79),  II.  421  flf.  Translation  in 
Coulton,  A  Mediaeval  Garner,  pp.  S77-7^- 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  433 

vintage  in  turn,  so  it  be  not  mere  vinegar.  Then  will  Trick  persuade 
them  that  they  may  have  Vernage,  Greek  wine,  and  Malvesie  if  they 
will  but  wait;  the  better  to  cajole  them  of  their  money,  he  will  tell 
them  of  divers  sorts — wines  of  Crete,  Ribole,  and  Roumania,  of 
Provence,  and  Monterosso ;  so  he  boasteth  to  sell  Riviera  and  Mus- 
cadel  from  his  cellar,  but  he  hath  not  a  third  part  of  all  these;  he 
nameth  them  but  for  fashion's  sake,  that  he  may  the  better  entice  these 
dames  to  drink.  Trust  me,  he  will  draw  them  ten  sorts  of  wine  from 
one  barrel,  when  once  he  can  get  them  seated  in  his  chairs.  Better 
than  any  master  of  magic  Trick  knoweth  all  the  arts  of  the  wine- 
trade;  all  its  subtleties  and  its  guile.  He  is  crafty  to  counterfeit 
Rhine  wine  with  the  French  vintage ;  nay,  even  such  as  never  grew 
but  by  Thames  shore,  even  such  will  he  brisk  up  and  disguise,  and 
baptize  it  for  good  Rhenish  in  the  pitcher :  so  quantily  can  he  dissem- 
ble, that  no  man  is  so  cautious  but  Trick  will  trick  him  in  the  end. 

d)     In  the  Merrie  England  of  Queen  Bess* 

BY  DAVID  HUME 

The  active  reign  of  Elizabeth  had  enabled  many  persons  to  dis- 
tinguish themselves  in  civil  or  military  employments ;  and  the  queen, 
who  was  not  able,  from  her  revenue,  to  give  them  any  rewards  pro- 
portional to  their  services,  made  extreme  use  of  an  expedient  em- 
ployed by  her  predecessor.  She  granted  her  servants  and  courtiers 
patents  for  monopolies,  and  these  patents  they  sold  to  others,  who 
were  thereby  enabled  to  raise  commodities  to  what  price  they  pleased, 
and  who  put  invincible  restraints  upon  all  commerce,  industry,  and 
emulation  in  the  arts.  It  is  astonishing  to  consider  the  number  and 
importance  of  those  commodities  which  were  thus  assigned  over  to 
patentees.  Currants,  salt,  iron,  powder,  cards,  calfskins,  fells,  poul- 
davies,  ox  shin-bones,  train-oil,  lists  of  cloth,  pot-ashes,  aniseeds, 
vinegar,  sea-coals,  steel,  aqua-vitae,  brushes,  pots,  bottles,  saltpetre, 
lead,  accidences,  oil,  calamine-stone,  oil  of  blubber,  glasses,  paper, 
starch,  tin,  sulphur,  new  drapery,  pilchards ;  transportation  of  iron 
ordnance,  of  beer,  of  leather;  importation  of  Spanish  wool,  of  Irish 
yarn.  These  are  but  a  part  of  the  commodities  which  had  been  ap- 
propriated by  monopolists.  When  this  list  was  read  in  the  House,  a 
member  cried,  "Is  not  bread  in  the  number?"  "Bread!"  said  every- 
one, with  astonishment.  "Yes,  I  assure  you,"  replied  he,  "if  affairs 
go  on  at  this  rate,  we  shall  have  bread  reduced  to  a  monopoly  before 
next  Parliament."     These  monopolists  were  so  exorbitant  in  their 

^Adapted  from  The  History  of  England  (1759),  IV,  chap.  xliv. 


434  CURRENT  ECONOMIC  PROBLEMS 

demands  that  in  some  places  they  raised  the  price  of  salt  from  six- 
teen pence  a  bushel  to  fourteen  or  fifteen  shillings.  Such  high  profits 
naturally  begat  intruders  upon  their  commerce ;  and,  in  order  to 
secure  themselves  against  encroachment,  the  patentees  were  armed 
with  high  and  arbitrary  powers  from  the  council,  by  which  they  were 
enabled  to  exact  money  from  such  as  they  thought  proper  to  accuse 
of  interfering  with  their  patent. 

198.     The  Perennial  Protest  against  Monopoly 

a)     A  Proverb  About  Corners^ 

The  liberal  soul  shall  be  made  fat ; 
And  he  that  watereth  shall  be  watered  also  himself. 
He  that  withholdeth  grain,  the  people  shall  curse  him ; 
But  blessings  shall  be  upon  the  head  of  him  that  selleth  it. 

h)     The  Ethics  of  Monopoly  « 

BY  MARTIN  LUTHER 

There  are  some  who  buy  up  altogether  the  goods  or  wares  of  a 
certain  kind  in  a  city  or  country,  so  that  they  alone  have  such  goods 
in  their  power,  and  then  fix  prices,  raise  and  sell  as  dear  as  they 
will  or  can.  The  rule  is  false  and  unchristian  that  anyone  sell  his 
goods  as  dear  as  he  will  or  can ;  more  abominable  still  is  it  that  any- 
one should  buy  up  the  goods  with  this  intent.  Which  same,  more- 
over, imperial  and  common  law  forbids  and  calls  monopoly ;  that  is, 
selfish  purchases  which  are  not  to  be  suffered  in  the  land  and  the 
city,  and  princes  and  rulers  should  check  and  punish  it  if  they  wish 
to  fulfil  their  duty.  For  such  merchants  act  just  as  if  the  creatures 
and  goods  of  God  were  created  and  given  for  them  alone,  and  as 
though  they  might  take  them  from  others  and  dispose  of  them  at 
their  fancy. 

c)     The  Pests  of  Monopoly'' 

BY  SIR  JOHN  CULPEPPER 

These,  like  the  frogs  of  Egypt,  have  gotten  possession  of  our 
dwellings,  and  we  have  scarcely  a  room  free  from  them.  They  sip 
in  our  cup ;  they  dip  in  our  dish ;  they  sit  by  our  fire ;  we  find  them 

<*  Prov.  II  :2S-26  (350  B.C.). 

^Adapted  from  the  address  on  "Trade  and  Usury"  (1524),  printed  in  the 
Open  Court,  XI,  27;  translated  by  W.  H.  Carruth. 

"^  Quoted  in  Hirst,  Monopolies,  Trusts,  and  Kartells,  p.  20. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  435 

in  the  dye-vat,  washing-bowl,  and  powdering-tub.  They  share  with 
the  butler  in  his  box ;  they  have  marked  and  sealed  us  from  head  to 
foot ;  they  will  not  bate  us  a  pin. 

d)     The  Inexpediency  of  Monopoly  ® 

BY  ADAM  SMITH 

Though  some  exclusive  privileges  arise  from  nature,  they  are  gen- 
erally the  creatures  of  the  civil  law.  Such  are  monopolies  and  all 
privileges  of  corporations,  which,  though  they  might  once  be  con- 
ducive to  the  interest  of  the  country,  are  now  prejudicial  to  it.  The 
riches  of  the  country  consist  in  the  plenty  and  cheapness  of  provisions, 
but  their  effect  is  to  make  everything  dear.  When  a  number  of 
butchers  have  the  sole  privilege  of  selling  meat,  they  may  agree  to 
make  the  price  what  they  please,  and  we  must  buy  from  them  whether 
it  be  good  or  bad.  Even  this  privilege  is  not  of  advantage  to  the 
butchers  themselves,  because  the  other  trades  are  also  formed  into 
corporations,  and  if  they  sell  beef  dear  they  must  buy  bread  dear. 
But  the  great  loss  is  to  the  public,  to  whom  all  things  are  rendered 
less  comeatable,  and  all  sorts  of  work  worse  done ;  towns  are  not  well 
inhabited,  and  the  suburbs  are  increased. 

e)     Monopoly  Indefensible  ^ 

A  private  monopoly  is  indefensible  and  intolerable.  We  there- 
fore favor  the  vigorous  enforcement  of  the  criminal  as  well  as  the 
civil  law  against  trusts  and  trust  officials  and  demand  the  enactment 
of  such  additional  legislation  as  may  be  necessary  to  make  it  impos- 
sible for  a  private  monopoly  to  exist  in  the  United  States. 

199.     Monopoly,  the  Result  of  Natural  Growth^^ 

BY  GEORGE  GUNTON 

Many  people  talk  about  trusts  as  if  they  were  a  sudden  creation, 
the  product  of  a  conspiracy  against  the  public.  Nothing  could  be 
farther  from  the  truth  than  this  view.  The  history  of  trusts  is  simply 
the  history  of  the  continuous  and  almost  imperceptible  tendency  in 
progressive  society  toward  a  greater  centralization  of  capital  which 

^Adapted  from  Lectures  on  Justice,  Police,  Revenue  and  Arms  (1763), 
pp.  129-30;  edited  by  Edwin  Cannan. 

^From  the  national  platform  of  the  Democratic  party,  adopted  at  Baltimore, 
July  3,  1912. 

lOAdapted  from  Trusts  and  the  Public,  pp.  32-34.  Copyright  by  D.  Apple- 
ton  &  Co.,  1899. 


436  CURRENT  ECONOMIC  PROBLEMS 

the  most  highly  developed  labor-saving  methods  of  production  make 
necessary.  The  impeachment  of  trusts  as  economic  institutions  is 
therefore  the  impeachment  of  the  concentration  of  capital,  without 
which,  it  is  needless  to  say,  our  great  railroad,  telegraph,  and  factory 
systems  would  have  been  impossible.  Very  few  of  the  industries 
which  use  the  most  approved  methods  and  have  contributed  most  to 
cheapening  the  multitude  of  products  can  now  be  conducted  with  a 
capital  of  less  than  a  million  dollars ;  many  of  them  require  tens  and 
even  hundreds  of  millions.  A  hundred  or  even  fifty  years  ago,  a  mil- 
lionaire might  have  been  regarded  with  as  much  apprehension  as  is  a 
hundred-millionaire  today ;  indeed,  he  would  have  sustained  about  the 
same  relation  to  the  productive  needs  and  methods  of  the  community. 
The  truth  is  that  in  this  case,  as  in  the  growth  of  all  social  institutions, 
the  new  form  came  because  it  was  necessary.  The  small  English 
water-wheel  factory  on  the  river  bank,  in  the  eighteenth  century, 
came  because  the  isolated  hand-loom  and  spinning-wheel  did  not  per- 
mit the  utilization  of  the  most  economic  methods  after  the  spinning- 
jenny  and  spinning-frame  were  invented.  The  steam-driven  factory 
in  thickly  populated  centers  came  in  the  first  quarter  of  the  nineteenth 
century  because  the  water-wheel  shops  were  incapable  of  employing 
the  best  methods  after  the  invention  of  steam  and  the  power-loom 
had  been  completed.  If  these  had  not  been  capable  of  lessening  the 
cost  of  production  and  so  rendering  a  general  benefit  to  the  com- 
munity, they  could  not  have  succeeded,  as  there  would  have  been 
no  demand  for  their  products.  So,  again,  by  the  middle  of  the  cen- 
tury, when  machinery  had  been  still  further  improved,  partnership 
organization  of  industry  became  necessary  because  single  individuals 
were  not  rich  enough  to  furnish  plants  sufficiently  large  to  employ 
profitably  the  most  improved  methods. 

With  the  cheapening  of  products  and  the  increased  consumption 
which  followed  the  use  of  these  successive  improvements,  and  the 
consequent  social  advance  of  the  community,  a  revolution  in  the  meth- 
ods of  distribution  and  international  communication  became  neces- 
sary. Inventions  multiplied,  which  so  enlarged  the  industrial  world 
as  to  render  corporations  necessary  in  order  to  obtain  the  best  eco- 
nomic results.  Modern  trusts  are  but  a  single  step  farther  in  the 
same  direction.  They  are  simply  the  organization  of  corporations  in 
the  same  way  that  corporations  were  the  organization  of  individual 
capitalists. 

Trusts,  instead  of  being  sudden  monopolistic  creations  that  have 
been  sprung  on  the  community  by  a  few  designing  conspirators,  are 
but  the  last  link  in  an  industrial  chain  more  than  a  century  long; 
they  are  no  more  revolutionary  than  any  one  of  the  previous  links, 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  437 

and  less  so  than  some  of  the  earlier  ones.  Each  one  of  these  links 
in  the  great  chain  of  industrial  evolution  came  and  stayed  only  be- 
cause it  was  more  profitable  than  its  predecessors  to  those  who  em- 
ployed it,  lessened  the  cost  of  production,  and  served  the  community 
more  cheaply.  Had  it  not  done  this,  it  could  not  have  sustained  itself 
in  competition  with  the  old  methods. 

200.     Monopoly,  the  Result  of  Artificial  Conditions'^ 

BY  WOODROW  WILSON 

Gentlemen  say,  they  have  been  saying  for  a  long  time,  that  trusts 
are  inevitable.  They  say  that  the  particular  kind  of  combinations 
that  are  now  controlling  our  economic  development  came  into  exist- 
ence naturally  and  were  inevitable ;  and  that,  therefore,  we  have  to 
accept  them  as  unavoidable  and  administer  our  development  through 
them.  They  take  the  analogy  of  the  railways.  The  railways  were 
clearly  inevitable  if  we  were  to  have  transportation,  but  railways 
after  they  are  once  built  stay  put.  You  can't  transfer  a  railroad  at 
convenience ;  and  you  can't  shut  up  one  part  of  it  and  work  another 
part.  It  is  in  the  nature  of  what  economists,  those  tedious  persons, 
call  natural  monopolies ;  simply  because  the  circumstances  of  their 
use  are  so  stiff  that  you  can't  alter  them. 

I  admit  the  popularity  of  the  theory  that  the  trusts  have  come 
about  through  the  natural  development  of  business  conditions  in  the 
United  States,  and  that  it  is  a  mistake  to  try  to  oppose  the  processes 
by  which  they  have  been  built  up,  because  those  processes  belong  to 
the  very  nature  of  business  in  our  time,  and  that  therefore  the  only 
thing  we  can  do  is  to  accept  them  as  inevitable  arrangements  and 
make  the  best  out  of  it  that  we  can  by  regulation. 

I  answer,  nevertheless,  that  this  attitude  rests  upon  a  confusion 
of  thought.  Big  business  is  no  doubt  to  a  large  extent  necessary 
and  natural.  The  development  of  business  is  inevitable,  and,  let  me 
add,  is  probably  desirable.  But  that  is  a  very  different  matter  from 
the  development  of  trusts,  because  the  trusts  have  not  grown.  They 
have  been  artificially  created ;  they  have  been  put  together,  not  by 
natural  processes,  but  by  the  will,  the  deliberate  planning  will,  of 
men  who  were  more  powerful  than  their  neighbors  in  the  business 
world,  and  who  wished  to  make  their  power  secure  against  competi- 
tion. The  trusts  do  not  belong  to  the  period  of  infant  industries. 
They  are  not  the  products  of  the  time,  that  old  laborious  time,  when 
the  great  continent  we  live  on  was  undeveloped,  the  young  nation 

^^Adapted  from  The  New  Freedom,  pp.  163-69.  Copyright  by  Doubleday, 
Page  &  Co.,  1912. 


4^8  CURRENT  ECONOMIC  PROBLEMS 

struggling  to  find  itself  and  get  upon  its  feet  amidst  older  and  more 
experienced  competitors.  They  belong  to  a  very  recent  and  very 
sophisticated  age,  when  men  knew  what  they  wanted  and  knew  how 
to  get  it  by  the  favor  of  the  government. 

Did  you  ever  look  into  the  way  a  trust  was  made?  It  is  very 
natural,  in  one  sense,  in  the  same  sense  in  which  human  greed  is 
natural.  If  I  haven't  efficiency  enough  to  beat  my  rivals,  then  the 
thing  I  am  inclined  to  do  is  to  get  together  with  my  rivals  and  say : 
"Don't  let's  cut  each  other's  throats ;  let's  combine  and  determine 
prices  for  ourselves;  determine  the  output,  and  thereby  determine 
the  prices ;  and  dominate  and  control  the  market."  That  is  very 
natural.  That  has  been  done  ever  since  freebooting  was  established. 
That  has  been  done  ever  since  power  was  used  to  establish  control. 
The  reason  that  the  masters  of  combination  have  sought  to  shut  out 
competition  is  that  the  basis  of  control  under  competition  is  brains 
and  efficiency,  I  admit  that  any  large  corporation  built  up  by  the 
legitimate  processes  of  business,  by  economy,  by  efficiency,  is  natural ; 
and  I  am  not  afraid  of  it,  no  matter  how  big  it  grows.  It  can  stay  big 
only  by  doing  its  work  more  thoroughly  than  anybody  else.  And 
there  is  a  point  of  bigness  where  you  pass  the  limit  of  efficiency  and 
get  into  the  region  of  clumsiness  and  unwieldiness.  You  can  make 
your  combine  so  extensive  that  you  can't  digest  it  into  a  single  system  ; 
you  can  get  so  many  parts  that  you  can't  assemble  them  as  you  would 
an  effective  piece  of  machinery.  The  point  of  efficiency  is  overstepped 
in  the  natural  process  of  development  oftentimes,  and  it  has  been 
overstepped  many  times  in  the  artificial  and  deliberate  formation  of 
trusts. 

A  trust  is  formed  in  this  way :  a  few  gentlemen  "promote"  it — 
that  is  to  say,  they  get  it  up,  being  given  enormous  fees  for  their 
kindness,  which  fees  are  loaded  on  to  the  undertaking  in  the  form 
of  securities  of  one  kind  or  another.  The  argument  of  the  promoters 
is,  not  that  every  one  who  comes  into  the  combination  can  carry  on 
his  business  more  efficiently  than  he  did  before ;  the  argument  is :  we 
will  assign  to  you  as  your  share  in  the  pool  twice,  three  times,  four 
times,  or  five  times  what  you  could  have  sold  your  business  for  to  an 
individual  competitor  who  would  have  to  run  it  on  an  economic  and 
competitive  basis.  We  can  afford  to  buy  it  at  such  a  figure  because 
we  are  shutting  out  competition. 

Talk  of  that  as  sound  business?  Talk  of  that  as  inevitable?  It 
is  based  upon  nothing  except  power.  It  is  not  based  upon  efficiency 
It  is  no  wonder  that  the  big  trusts  are  not  prospering  in  proportion 
to  such  competitors  as  they  still  have  in  such  parts  of  their  business 
as  competitors  have  access  to;   they  are  prospering  freely  only  in 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  439 

those  fields  to  which  competition  has  no  access.  Read  the  statistics 
of  the  Steel  Trust,  if  you  don't  believe  it.  Read  the  statistics  of 
any  trust.  They  are  constantly  nervous  about  competition,  and  they 
are  constantly  buying  up  new  competitors  in  order  to  narrow  the 
field.  The  United  States  Steel  Corporation  is  gaining  in  its  supremacy 
in  the  American  market  only  with  regard  to  the  cruder  manufactures 
of  iron  and  steel,  but  wherever,  as  in  the  field  of  more  advanced  manu- 
facture of  iron  and  steel,  it  has  important  competitors,  its  portion  of 
the  product  is  not  increasing,  but  is  decreasing,  and  its  competitors, 
where  they  have  a  foothold,  are  often  more  efficient  than  it  is. 

Why?  Why,  with  unlimited  capital  and  innumerable  mines  and 
plants  everywhere  in  the  United  States,  can't  they  beat  the  other 
fellows  in  the  market?  Partly  because  they  are  carrying  too  much. 
Partly  because  they  are  unwieldy.  Their  organization  is  imperfect. 
They  bought  up  inefficient  plants  along  with  efficient,  and  they  have 
got  to  carry  what  they  have  paid  for,  even  if  they  have  to  shut  some 
of  the  plants  up  in  order  to  make  any  interest  on  the  investments ; 
or,  rather,  not  interest  on  their  investments,  because  that  is  an  in- 
correct word, — on  their  alleged  capitalization.  Here  we  have  a  lot 
of  giants  staggering  along  under  an  almost  intolerable  weight  of 
artificial  burdens,  which  they  have  put  on  their  own  backs,  and  con- 
stantly looking  about  lest  some  little  pigmy  with  a  round  stone  in  a 
sling  may  come  out  and  slay  them. 

B.     CONDITIONS  OF  MONOPOLIZATION 

201.     The  Failure  of  Competition'- 

BY  HENRY  W.   MACROSTY 

Modern  industry  is  essentially  speculative  in  character.  It  has 
been  said,  "It  is  for  the  prospective,  not  for  the  actually  existing, 
demand  that  a  producer  has  chiefly  to  provide.  Our  warehouses  and 
shops  overflow  with  goods  that  have  been  produced  before  being 
sold,  and  with  a  view  to  their  being  sold.  They  have  been  produced 
to  meet  the  prospective  demand,  and  to  measure  that  accurately  is 
not  in  the  power  of  the  most  able  and  prudent  man."^^  This  state- 
ment applies  not  only  to  goods  for  consumption,  but  also  to  goods, 
such  as  machinery,  which  are  intended  to  aid  production.  The  com- 
munity is  interested  only  in  the  accommodation  of  the  whole  supply 
to  the  total  demand,  but  it  is  to  the  interest  of  each  individual  manu- 
facturer to  secure  for  himself  as  large  a  share  of  that  demand  as 

i^Adapted  from  Trusts  and  the  State,  pp.  103-119.  Published  by  E.  P. 
Dutton  &  Co.  and  G.  Richards  &  Co.,  London,  1901. 

13  Mongradien,  The  Displacement  of  Labor  and  Capital  (1886),  p.  25. 


440  CURRENT  ECONOMIC  PROBLEMS 

possible,  without  regard  to  the  probabiHty  of  there  being  an  over- 
supply.  To  secure  custom  he  must  underbid  his  competitors ;  to 
make  the  low  price  profitable  he  must  reduce  his  expenses  of  produc- 
tion. There  is  thus  a  permanent  stimulus  to  the  improvement  of 
organization  and  to  the  invention  of  new  processes ;  but  as  soon  as 
these  advantages  are  gained  they  are  immediately  lost  by  competi- 
tion, and  the  enhanced  profits  are  either  dissipated  in  expenses  or 
handed  over  to  the  consumer.  The  old  economists  justified  compe- 
tition on  this  very  ground,  that  the  desire  for  private  gain  drove 
capitalists  to  improve  their  industry,  and  then  compelled  them  to 
part  with  their  profits  to  the  general  public,  but  they  arrived  at  this 
only  by  neglecting  all  the  other  aspects  of  the  problem. 

The  aim  of  trade  is  to  make  profits ;  the  object  of  making  profits, 
according  to  commercial  philosophy,  is  to  make  savings.  The  re- 
investment of  savings  in  new  industrial  equipment  is  a  necessary 
condition  to  industrial  progress.  Thus  industrial  development  goes 
hand  in  hand  with  an  increase  in  industrial  equipment. 

This  steady  tendency  to  increase  the  productive  machinery  of 
the  country  necessarily  intensifies  competition.  But  if  "competition 
is  the  life  of  trade,"  it  is  the  death  of  business.  The  newcomers, 
equipped  with  the  newest  methods  and  the  latest  discoveries,  pro- 
duce more  cheaply  than  their  predecessors,  and  a  race  for  life  fol- 
lows, in  the  course  of  which  more  and  more  goods  at  lower  prices 
are  thrown  on  the  market.  If  the  low  prices  stimulate  fresh  demand, 
general  benefit  ensues,  but  the  rate  of  production  can  govern  con- 
sumption only  within  narrow  limits.  Owing  to  the  great  capacity 
of  modern  machinery,  the  operatives  employed  by  the  investment 
of  savings  can  consume  only  a  very  small  proportion  of  their  prod- 
uct. An  outlet  must  be  found  either  in  the  discovery  of  new  mar- 
kets, in  countries  yet  to  be  developed,  or  in  increased  home  con- 
sumption. The  former  involves  questions  of  foreign  policy  and  in- 
ternational competition,  and  must  gradually  diminish  in  importance 
as  a  solution.  As  for  the  latter,  the  inequitable  distribution  of 
wealth  and  the  permanent  maladjustment  of  purchasing  and  pro- 
ducing power  necessarily  create  an  incalculable  disorganization  of 
industry,  and  profoundly  increases  the  innate  inability  of  the  com- 
petitive system  to  balance  demand  and  supply. 

In  a  limited  market  it  is  possible  for  the  producer  to  forecast  the 
probable  demand  and  to  estimate  the  capacity  of  his  competitors 
to  meet  it ;  but  in  proportion  as  the  markets  widen,  both  these  neces- 
sary conditions  of  success,  and  especially  the  latter,  become  more  dif- 
ficult of  attainment.  A  farmer  in  Essex  finds  it  beyond  his  power 
to  reckon  up  the  probable  produce  of  a  Dakota  wheat  crop  or  the 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  441 

chances  of  a  scarcity  in  Russia  before  he  decides  what  acreage  he 
will  lay  down  in  corn,  and  yet  his  inability  may  land  him  in  the 
bankruptcy  court.  Scarcely  less  difficult  is  it  for  the  Sheffield  manu- 
facturer to  foretell  the  probability  of,  say,  a  raid  on  rails  by  the  Car- 
negie combination.  What  is  true  of  normal  conditions  of  trade  holds 
good  with  reference  to  an  abnormal  demand,  and  the  efforts  to  meet 
the  latter  generally  have  far-reaching  and  destructive  consequences. 

The  inability  of  the  capitalist  system  to  control  its  own  produc- 
tivity must  increase  with  an  increase  in  the  complexity  of  the  organi 
zation.  The  influence  of  machinery  on  production  deserves  par- 
ticular attention.  Every  invention  causes  displacement,  both  of  cap- 
ital and  of  labor;  and  while  its  benefits  are  distributed  over  the 
whole  community,  its  costs  must  be  borne  by  individual  capitalists 
and  laborers.  In  America  the  invention  of  new  labor-saving  ma- 
chines proceeds  so  fast  that  machinery  becomes  antiquated  before 
it  is  worn  out,  and  the  workshops  are  in  a  constant  state  of  transi- 
tion. Usually  capital  suffers  less  than  labor,  because  of  its  greater 
fluidity  and  its  ability  to  recoup  itself  from  the  increased  productivity 
of  the  inventions.  Large  businesses  suffer  less  than  small,  as  their 
powers  of  adaptation  are  greater,  and  therefore  small  concerns  tend  to 
go  to  the  wall.  But  loss  there  usually  is,  and  one  generation  of  pro- 
ducers is  sometimes  ruined  for  the  benefit  of  posterity. 

To  sum  up,  we  see  that  business  under  capitalism,  working 
through  competition,  shows  an  inherent  inability  to  equate  supply 
to  demand,  which  increases  as  the  market  widens.  The  savings  of 
profits  leads  to  overinvestment  in  productive  appliances,  from  which 
follow  overproduction,  fall  in  prices,  and  depression.  The  depres- 
sion displaces  labor,  and  the  process  increases  the  irregularity  of 
employment.  Reduction  of  profits  also  compels  economies  in  manu- 
facture and  transport,  the  greater  employment  of  improved  ma- 
chinery, and  the  invention  of  new  processes.  The  increased  pro- 
ductivity of  capital  causes  a  still  greater  reduction  in  prices  and 
profits,  and  increases  the  tendency  toward  disorganization.  It  is 
from  this  situation  that  combination  has  been  adopted  as  a  means 
of  escape. 

202.     The  Incentives  to  Monopoly^* 

BY  CHESTER  W.   WRIGHT 

We  have  in  modern  capitalistic  industry  tendencies  toward  a 
widening  of  the  market  with  increased  localization  and  integration 

^*Adapted  from  "The  Trust  Problem — Prevention  versus  Allevation," 
Journal  of  Political  Economy,  XX  (1912),  578-81. 


442  CURRENT  ECONOMIC  PROBLEMS 

and  a  steadily  enlarging  scale  of  production  accompanied  by  a  grow- 
ing fierceness  of  competition.  The  larger  the  concerns,  the  smaller 
their  number,  the  greater  their  resources  for  carrying  on  a  fight,  the 
bigger  the  prize  which  goes  to  the  winner,  the  fiercer  becomes  the 
competition  and  the  more  excessive  its  wastes.  Add  to  this  the  dif- 
ficulties arising  from  the  small  margin  of  profit,  the  more  complicated 
and  prolonged  industrial  processes,  the  wide  market,  and  the  large 
use  of  fixed  capital — and  finally  add  the  extra  gain  which  comes  from 
the  power  of  monopoly  to  extort  exorbitant  prices,  and  one  under- 
stands the  forces  which  are  fundamentally  responsible  for  the  modern 
trust  movement.  The  reason  for  many  trusts  may  be  found  in  more 
immediate  causes,  which,  for  the  very  reason  that  they  are  more  im- 
mediate and  obvious,  have  often  appeared,  to  the  public  eye  at  least, 
as  even  more  important. 

It  is  doubtless  true  that  a  considerable  number  of  trusts  owe 
their  origin  to  the  profits  which  it  was  expected  would  accrue  to 
the  promoter  who  undertook  the  task  of  organizing  the  trust.  This 
was  especially  the  case  in  the  promotion  which  went  on  during  the 
years  1898  and  1901,  when  the  money  market  and  other  conditions 
were  particularly  favorable;  but  it  is  not  likely  that  we  shall  soon 
see  a  recurrence  of  such  an  era.  There  can  be  no  question,  how- 
ever, that  the  lax  corporation  laws,  many  of  which  appear  to  have 
been  especially  designed  to  meet  the  promoter's  needs,  did  enable 
him  to  make  certain  gains  and  to  dispose  of  the  securities  put  out 
at  a  somewhat  higher  price  than  would  otherwise  have  been  pos- 
sible. Still,  it  must  be  borne  in  mind  that  the  more  fundamental 
causes  for  the  growth  of  trusts  were  really  at  the  bottom  of  even 
these  gains. 

Most  prominent  among  the  second  group  of  more  immediate 
causes  for  the  growth  of  trusts — those  which  I  call  special  privileges 
— are  railroad  favors,  tariff  duties,  and  patent  rights.  In  former 
years  railroad  favors  of  one  sort  or  another  were  doubtless  given  to 
many  of  the  trusts.  From  time  to  time  announcements  have  been 
made  that  these  discriminations  had  been  abolished ;  but  frequently, 
as  some  later  special  investigation  or  prosecution  revealed  the  facts,  it 
has  been  found  that  they  still  exist.  However,  the  evil  is  undoubtedly 
much  less  frequent  than  formerly  and  today  is  at  best  but  a  minor 
factor.  The  tariff  is  probably  of  more  importance  as  an  aid  to  the 
trusts,  though  I  am  inclined  to  believe  that  its  influence  has  been  con- 
siderably exaggerated.  Probably  its  chief  effect  is  in  enabling  trusts, 
most  of  which  would  exist  in  any  case,  to  exact  somewhat  higher 
prices  for  their  products  than  would  otherwise  be  possible.  It  should 
be  noted,  however,  that  it  is  the  over-protective  tariff  which  offers 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  443 

the  chief  incentive  for  the  formation  of  trusts.  It  is  because  the 
duties  are  often  so  much  higher  than  is  necessary  to  maintain  the 
industry  that  overproduction  ensues  and  the  domestic  manufacturers 
are  led  to  combine  so  as  to  secure  the  high  profits  made  possible  by 
the  tariff.  To  enact  duties  of  this  character  is  to  do  nothing  less  than 
to  offer  a  reward  for  forming  a  trust.  The  importance  of  patent 
rights  as  a  basis  for  trusts  probably  deserves  more  attention  than  it 
has  received. 

The  third  group  of  minor  causes  for  the  growth  of  trusts  includes 
certain  methods  of  competition,  notably  factor  agreements  and  dis- 
criminating prices.  Under  such  agreements  the  manufacturer  or 
wholesaler  may  sell  his  product  on  condition  that  the  price  which  he 
fixes  be  absolutely  maintained,  or  on  condition  that  the  retailer. shall 
not  deal  in  the  competing  product  of  any  rival,  or  perhaps  that  he 
shall  not  sell  such  rival  product  below  a  certain  price.  Any  concern 
putting  out  a  product  for  which  there  is  a  considerable  demand  can 
use  this  system,  especially  the  latter  form,  against  its  rivals  with 
tremendous  power  and  effectiveness.  The  practice  of  discriminating 
prices  is  also  a  powerful  weapon  for  building  up  and  maintaining 
monopoly  control. 

Closely  connected  with  this  is  the  power  exercised  by  control 
of  credit  which  is  sometimes  declared  to  be  an  important  weapon 
of  the  trust.  On  this  point  it  is  impossible  at  present  to  speak 
decisively.  Information  is  very  difficult  to  obtain  and  usually  con- 
flicting. There  is  some  reason  to  believe  that  a  large  concern  with 
the  close  financial  alliances  which  ordinarily  accompany  it  may  oc- 
casionally find  itself  in  a  position  where  it  can  control  the  credit 
obtainable  by  a  rival  at  some  crucial  moment  and  through  the  power 
thus  obtained  may  force  that  rival  to  capitulate,  often  at  a  heavy 
loss,  as  in  the  case  t»f  the  Pennsylvania  Sugar  Refining  Company. 
There  may  not  be  a  money  trust  but  apparently  there  are  times 
when  the  power  of  centralized  control  over  large  masses  of  capital 
proves  of  great  advantage  to  a  big  corporation. 

203.     Large-Scale  Production  and  Monopoly^^ 

BY  CHARLES  J.  BULLOCK 

In  favor  of  the  proposition  that  the  tendency  of  large-scale  pro- 
duction is  to  pass  over  into  monopoly,  three  general  lines  of  argument 
may  be  distinguished:  (a)  the  contention  that  a  consolidated  enter- 
prise possesses  advantages  over  independent  companies  in  producing 

i^Adapted  from  "Trust  Literature :  A  Survey  and  a  Criticism,"  Quarterly 
Journal  of  Economics,  XV,  190-210.     Copyright,  1901. 


444  CURRENT  ECONOMIC  PROBLEMS 

and  marketing  its  goods;  (b)  the  claim  that  mere  mass  of  capital 
confers  powers  of  destructive  warfare  so  great  as  to  deter  possible 
competition  from  entering  the  field;  (c)  the  belief  that  modern  com- 
petition between  large  rival  establishments,  representing  heavy  in- 
vestments of  fixed  capital,  is  injurious  to  the  public,  ruinous  to  the 
producers,  and  in  its  final  outcome  self-destructive.  As  our  discus- 
sion proceeds  it  will  become  evident  to  the  reader  that  all  of  these 
arguments  can  be  employed,  with  consistency,  only  by  those  who 
believe  that  the  competitive  regime  is  to  be  replaced  by  an  era  of 
monopoly. 

First  in  this  list  is  the  contention  that  a  consolidated  concern 
is  a  more  efficient  agent  of  production  and  exchange.  Thus  it  is 
claimed  that  trusts,  by  filling  orders  from  the  nearest  plant,  can 
effect  a  great  saving  in  cross- freights.  Data  upon  this  question  are 
available  in  the  recent  Bulletin  of  the  Department  of  Labor.  Of 
the  forty-one  combinations  reporting,  twenty-seven  failed  to  answer 
this  question,  nine  claimed  a  saving  from  this  source,  and  five  stated 
that  there  was  no  gain.  Of  the  nine  reporting  a  saving,  the  Bulletin 
states  the  amount  only  in  three  cases ;  and  in  two  of  these  the  item 
of  cross-freights  was  combined  with  other  economies,  the  aggregate 
sums  being  $400,000  and  "considerably  over  $500,000."  This,  be  it 
remembered,  is  the  trusts'  own  showing,  and  is  certainly  not  an  under- 
estimate. The  reason  for  these  comparatively  small  results  is  not 
difficult  to  discover.  When  the  monopolized  product  is  of  a  bulky 
sort,  the  industry  is  already  localized  pretty  thoroughly  before  com- 
bination takes  place ;  and,  since  most  of  the  former  independent  estab- 
lishments were  producing  chiefly  for  their  natural  local  constituencies, 
the  trust  can  save  little  in  cross- freights.  When,  however,  the  pro- 
duct is  light,  transportation  charges  become  a  matter  of  small  moment. 
In  either  case  the  room  for  saving  in  cross-freights  is  not  nearly  as 
large  as  has  been  represented,  while  often  it  does  not  exist. 

Then  it  is  urged  that  a  trust  can  draw  upon  all  the  patented 
devices  of  the  constituent  companies,  and  employ  only  those  that 
are  most  efficient.  But  advantages  accruing  from  this  fact  will  in 
most  cases  prove  to  be  of  a  temporary  nature,  as  trusts  that  have 
tried  to  base  a  monopoly  upon  the  control  of  all  available  patents 
have  learned  in  the  past,  and  will  learn  in  the  future.  Moreover,  a 
simple  reform  in  our  patent  laws  will  make  the  best  processes  avail- 
able for  all  producers  for  any  time  that  the  public  finds  such  a 
measure  to  be  necessary  for  protection  against  monopoly.  Here, 
then,  we  find  no  natural  law  working  resistlessly  towards  combi- 
nation, but  a  man-made  device  which  can  be  regulated  as  public 
policy  may  dictate. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  445 

Again,  we  are  told  that  a  trust  can  produce  more  cheaply  than 
separate  concerns,  because  all  the  plants  utilized  can  be  run  at  their 
full  capacity;  whereas,  under  competition,  many  establishments  can 
be  kept  in  operation  but  a  part  of  the  time.  Some  observations  may 
be  made  concerning  this  claim. 

In  general,  it  may  be  denied  that,  whenever  governmental  inter- 
ference has  not  produced  unhealthy  and  abnormal  conditions,  com- 
petition has  led  to  such  absurdly  excessive  investments  as  is  com- 
monly assumed.  We  must  concede,  however,  that  under  normal 
conditions  some  reduction  can  be  made  in  the  number  of  plants 
required  to  supply  the  market  at  ordinary  times ;  but  this  does  not 
dispose  of  the  matter.  If  a  trust  is  to  be  prepared  for  supplying 
the  market  promptly  in  times  of  rapidly  increasing  demand,  it  is 
necessary  that  some  surplus  productive  capacity  must  exist  in  periods 
of  stationary  or  decreasing  demand ;  for,  as  believers  in  the  tendency 
to  monopoly  often  remind  us,  many  months,  or  even  one  or  two 
years,  are  required  for  the  construction  of  new  plants.  When  this 
fact  is  taken  into  account,  the  case  will  stand  as  follows:  except 
where  the  action  of  government  has  produced  abnormal  conditions, 
the  capacity  of  competing  establishments  does  not  exceed  the  require- 
ments of  the  market  to  any  such  degree  as  is  commonly  assumed; 
even  a  trust  must  provide  for  periods  of  expanding  trade ;  even  then, 
not  all  rival  establishments  suffer  seriously  from  inability  to  find 
continuous  employment  for  their  plants,  so  that  probably  the  ad- 
vantages secured  by  the  trust  are  of  consequence  only  when  the  least 
fortunate  or  least  efficient  independent  concerns  are  made  the  basis 
of  comparison. 

Again,  we  are  reminded  of  advantages  in  buying  materials  or 
selling  products.  It  is  urged  that  a  combination  can  purchase  its 
raw  materials  more  cheaply  than  separate  concerns.  No  one  doubts 
that  a  large  company  can  often  secure  better  terms  than  a  small 
establishment;  but  it  is  not  so  clear  that  every  trust  can  secure 
supplies  more  cheaply  than  large  independent  enterprises,  unless 
it  is  true  that  all  combinations  can  arbitrarily  depress  the  prices 
of  the  materials  which  they  consume.  Undoubtedly,  this  has  been 
done  by  some  of  the  trusts,  although  their  partisans  deny  it;  but 
such  a  saving  represents  no  social  gain,  and  sometimes  it  may  be 
possible  for  would-be  competitors  to  profit  by  the  depressed  con- 
dition of  the  market  for  few  raw  materials. 

And,  finally,  we  come  to  economies  in  advertising  and  in  solicit- 
ing business,  where  the  wastes  of  competition  are  certainly  serious 
and  the  room  for  improvement  correspondingly  great.  Those  who 
deny  the  tendency  to  monopoly  generally  admit  that  a  trust  can  have 


446  CURRENT  ECONOMIC  PROBLEMS 

a  material  advantage  here,  while  those  who  affirm  the  existence 
of  such  a  tendency  evidently  realize  that  their  case  is  strongest  at 
this  point.  Yet  an  opportunity  for  saving  in  these  departments 
does  not  always  exist,  and  the  extent  of  the  economy  is  easily  ex- 
aggerated in  other  cases.  Mr,  Nettleton  is  right  when  he  says: 
"But  to  what  extent  the  trust  organizers  have  counted  on  prac- 
tically cancelling  expenditure  for  these  two  items,  on  the  ground 
that  buyers  will  be  obliged  to  come  to  the  sole  manufacturers,  they 
are  likely  to  be  surprised.  To  an  extent  which  few  appreciate,  the 
buying  public  has  become  accustomed  to  being  reminded  of  its  needs 
before  making  purchases.  Except  in  staple  and  absolutely  necessary 
commodities,  demand  is  largely  created  and  maintained  by  advertis- 
ing through  periodicals,  catalogues,  or  traveling  salesmen.  Hence, 
the  trust  that  expects  to  save  the  bulk  of  this  important  item  must 
also  expect  to  lose  through  diminished  sales  more  than  the  economy 
represents.  This  is  not  theory,  but  the  testimony  of  leading  dealers 
in  many  lines." 

We  must  now  take  into  account  certain  counteracting  forces, 
upon  which  some  writers  rest  their  belief  that  competition  will  ulti- 
mately prevail.  These  economists  contend,  in  the  first  place,  that, 
outside  the  field  of  the  natural  monopolies,  the  growth  of  a  busi- 
ness enterprise  is  limited  by  the  fact  that  companies  of  a  certain 
size  will  secure  "maximum  efficiency"  of  investment,  and  that  be- 
yond this  point  concentration  brings  no  increase  in  productive  ca- 
pacity. This  position  is  based  upon  the  belief  that  a  factory  of  a 
certain  size  will  enable  machinery  to  be  employed  in  the  most  ad- 
vantageous manner ;  that  a  reasonable  number  of  such  plants  will 
make  possible  all  needful  specialization  of  production ;  that  allied  and 
subsidiary  industries  can  be,  and  are,  carried  on  by  large  independent 
concerns ;  and  that  the  cost  and  difficulties  of  supervision  increase 
rapidly  after  a  business  is  enlarged  beyond  a  certain  size,  especially 
when  it  is  attempted  to  unite  plants  situated  in  different  parts  of 
the  country.  For  this  reason,  increased  output  does  not  decrease  the 
burden  of  fixed  charges  after  a  company  attains  a  certain  magnitude ; 
but,  on  the  contrary,  new  charges  arise.  Among  such  new  expenses, 
not  the  least  important  are  the  cost  of  employing  the  most  skilled  legal 
talent  to  steer  the  combination  just  close  enough  to  the  law,  the  ex- 
penses necessary  for  "legislative"  and  "educational"  purposes,  and 
the  outlays  for  stifling  competition  or  the  continual  "buying  out"  of 
would-be  rivals. 

It  is  argued  that  an  established  monopoly  will  suffer  actual  loss 
from  listless  and  unprogressive  management.  As  the  New  York 
Journal  of  Commerce  rightly  insists,  "It  is  not  to  be  denied  that 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  447 

such  concentrations  of  management  will  be  subject  to  countervail- 
ing offsets  from  the  absence  of  the  stimulus  of  competition;  from 
the  uncertainty  about  the  management  falling  into  the  best  pos- 
sible hands ;  from  the  discouragement  to  invention  which  always 
attends  monopoly,  and  from  the  possibility  that  the  administration 
may  be  intrusted  to  'friends'  rather  than  to  experts."  As  Professor 
Clark  suggests,  an  established  monopoly,  secure  in  the  possession 
of  the  markets  of  a  large  country  "would  not  need  to  be  forever 
pulling  out  its  machines  and  putting  in  better,"  so  that,  as  com- 
pared with  countries  where  industry  is  upon  a  competitive  basis, 
such  a  combination  would  fall  behind  in  the  struggle  for  interna- 
tional trade.  In  ruthlessly  and  unceasingly  displacing  expensive 
machinery  with  newer  and  better  appliances,  American  manufac- 
turers have  probably  led  the  world ;  but  monopolies  will  inevitably 
feel  reluctant  to  continue  such  an  energetic  policy  of  improvement. 
As  combinations  obtain  a  greater  age,  they  will  persist  in  old  and 
established  methods ;  while  nepotism  and  favoritism,  tending  to- 
wards hereditary  office-holding  will  replace  the  energetic  manage- 
ment that  some  of  the  trusts  now  display. 

Here  we  may  refer  to  two  of  the  alleged  advantages  of  trusts. 
It  is  said  that  combinations  develop  abler  management  through  the 
opportunity  they  afford  for  a  specialization  of  skill  upon  the  part 
of  their  officials,  and  that  efficiency  is  increased  by  a  comparison  of 
the  methods  and  costs  of  production  in  the  various  plants. 

When  it  is  contended  that  the  "strength  of  the  trust  is  that  it 
gives  the  opportunity  for  the  exercise  of  these  highest  qualities  of 
industrial  leadership,"  and  that  it  gives  us  "a  process  of  natural 
selection  of  the  very  highest  order,"  we  may  question  whether  stock 
speculation  and  other  causes  lying  outside  the  sphere  of  mere  pro- 
ductive efficiency  have  not  had  more  to  do  with  the  formation  of 
recent  combinations  than  demonstrated  superiority  in  business  man- 
agement. It  may  be  asserted  that  the  establishment  of  permanent 
monopoly  will  interfere  seriously  with  the  future  process  of  selection. 
It  must  be  remembered  that  the  able  leaders  now  at  the  head  of  the 
successful  trusts  were  developed  out  of  a  field  which  afforded  the 
widest  opportunity  for  creative  ability.  The  supreme  qualities  req- 
uisite for  great  industrial  leadership  are  not  likely  to  be  fostered 
by  a  regime  which  closes  each  important  branch  of  manufacture  to 
new  enterprise,  and  renders  hopeless  all  competition  with  a  single 
consolidated  company.  Will  successive  generations  of  bureau  chiefs 
or  heads  of  departments  in  long-established  corporations  be  able  to 
continue  the  race  of  masterful  leaders,  which  freedom  in  originating 


448  CURRENT  ECONOMIC  PROBLEMS 

and  organizing  independent  industries  has  given  us  in  the  present 
age? 

The  second  argument  advanced  to  prove  the  tendency  to  mon- 
opoly is  the  claim  that  mere  mass  of  capital  confers  such  powers 
of  destructive  warfare  as  to  deter  possible  competitors  from  en- 
tering the  industry,  at  least  until  prices  have  long  been  held  above 
the  competitive  rate.  It  is  said  that  a  large  combination  can  lower 
prices  below  the  cost  of  production  in  any  locality  where  a  small 
rival  concern  i»  established,  thus  driving  it  out  of  the  field.  With- 
out doubt  the  destructive  competition  waged  by  combinations  is 
an  important  consideration,  and  it  may  well  enough  re-enforce  mon- 
opoly where  other  attendant  circumstances  favor  consolidation.  But 
a  monopoly  based  solely  upon  this  power  would  be,  confessedly,  a 
temporary  affair ;  for  probably  no  one  would  claim  that  all  capitalists 
would  be  intimidated  permanently  by  such  circumstances. 

The  final  reason  for  the  belief  that  combinations  must  ultimately 
prevail  is  found  in  the  character  of  modern  competition  in  these 
industries  which  require  heavy  investments  of  fixed  capital.  Under 
such  conditions  the  difficulty  of  withdrawing  specialized  investments 
and  the  losses  that  are  entailed  by  a  suspension  of  production  make 
competition  so  intense  that  prices  may  be  forced  far  below  a  profitable 
level  without  decreasing  the  output;  and  industrial  depression  in- 
evitably follows. 

In  support  of  this  line  of  argument,  it  is  said  that  trusts  are 
beneficial,  because  they  can  "exercise  a  rational  control  over  indus- 
try," and  "adjust  production  to  consumption."  Thus  it  is  believed 
that  commercial  crises  can  be  prevented,  or,  Si  least,  that  their  worst 
effects  can  be  avoided.  But  such  arguments  overlook  the  facts  that 
a  restriction  placed  upon  production  by  a  trust,  especially  if  this 
is  sufficient  to  raise  prices  above  the  competitive  rate,  may  react 
injuriously  upon  other  trades ;  and  that  monopoly  profits,  accruing 
to  a  small  body  of  capitalists  for  a  long  period  of  time,  must  con- 
stitute a  tax  upon  the  body  of  the  people  that  will  affect  the  dis- 
tribution of  wealth  in  such  a  way  as  to  reduce  the  consuming  power 
of  the  masses.  A  reduction  in  purchasing  power  thus  produced 
would  render  excessive  the  existing  investments  in  staple  industries, 
and  produce  crises. 

Not  only  is  it  doubtful  whether  monopoly  is  a  wise  method  of 
regulating  industry,  but  it  is  certain  that  the  evils  of  competition  are 
greatly  exaggerated  in  some  cases,  while  in  others  they  are  due  to  un- 
healthful  conditions  for  which  an  interference  with  industrial  free- 
dom is  responsible.  In  many  other  industries  where  trusts  have  been 
formed,  the  excessive  investment  of  which  writers  complain  was 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  449 

caused  by  the  undue  stimulus  given  by  high  protective  duties  and  by 
the  restriction  of  foreign  competition.  Competition  is  restricted  by 
protective  duties  in  most  of  the  industries  where  combinations  are 
formed ;  these  duties  increase  the  severity,  and  perhaps  the  frequency, 
of  the  fluctuations  from  which  business  suffers  ;  then  trusts,  a  further 
restriction  of  freedom,  are  advocated  as  a  remedy  for  the  ills  caused 
by  the  initial  interference  with  individual  enterprise ;  and,  finally,  in 
order  to  regulate  the  trusts,  an  elaborate  system  of  public  supervision 
is  proposed.  Would  it  not  be  well  to  make  a  genuine  trial  of  com- 
petition before  condemning  it  for  producing  evils  which  are  greatly 
increased  by  governmental  interference  with  industrial  freedom? 

204.     Monopoly  and  Efficiency^" 

BY  LOUIS  D.  BRANDEIS 

Earnest  argument  is  constantly  made  in  support  of  monopoly 
by  pointing  to  the  wastefulness  of  competition.  Undoubtedly  com- 
petition involves  some  waste.  What  human  activity  does  not?  The 
wastes  of  democracy  are  among  the  greatest  obvious  wastes,  but 
we  have  compensations  in  democracy  which  far  outweigh  that 
waste  and  make  it  more  efficient  than  absolutism.  So  it  is  with 
competition.  The  margin  between  that  which  men  naturally  do 
and  which  they  can  do  is  so  great  that  a  system  which  urges  men  on 
to  action,  enterprise  and  initiative  is  preferable  in  spite  of  the  wastes 
that  necessarily  attend  that  process.  I  say  "necessarily"  because 
there  have  been  and  are  today  wastes  incidental  to  cofnpetition  that 
are  unnecessary.  Those  are  the  wastes  which  attend  that  compe- 
tition which  does  not  develop,  but  kills.  Those  wastes  the  law  can 
and  should  eliminate.     It  may  do  so  by  regulating  competition. 

It  is,  of  course,  true  that  the  unit  in  business  may  be  too  small 
to  be  efficient.  The. larger  unit  has  been  a  common  incident  of  monop- 
oly. But  a  unit  too  small  for  efficiency  is  by  no  means  a  necessary 
incident  of  competition.  It  is  also  true  that  the  unit  in  business  may 
be  too  large  to  be  efficient,  and  this  is  no  uncommon  incident  of 
monopoly.  In  every  business  concern  there  must  be  a  size-limit  of 
greatest  efficiency.  What  that  limit  is  will  differ  in  different  busi- 
nesses and  under  varying  conditions  in  the  same  business.  But 
whatever  the  business  or  organization  there  is  a  point  where  it  would 
become  too  large  for  efficient  and  economic  management,  just  as 
there  is  a  point  where  it  would  be  too  small  to  be  an  efficient  instru- 
ment.   The  limit  of  efficient  size  is  exceeded  when  the  disadvantages 

i^Adapted  from  an  article  in  American  Legal  News,  XXIV  (1913)1  8-12. 


450  CURRENT  ECONOMIC  PROBLEMS 

attendant  upon  its  size  outweigh  the  advantages,  when  the  centrif- 
ugal force  exceeds  the  centripetal.  Man's  work  often  outruns  the 
capacity  of  the  individual  man  ;  and,  no  matter  what  the  organization, 
the  capacity  of  an  individual  man  usually  determines  the  success  or 
failure  of  a  particular  enterprise,  not  only  financially  to  the  owners, 
but  in  service  to  the  community.  Organization  can  do  much  to  make 
concerns  more  efficient.  Organization  can  do  much  to  make  larger 
units  possible  and  profitable.  But  the  efficiency  even  of  organization 
has  its  bounds ;  and  organization  can  never  supply  the  combined 
judgment,  initiative,  enterprise  and  authority  which  must  come  from 
the  chief  executive  officers.  Nature  sets  a  limit  to  their  possible  ac- 
complishment. As  the  Germans  say :  "Care  is  taken  that  the  trees 
do  not  scrape  the  skies." 

That  mere  size  does  not  bring  success  is  illustrated  by  the  records 
of  our  industrial  history  during  the  past  ten  years.  This  record,  if 
examined,  will  show  that : 

1.  Most  of  the  trusts  which  did  not  secure  monopolistic  posi- 
tions have  failed  to  show  marked  success  as  compared  with  the  inde- 
pendent concerns. 

This  is  true  of  many  existing  trusts,  for  instance,  of  the  News- 
paper Trust,  the  Writing  Paper  Trust,  the  Upper  Leather  Trust, 
the  Sole  Leather  Trust,  the  Woolen  Trust,  the  Paper  Bag  Trust, 
the  International  Mercantile  Marine ;  and  those  which  have  failed, 
like  the  Cordage  Trust,  the  Mucilage  Trust,  the  Flour  Trust,  should 
not  be  forgotten. 

2.  Most  of  those  trusts  which  have  shown  marked  success 
secured  monopolistic  positions  either  by  controlling  the  whole  busi- 
ness themselves,  or  by  doing  so  in  combination  with  others.  And 
their  success  has  been  due  mainly  to  their  ability  to  fix  prices. 

This  is  true,  for  instance,  of  the  Standard  Oil  Trust,  the  Shoe 
Machinery  Trust,  the  Tobacco  Trust,  the  Steel  Trust,  the  Pullman 
Car  Company. 

3.  Most  of  the  trusts  which  did  not  secure  for  themselves 
monopoly  in  the  particular  branch  of  trade,  but  controlled  the  situ- 
ation only  through  price  agreements  with  competitors  have  been 
unable  to  hold  their  own  share  of  the  market  as  against  the  inde- 
pendents. 

This  is  true,  for  instance,  of  the  Sugar  Trust,  the  Steel  Trust, 
the  Rubber  Trust. 

4.  Most  of  the  efficiently  managed  trusts  have  found  it  neces- 
sary to  limit  the  size  of  their  own  units  for  production  and  for 
distribution. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  451 

This  is  true,  for  instance,  of  the  Tobacco  Trust,  the  Standard 
Oil  Trust,  the  Steel  Trust. 

Lack  of  efficiency  is  ordinarily  manifested  either 

1.  In  rising  cost  of  product, 

2.  In  defective  quality  of  goods  produced,  or 

3.  In  failure  to  make  positive  advances  in  processes  and  methods. 
The  third  of  these  manifestations  is  the  most  serious  of  all.    In 

this  respect  monopoly  works  like  poison  which  infects  the  system 
for  a  long  time  before  it  is  discovered,  and  yet  a  poison  so  potent 
that  the  best  of  management  can  devise  no  antidote. 

Take  the  case  of  the  Steel  Trust.  It  inherited  through  the  Car- 
negie Company  the  best  organization  and  the  most  efficient  steel 
makers  in  the  world.  It  has  had  since  its  organization  exceptionally 
able  management.  It  has  almost  inexhaustible  resources.  It  pro- 
duces on  so  large  a  scale  that  practically  no  experimental  expense 
would  be  unprofitable  if  it  brought  the  slightest  advance  in  the 
art.  Yet :  "We  are  today  something  like  five  years  behind  Germany 
in  iron  and  steel  metallurgy,  and  such  innovations  as  are  being  in- 
troduced by  our  iron  and  steel  manufacturers  are  most  of  them  merely 
following  the  lead  set  by  foreigners  years  ago." 

The  Shoe  Machinery  Trust,  the  result  of  combining  directly  and 
indirectly  more  than  a  hundred  different  concerns,  acquired  substan- 
tially a  monopoly  of  all  the  essential  machinery  used  in  bottoming 
boots  and  shoes.  Its  energetic  managers  were  conscious  of  the  con- 
stant need  of  improving  and  developing  inventions  and  spent  large 
sums  in  efforts  to  do  so.  Nevertheless,  in  the  year  191  o  they  were 
confronted  with  a  competitor  so  formidable  that  the  Company  felt 
itself  obliged  to  buy  him  off,  though  in  violation  of  the  law  and  at 
a  cost  of  about  $5,000,000.  That  competitor,  Thomas  G.  Plant,  a 
shoe  manufacturer  who  had  resented  the  domination  of  the  trust, 
developed  an  extensive  system  of  shoe  machinery,  which  is  believed 
to  be  superior  to  the  Trust's  own  system,  which  represents  the  con- 
tinuous development  of  that  Company  and  its  predecessors  for  nearly 
half  a  century. 

But  the  efficiency  of  monopolies,  even  if  established,  would  not 
justify  their  existence  unless  the  community  should  reap  benefit 
from  the  efficiency ;  the  experience  teaches  us  that  whenever  trusts 
have  developed  efficiency,  their  fruits  have  been  absorbed  almost 
wholly  by  the  Trusts  themselves.  From  such  efficiency  as  they  have 
developed  the  community  has  gained  substantially  nothing.  For  in- 
stance : 


452  CURRENT  ECONOMIC  PROBLEMS 

The  Standard  Oil  Trust,  an  efficiently  managed  monopoly,  in- 
creased the  prices  of  its  principal  products  between  1895  and  1898, 
and  1903  to  1906  by  46  per  cent. 

The  Tobacco  Trust  is  an  efficiently  managed  monopoly.  Be- 
tween 1899  and  1907  the  selling  price  on  smoking  tobacco  rose  from 
21. 1  cents  per  pound  to  30.1  cents;  the  profit  per  pound  from  2.8 
cents  per  pound  to  9.8  cents.  The  selling  price  of  plug  tobacco  rose 
from  24.9  cents  per  pound  to  30.4  cents ;  the  profit  per  pound  from 
1.9  cents  to  8.7  cents. 

The  Steel  Trust  is  a  corporation  of  reputed  efficiency.  The  high 
prices  maintained  by  it  in  the  industry  are  matters  of  common  knowl- 
edge. In  less  than  ten  years  it  accumulated  for  its  shareholders  or 
paid  out  as  dividends  on  stock  representing  merely  water,  over 
$650,000,000. 

C.     TYPES  OF  UNFAIR  COMPETITION 
205.     Competitive  Methods  in  the  Tobacco  Business'^ 

BY  MEYER  JACOBSTEIN 

The  most  familiar  as  well  as  the  most  effective  device  employed 
for  stifling  competition  has  been  that  of  "local  competition" — under- 
selling a  competitor  in  his  own  limited  market  while  sustaining 
prices  elsewhere.  This  device  is  feasible  only  for  large  companies 
that  can  make  temporary  sacrifices  for  the  possibility  of  greater 
gains  in  the  future.  In  the  early  nineties,  to  check  the  sale  of 
"Admiral"  cigarettes  manufactured  by  an  independent  concern, 
the  American  Tobacco  Company  offered  its  leading  brand,  "Sweet 
Caporal,"  at  cost,  but  only  in  regions  where  the  Admiral  was  being 
successfully  marketed.  The  independent  concern  surrendered  soon 
afterward.  In  1901,  the  American  Tobacco  Company  was  selling 
"American  Beauty"  cigarettes  for  $1.50  per  thousand,  less  two  per 
cent  discount  for  cash,  when  the  revenue  tax  alone  was  $1.50  per 
thousand.  This  was  done,  however,  only  where  an  independent 
company  had  succeeded  in  marketing  its  most  popular  brand,  the 
"North  Carolina  Bright."  New  York  jobbers  found  that  by  purchas- 
ing their  cigarettes  from  North  Carolina  jobbers,  after  paying  a 
slight  premium  in  addition  to  freight  charges,  they  would  pay  less 
for  them  than  by  buying  direct  from  the  Trust  in  New  York  City. 

The  local  competition  which  helped  to  build  up  the  Cigarette 
Trust  was  practiced  in  the  sale  of  other  products.    During  the  strug- 

I'^Adapted  from  The  Tobacco  Industry  in  the  United  States,  pp.  1 17-21. 
Copyright  by  the  author.    Published  in  the  Columbia  Studies  Series,  1907. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  453 

gle  for  the  plug  tobacco  market  between  the  Continental  and  Liggett 
and  Myers,  the  former  was  offering  its  "Battle  Ax"  brand  for  thirteen 
cents  a  pound,  which  was  below  the  cost  of  production,  since  the  tax 
was  six  cents  and  the  raw  leaf  seven  cents  a  pound.  After  the  inde- 
pendent concern  was  absorbed,  "Battle  Ax"  rose  to  thirty  cents  a 
pound.  By  similar  methods  the  trust  has  won  extensive  markets  in 
England  and  Japan. 

An  instrument  frequently  employed  to  make  local  competition 
effective  is  the  "Factors'  Agreement,"  whereby  the  jobber  is  offered 
special  rebates  for  agreeing  to  handle  Trust  goods  exclusively,  or  to 
boycott  independent  brands.  While  a  2^  per  cent  commission  was 
allowed  jobbers  who  did  not  discriminate  against  Trust  goods,  7^ 
per  cent  was  given  to  those  who  handled  Trust  goods  exclusively. 
Frequently  orders  from  concerns  carrying  in  stock  independent 
goods  were  not  filled.  The  Factors'  Agreement  is  especially  potent 
in  crushing  any  new  competition  in  markets  already  controlled  by 
the  Trust,  for  the  jobber  is  loath  to  risk  his  assured  profits,  derived 
from  the  sale  of  established  Trust  brands,  in  exchange  from  the 
doubtful  income  from  new,  independent  goods. 

A  closely  allied  device  is  that  known  as  "Brand  Imitation."  This 
is  a  most  direct  form  of  destructive  competition :  it  consists  of  selling 
at  reduced  prices  brands  which  are  apparently  imitations  of  popu- 
lar brands  of  independent  manufacture.  An  instance  of  this  is 
the  marketing  at  a  low  figure  by  the  Trust  of  the  "Central  Union" 
smoking  tobacco  in  direct  competition  with  the  "Union  Leader"  of 
an  independent  concern.  The  Trust  distributed  its  "Central  Union" 
free  to  jobbers  in  order  to  ruin  the  "Union  Leader."  It  was  not 
until  the  reputation  of  the  independent  brand  had  been  seriously 
damaged  that  the  courts  enjoined  the  Trust  from  further  free  dis- 
tribution. Similarly  the  Trust  marketed  at  a  low  price  a  brand  in 
imitation  of  the  "Qboid"  tobacco  manufactured  by  Larus  and  Broth- 
ers. As  value  of  a  brand  is  one  of  the  important  assets  in  the  tobacco 
trade,  these  methods  are  very  ruinous  to  independent  manufacturers 
who  cannot  withstand  a  persistent  attack  from  the  Trust. 

Another  device  is  the  use  of  a  coupon  system,  whereby  the  con- 
sumer receives  a  premium  certificate  equivalent  to  a  10  per  cent  re- 
bate. The  coupon  system  is  especially  valuable  in  the  tobacco  trade 
because  it  serves  as  a  substitute  for  the  cutting  of  prices,  the  latter 
being  difficult,  owing  to  the  existence  of  conventional  and  conven- 
ient prices,  five  cents  and  multiples  of  five.  It  is  more  feasible  to 
give  coupons  than  to  reduce  a  five-cent  cigar  to  four  cents.  Since 
much  of  the  tobacco  trade  is  transient,  the  successful  operation  of 


454  CURRENT  ECONOMIC  PROBLEMS 

the  premium  plan  depends  upon  a  wide  distribution  of  stores  that 
offer  the  coupons,  as  through  a  chain  of  retail  agencies  like  the 
United  Cigar  Stores. 

206.     Competitive  Methods  in  the  Cash  Register  Business^^ 

BY  HENRY  ROGERS  SEAGER 

The  specifications  in  the  indictment  against  the  National  Cash 
Register  Company,  on  the  basis  of  which  twenty-seven  of  its  officers 
were  found  guilty  by  a  jury  in  February,  1913,^®  indicate  in  a  concrete 
way  the  kind  of  practices  in  which  some  of  the  trusts  engaged.  They 
were: 

1.  It  bribed  the  employees  of  competitors  to  reveal  the  secrets 
of  the  competitors'  business.  By  this  means  it  obtained  knowledge 
of  prospective  buyers  of  cash  registers,  of  those  who  had  purchased 
them  but  had  not  fully  paid  for  them,  of  the  volume  of  business  be- 
ing done  by  the  competitors  and  the  places  in  which  it  was  being 
done,  of  inventions  and  applications  for  patents  by  the  competitors, 
and  of  their  financial  condition  and  connections. 

2.  It  bribed  the  employees  of  truckmen,  express  companies, 
railway,  telegraph  and  telephone  companies  to  reveal  information  in 
regard  to  the  shipping  of  cash  registers  by  competitors,  and  in  regard 
to  the  communication  between  the  competitors  and  their  agents  and 
customers. 

3.  It  used  its  influence  with  banks  and  other  institutions,  some- 
times going  to  the  extent  of  making  false  statements  to  injure  the 
credit  of  competitors  in  order  to  prevent  their  securing  money  for 
carrying  on  their  business. 

4.  It  required  its  sales  agents  to  interfere  in  every  way  with  the 
sales  of  competitive  cash  registers.  The  means  used  included  the 
making  of  false  statements  with  regard  to  the  registers  themselves, 
as  well  as  false  statements  reflecting  injuriously  upon  the  business, 
character,  and  financial  credit  of  its  competitors. 

5.  It  offered  to  sell  to  prospective  purchasers  of  competitive 
cash  registers  the  National's  machines  at  much  less  than  the  stand- 
ard prices  and  upon  unusually  favorable  terms. 

i^Adapted  from  The  Principles  of  Economics,  pp.  453-55.  Copyright  by 
Henry  Holt  &  Co.,  1913. 

^^In  June,  191S,  the  Supreme  Court  of  the  United  States  refused  to  sus- 
tain an  appeal  from  the  decision  of  a  higher  federal  court  reversing  the 
decision  of  the  lower  court  referred  to  in  the  text,  and  acquitting  the  offi- 
cers of  the  National  Cash  Register  Company.  This  closes  the  case  against 
them. — Editor. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  455 

6.  It  induced  persons  who  had  already  ordered  competitive  cash 
registers  to  cancel  their  orders  and  purchase  from  the  National,  by 
making  further  reductions  in  the  price  of  National  registers  equiva- 
lent to  the  amount  already  paid  in  on  the  purchase  of  the  competitive 
cash  registers.  It  induced  persons  who  had  already  bought  other 
registers  to  exchange  them  for  the  machines  of  the  National,  where- 
upon it  exhibited  in  the  windows  of  stores  where  National  machines 
were  for  sale  these  machines  with  placards  containing  the  word 
"Junk,"  or  the  words  "For  Sale  at  Thirty  Cents  on  the  Dollar." 

7.  It  offered  for  sale  to  prospective  purchasers  of  other  ma- 
chines cash  registers  made  in  imitation  of  those  others  at  prices  even 
lower  than  manufacturer's  cost.  These  thus  offered  for  sale  were 
known  as  "knockers."  The  manufacture  of  a  particular  type  of 
"knocker"  was  discontinued  as  soon  as  its  use  was  no  longer  nec- 
essary. 

8.  It  sometimes  offered  for  sale  "knockers"  having  weak  and 
defective  mechanism.  This  practice  had  two  purposes.  It  enabled 
the  sales  agent  to  point  out  the  weak  and  defective  mechanism  and 
to  claim  that  the  competitive  cash  register  had  the  same  shortcom- 
ings. It  also  enabled  him,  in  case  the  customer  insisted  upon  pur- 
chasing the  "knocker,"  to  persuade  the  customer  to  purchase  a  gen- 
uine National  machine  when  the  "knocker,"  as  was  inevitable,  speed- 
ily broke  down. 

9.  It  instructed  its  sales  agents  secretly  to  weaken  and  injure 
the  internal  mechanism  and  to  remove  and  destroy  parts  of  competi- 
tive cash  registers  in  actual  use  by  purchasers  whenever  they  could 
get  their  hands  on  them.  The  object  was  evidently  to  cause  the 
purchaser  of  a  competitive  cash  register  to  become  dissatisfied  and 
to  turn  to  the  National  to  replace  it. 

10.  It  threatened  competitors  and  purchasers  of  competitors* 
machines  with  suits  for  infringement  of  the  National's  patent  rights, 
when  no  such  rights  existed,  and  no  such  suit  was  contemplated. 

11.  In  other  cases  it  began  suit  against  competitors  and  against 
purchasers  of  competitive  cash  registers  for  infringement  when  it 
was  well  known  that  there  was  no  ground  for  such  suits  and  when 
there  was  no  intention  of  pressing  the  suits  beyond  the  point  neces- 
sary to  harass  the  competitors. 

12.  It  organized  cash  register  manufacturing  concerns  andi^sales 
concerns  ostensibly  as  competitors  of  itself,  but  in  fact  as  convenient 
instruments  for  gaining  the  confidence  and  obtaining  the  secrets  of 
competitors. 


456  CURRENT  ECONOMIC  PROBLEMS 

13.  It  induced,  by  offers  of  largely  increased  compensation,  the 
agents  and  employees  of  competitors  to  leave  the  employment  of  the 
competitors  to  enter  that  of  the  National. 

14.  It  applied  for  patents  upon  the  cash  registers  of  competitors 
and  upon  improvements  upon  those  cash  registers  merely  for  the 
purpose  of  harassing  the  competitors  by  interference  suits  and  threats 
to  institute  such  suits. 

207.     The  "Tieing"  Agreement'" 

BY  W.   H.   S.   STEVENS 

Perhaps  the  most  interesting  of  any  of  the  methods  of  unfair 
competition  is  the  requirement  that,  in  order  to  obtain  certain  ar- 
ticles, a  concern  shall  lease,  sell,  purchase,  or  use  certain  other  ar- 
ticles. The  successful  imposition  of  such  requirements  is  usually 
most  destructive  to  competition ;  and  not  infrequently  it  may  be  sup- 
pressed altogether.  Though  conditions  of  this  character  show  va- 
riety, they  may  be  discussed  under  three  heads : 

I.  The  purchase  or  lease  of  articles  upon  which  the  patents  have 
expired,  as  a  condition  of  obtaining  patented  articles. 

The  "tieing"  clauses  in  the  leases  of  the  United  Shoe  Machinery 
Company  furnish  an  example  of  this:  A  "tieing"  clause  may  be 
described  as  a  provision  that  a  given  machine  must  be  used  in  con- 
junction with  another  or  other  machines.  Sometimes  the  Shoe  Ma- 
chinery Company  leases  together  two  patented  articles.  In  certain 
other  cases  the  leases  have  tied  to  patented  machines  others  upon 
which  the  patents  have  expired.  The  effect  of  the  latter  type  of 
clause  was  described  by  a  witness  before  a  congressional  committee : 
"At  the  present  time  a  very  large  proportion  of  the  important  basic 
patents  have  expired,  and  but  for  the  restrictions  imposed  upon  us 
by  their  leasing  system  we  should  today  be  exercising  our  undoubted 
right  to  use,  without  royalty,  a  large  part  of  the  machinery  now 
employed." 

The  Crown  Cork  and  Seal  Company,  of  Baltimore,  manufactures 
more  tin  caps  for  bottles  than  does  any  other  concern  in  the  United 
States.  The  same  concern  also  controls  patents  upon  a  certain  de- 
vice known  as  the  Jumbo  capping  machine.  None  of  the  machines 
is  sold.  They  are  leased  to  brewing  and  bottling  establishments 
undef  agreements  which  provide  that  the  "said  machines  shall  be 
used  only  in  connection  with  Crown  corks  purchased  by  the  lessee 

20Adapted  from  "Unfair  Competition,"  Political  Science  Quarterly,  XXIX, 
291-99.    Copyright,  1914. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  457 

directly  from  the  lessor."  The  patents  on  the  caps  expired  years 
ago.  The  lease  attempts  to  compel  bottlers  to  purchase  all  caps  from 
the  Crown  Cork  and  Seal  Company. 

The  theory  which  underlies  the  grant  of  a  monopoly  in  a  patent 
is  that  human  progress  is  promoted  by  the  gift  to  inventors  for  a 
term  of  years  of  the  exclusive  property  in  their  inventions.  At  the 
end  of  the  period  it  is  intended,  however,  that  the  inventions  shall 
become  the  property  of  the  public.  Theoretically  any  concern  may 
begin  the  production  of  an  article  previously  patented  as  soon  as  the 
term  of  the  patent  expires.  Actually  it  may  be  unable  to  do  so. 
Conditional  requirements  may  so  destroy  the  market  that  even  if  the 
goods  are  produced  there  would  be  no  customers  to  purchase.  This 
precise  situation  seems  to  have  developed  through  the  "tieing"  clauses 
of  the  Shoe  Machinery  Company  applying  to  patents. 

2.  The  use  of  certain  patented  articles  as  a  condition  of  obtain- 
ing other  patented  articles. 

The  contracts  of  the  Shoe  Machinery  Company  require  that  a 
given  patented  machine  must  be  used  in  conjunction  with  another 
patented  machine.  Under  free  competition  the  relative  productive 
efficiency  of  various  machines  produced  by  various  concerns  would 
determine  to  a  nicety  the  reward  belonging  to  each  patentee.  As  it 
is,  a  machine  more  efficient  than  the  United's  machine  for  the  work 
it  is  designed  to  perform  might  have  no  market  and  bring  in  no 
royalties  to  its  patentee.  A  similar  case  is  that  of  the  Motion  Pic- 
ture Patents  Company,  which,  by  virtue  of  its  film  control,  has  en- 
deavored to  compel  the  use  of  motion  pictures  containing  one  or 
more  of  the  patents  which  it  controls. 

3.  The  purchasing,  selling,  or  handling  of  a  certain  article  or 
line  of  articles  as  the  condition  of  the  purchase  or  handling  of  an- 
other article  or  line  of  articles. 

The  Commissioner  of  Corporations  in  his  report  on  the  Interna- 
tional Harvester  Company  has  used  the  term  "full-line  forcing"  to 
describe  "the  practice  of  requiring  dealers  to  order  new  lines  as  a 
condition  of  retaining  the  agency  for  some  brand  of  the  company's 
harvesting  machines." 

A  restriction  of  similar  character  is  charged  by  the  government 
in  its  suit  against  the  American  Coal  Products  and  Barrett  Manu- 
facturing companies.  These  concerns  are  supposed  to  have  a  very 
substantial  control  of  the  pitch  made  from  coal  tar.  Some  purchasers 
and  users  of  roofing  materials  have  been  required  to  buy  one  ton  of 
felt  to  every  two  tons  of  pitch. 


458  CURRENT  ECONOMIC  PROBLEMS 

208.     Monopoly  Control  of  Cost  Goods'-' 

BY  W.  H.  S.  STEVENS 

Attempts  to  acquire  the  control  of  the  machinery  necessary  to 
the  manufacture  of  a  particular  line  of  goods  are  by  no  means  un- 
known. Following  its  organization  in  1890  the  old  American  To- 
bacco Compc^ny,  by  securing  and  maintaining  for  some  time  the  ex- 
clusive control  of  the  most  successful  cigarette  machinery,  was  en- 
abled to  strengthen  its  dominant  position  in  the  business.  At  the 
time  of  its  organization  it  acquired  control  of  the  Allison  and  the 
Emery  machines,  the  patents  of  which  belonged  to  firms  entering  the 
new  combination.  Soon  afterward  it  made  a  contract  for  the  ex- 
clusive use  and  control  of  the  Bonsack  machines.  Thus  it  acquired 
control  of  the  very  best  machines  used  in  the  production  of 
cigarettes. 

In  1913  the  government  brought  suit  against  the  American  Can 
Company.  That  concern  was  charged  with  acquiring  control  of  the 
principal  can-making  machinery  plants  of  the  United  States,  together 
with  most  of  the  valuable  patents  for  making  that  machinery.  In 
some  cases  this  result  was  accomplished  through  long-term  contracts 
with  patentees  for  controlling  the  disposition  of  the  machinery  manu- 
factured under  their  patents ;  in  others  by  the  purchase  of  licenses 
which  the  owners  of  the  patents  had  issued  to  the  manufacturers  of 
cans ;  in  still  others  by  obtaining  contracts  to  sell  such  machinery 
to  other  parties. 

Somewhat  diiTerent  are  cases  in  which  control  is  acquired  of  the 
articles  or  materials  which  enter  into  the  manufacturing  process. 
The  greater  part  of  the  supply  of  raw  paper  used  in  the  manufac- 
ture of  photographic  papers  throughout  the  world  is  said  to  be  in 
the  hands  of  the  General  Paper  Company  of  Germany.  Prior  to 
1906,  when  the  control  of  this  company  was  almost  complete,  the 
General  Aristo  Company,  which  is  controlled  by  the  Eastman  Kodak 
Company,  is  alleged  to  have  contracted  to  purchase  the  entire  supply 
of  raw  paper  exported  by  the  General  Paper  Company  to  the  United 
States.  This  contract,  it  is  claimed,  was  continued  from  1906  to 
1910.  Testimony  before  the  Industrial  Commission  is  to  the  effect 
that  the  Photographic  Supplies  Combination  first  secured  control  of 
raw  paper  imported  from  Germany  about  the  year  1899. 

The  government  has  charged  the  Aluminum  Company  of  Amer- 
ica with  endeavoring  to  obtain  such  a  control  of  the  bauxite  prop- 
erties of  the  United  States  as  would  prevent  anyone  but  itself  from 

21  Adapted  from  "Unfair  Competition,"  Political  Science  Quarterly,  XXIX, 
469-75.    Copyright,  1914. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  459 

producing  metal  aluminum.  Prior  to  1905,  the  Aluminum  Company 
of  America  possessed  valuable  bauxite  properties,  yet  it  did  not  ap- 
proach control  of  even  50  per  cent  of  the  total  bauxite  supply  of  the 
United  States.  In  that  year,  however,  the  company  through  the 
General  Chemical  Company  acquired  the  capital  stock  of  the  General 
Bauxite  Company.  As  part  consideration  for  this  contract,  the 
General  Chemical  Company  agreed  that  it  would  not  use  or  sell 
bauxite  sold  to  it  by  the  General  Bauxite  Company  for  conversion 
into  metal  aluminum,  but  would  use  it  solely  for  the  manufacture  of 
alum,  alum  salts,  alumina  sulphate,  and  similar  products.  In  1909  a 
contract  was  made  with  the  Norton  Chemical  Company  for  the  pur- 
chase of  the  bauxite  properties  of  the  Republic  Mining  and  Manufac- 
turing Company,  whose  capital  stock  was  owned  by  the  Norton 
company.  In  considering  these  contracts  made  by  the  Aluminum 
Company  of  America,  it  should  be  borne  in  mind  that  this  organi- 
zation is  alleged  to  control  nearly  one-half  of  the  stock  of  the  Alum- 
inum Castings  Company,  37  per  cent  of  the  stock  of  the  Aluminum 
Goods  Manufacturing  Company,  and  to  be  sole  owner  of  the  stock 
of  the  Northern  Aluminum  Company  and  the  United  States  Alum- 
inum Company,  manufacturers  of  aluminum  cooking  utensils. 

D.     THE  REGULATION  OF  MONOPOLY 
209.     Law  and  the  Forms  of  Combination-- 

BY   BRUCE   WYMAN 

Notwithstanding  all  the  law  against  agreements  in  restraint  of 
trade,  the  present  generation  has  seen  the  greatest  movement  toward 
consolidation  which  is  recorded  in  economic  history.  But  this  was 
not  accomplished  without  a  reckoning  with  the  law.  In  the  face  of 
adverse  law  the  ingenuity  of  attorneys,  acting  for  clients  who  wished 
to  bring  about  a  community  of  interests,  has  been  taxed  to  the 
utmost ;  and  at  best  their  schemes  have  proved  only  temporary  ex- 
pedients. In  this  era  of  consolidation  there  has  been  a  change  of 
base  at  least  four  times ;  first,  the  pool — a  direct  agreement  between 
the  corporations  concerned  for  their  joint  operation  to  a  certain  ex- 
tent ;  second,  the  trust — an  indirect  arrangement  between  the  share- 
holders to  control  the  actions  of  their  corporations ;  third,  the  holding 
company — a  central  company  to  hold  the  shares  of  the  constituent 
companies ;  and,  fourth,  the  single  corporation,  which  buys  the  prop- 
erties of  the  competing  corporations  outright.     Yet,  despite  these 

22Adapted  from  Control  of  the  Market,  pp.  142-64.  Copyright  by  the 
author.    Published  by  Moffat,  Yard  &  Co.,  191 1. 


46o  CURRENT  ECONOMIC  PROBLEMS 

various  forms,  the  problem  as  to  how  various  corporations  may  be 
concentrated  under  one  control  is  still  to  a  large  extent  unsolved. 

There  was  never  real  legal  expectation  of  the  success  of  any 
form  of  pooling.  There  was  too  much  express  authority  against 
combinations  in  restraint  of  trade  for  that. 

Perhaps  every  member  would  live  up  to  his  agreement ;  hut  there 
was  no  remedy  at  law  if  anyone  did  not.  Perhaps  the  proceeds  of 
the  pooling  would  be  fairly  divided ;  but  the  court  would  not  order 
an  accounting.  And  experience  showed  again  and  again  that,  with- 
out legal  obligation,  there  w^ere  always  members  in  any  such  pool 
treacherous  enough  to  break  it.  Moreover,  there  was  the  corpora- 
tion law  to  reckon  with  which  has  always  held  it  contrary  to  policy 
for  corporations  to  surrender  their  independence  by  entering  a  pool. 
The  courts  have  held  that  for  no  purpose,  legal  or  illegal,  could  cor- 
porations be  members  of  a  partnership;  that  they  could  not  carry  on 
their  business  in  common.^^ 

It  is  further  to  be  noted  that  when  a  combination  in  restraint  of 
trade  is  once  proved  to  be  such,  outlawry  is  declared.  It  can  bring 
no  suit  against  those  in  it ;  neither  can  they  sue  it.  The  courts  will 
have  nothing  to  do  with  either  association  or  associates.  This  is  the 
penalty,  that  the  loss  must  lie  where  it  falls  ;  and  this  policy  is  in 
itself  often  one  of  the  strongest  of  deterrents.  Thus  any  member  of 
the  association  may  withdraw  when  it  suits  his  interest  to  do  so,  a 
result  that  minimizes  the  harm  that  such  a  combination  may  eflfect. 
For  experience  shows  that  the  result  is  that  competition  goes  on  sur- 
reptitiously, despite  the  agreement,  since  every  active  member  is 
strengthening  his  position  in  preparation  for  an  ultimate  withdrawal. 
And  at  the  psychological  moment  some  member,  who  has  accumu- 
lated a  large  stock  while  production  has  been  curtailed,  will  sell  out 
at  near  to  the  top  price  and  break  the  market,  thus  causing  his  asso- 
ciates irreparable  losses. 

Such  was  the  state  of  the  law  when  the  trust  agreement  was  dis- 
covered by  a  startled  community.  The  features  of  this  scheme  are 
well  known.  All  the  shares  of  the  capital  stock  of  all  the  confeder- 
ating corporations  are  transferred  to  a  board  of  trustees.  These  issue 
trust  certificates  in  lieu  of  these  shares,  thus  reserving  the  voting 
rights  in  all  the  corporations.  As  a  cover  for  the  scheme  all  of  the 
corporations  remain  in  existence ;  and  in  form  each  conducts  its  own 
business  without  any  cross  agreements  among  themselves. 

From  the  point  of  view  of  those  who  had  on  foot  a  scheme  to 
monopolize,  this  trust  device  was  excellent.     It  was  centralized  in 

23  Mills  V.  Upton,  10  Gray  582;  Mallory  v.  Hanaur  Oil  Works,  86  Tenn.  596. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  461 

its  control  and  secret  in  its  doings.  It  left  the  power  of  control  with 
the  inner  circle,  while  enabling  them  to  market  as  many  securities 
as  they  pleased.  But  adverse  court  decisions  robbed  the  agreement 
of  its  effectiveness.^*  It  was  held  against  the  law  governing  corpora- 
tions in  that  it  was  beyond  its  power  for  a  company  thus  to  surrender 
its  independence.  It  was  also  a  void  arrangement  by  the  law  against 
combinations  in  restraint  of  trade.  The  courts  looked  through  the 
outer  forms  into  the  inner  facts.  This  was  fortunate,  for  from  the 
point  of  view  of  the  state  the  scheme  was  almost  beyond  control,  as 
its  accounts  could  be  juggled  and  responsibility  for  wrongdoing  could 
not  be  fixed. 

A  transition  period  of  a  few  years  followed  upon  the  dissolution 
of  the  trusts.  The  original  owners  still  had  the  properties ;  and  the 
common  danger  held  them  together,  temporarily  at  least.  Mean- 
while the  lawyers  were  casting  about  for  some  new  scheme  for  com- 
bining interests  that  would  have  legel  sanction.  The  first  schemes 
were  rather  obvious  attempts  to  make  use  of  some  established  ar- 
rangement as  a  cover  for  combination.  Rather  absurd  these  were, 
doomed  to  early  exposure  from  the  outset.  What  could  not  be  done 
directly  could  not  be  brought  about  by  indirection.  The  imperative 
need  was  a  device  that  would  stand  the  test  of  legality.  It  is  true 
that  without  legal  sanction  much  may  be  done  under  a  gentleman's 
agreement ;  but  without  legality  in  organization  there  is  no  security. 
Nor  can  there  be  any  permanence  unless  the  arrangement  is  perpetual. 
And,  further,  without  security  and  permanence,  there  can  be  no  issue 
of  securities  or  market  for  them. 

Eventually  there  was  evolved  the  idea  of  a  holding  corporation, 
a  new  central  body  which  should  acquire  a  majority  of  the  stocks  of 
the  constituent  companies.  The  holding  company  possessed  possi- 
bilities of  manipulation  pleasant  to  contemplate ;  the  marketable  issues 
could  be  doubled  by  making  the  stock  of  the  holding  corporation  twice 
that  of  the  constituent  companies ;  and  since  the  operation  of  the 
business  could  be  concealed  between  the  accounts  of  the  holding  com- 
pany and  the  constituent  companies,  there  would  be  nothing  to  fear 
from  the  publication  of  formal  statements. 

There  were  obviously  legal  difficulties.  In  most  states  by  the  com- 
mon law  it  was  beyond  the  powers  of  one  corporation  to  hold  the  stock 
of  another  for  the  purpose  of  operation.  In  some  states,  however, 
statute  law  or  special  charter  permitted  corporations  to  be  organized 
to  hold  the  stocks  of  other  corporations.  But  this  was  at  best  a  solu- 
tion of  only  one  of  the  difficulties;  another  remained.    Granted  that 

**  People  V.  North  River  Sugar  Refining  Company,  121  N.  Y.  582 ;  State  v. 
Standard  Oil  Company,  49  Ohio  St.  137. 


462  CURRENT  ECONOMIC  PROLBEMS 

the  corporation  was  enabled  to  act  without  violation  of  the  corpora- 
tion law,  there  was  the  anti-trust  law  still  to  reckon  with. 

So  it  came  to  be  recognized  that  there  was  a  safer  way,  if  one 
chose  to  take  it.  The  approval  form  among  lawyers  during  the  last 
few  years  for  making  a  consolidation  of  interests  is  by  the  formation 
of  a  single  gigantic  corporation  intended  to  take  over  by  purchase  all 
the  different  concerns  that  are  to  be  brought  together.  It  has  been 
ruled  that  "corporations  are  empowered  to  purchase,  hold,  and  use 
property  appropriate  to  their  business.  Under  such  powers  it  is 
obvious  that  a  corporation  may  purchase  the  plant  and  business  of 
competing  individuals  and  concerns."  ^^  But  this  is  not  unquestioned 
law  by  any  means.  A  court  of  equal  authority  has  said,  "There  is 
no  magic  in  a  corporate  organization  which  can  purge  the  trust  scheme 
of  its  illegality,  and  it  remains  as  essentially  opposed  to  the  principles 
of  sound  public  policy  as  when  the  trust  was  in  existence.  It  was 
illegal  before  and  is  illegal  still,  and  for  the  same  reason."^® 

From  step  to  step  in  this  succession  there  is  a  movement  toward 
integration.  Now  that  the  end  of  economic  evolution  has  been 
reached  in  a  single  corporation,  the  law  against  combinations  in  re- 
straint of  trade  may  perhaps  cease  to  operate.  Now  the  state  may 
impose  such  special  regulation  upon  these  industrial  concerns  as  the 
situation  requires.  The  problem  is  therefore  much  simplified  since 
the  time  of  the  trusts.  It  has  been  reduced  to  its  lowest  terms  by 
the  activity  of  the  law  in  insisting  that  all  combinations  of  every 
stripe  should  be  destroyed.  The. question  then  emerges,  Shall  these 
great  corporations  be  destroyed  or  shall  they  be  regulated?  That, 
it  is  submitted,  is  the  trust  problem  in  its  latest  phase. 

210.     The  Sherman  Anti-Trust  Act-^ 

Section  i.  Every  contract,  combination  in  the  form  of  trust  or 
otherwise,  or  conspiracy,  in  restraint  of  trade  or  commerce  among 
the  several  states,  or  with  foreign  nations,  is  hereby  declared  to  be 
illegal.  Every  person  who  shall  make  any  such  contract  or  engage  in 
any  such  combination  or  conspiracy,  shall  be  deemed  guilty  of  a  mis- 
demeanor, and,  on  conviction  thereof,  shall  be  punished  by  a  ffne  not 
exceeding  five  thousand  dollars,  or  by  imprisonment  not  exceeding 
one  year,  or  by  both  said  punishments,  in  the  discretion  of  the  court. 

25  Trenton  Potteries  Company  v.  Oliphant,  58  N.  J.  Eq.  507. 

^Wistillers  and  Cattle  Feeding  Company  v.  People,  156  111.    448. 

27From  26  U.  S.  Statutes  209  (1900).    There  are  eight  sections.    The  five 
sections  given  here  form  the  essential  part. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  463 

Section  2.  Every  person  who  shall  monopolize,  or  attempt  to 
monopolize,  or  combine  or  conspire  with  any  other  person  or  persons, 
to  monopolize  any  part  of  the  trade  or  commerce  among  the  several 
states,  or  with  foreign  nations,  shall  be  deemed  guilty  of  a  misde- 
meanor, and,  on  conviction  thereof,  shall  be  punished  by  fine  not 
exceeding  five  thousand  dollars,  or  by  imprisonment  not  exceeding 
one  year,  or  by  both  said  punishments,  in  the  discretion  of  the  court. 

Section  3.  Every  contract,  combination  in  the  form  of  trust  or 
otherwise,  or  conspiracy,  in  restraint  of  trade  or  commerce  in  any 
territory  of  the  United  States  or  in  the  District  of  Columbia,  or  in 
restraint  of  trade  or  commerce  between  any  such  territory  and 
another,  or  between  any  such  territory  or  territories  and  any  state  or 
states  or  the  District  of  Columbia,  or  with  foreign  nations,  or  between 
the  District  of  Columbia  and  any  state  or  states  or  foreign  nations,  is 
hereby  declared  illegal.  Every  person  who  shall  make  any  such  con- 
tract or  engage  in  any  such  combination  or  conspiracy  shall  be  deemed 
guilty  of  a  misdemeanor,  and,  on  conviction  thereof,  shall  be  pun- 
ished by  fine  not  exceeding  five  thousand  dollars,  or  by  imprisonment 
not  exceeding  one  year,  or  by  both  said  punishments,  in  the  discre- 
tion of  the  court. 

Section  7.  Any  person  who  shall  be  injured  in  his  business  or 
property  by  any  other  person  or  corporation  by  reason  of  anything 
forbidden  or  declared  to  be  unlawful  by  this  act,  may  sue  therefor 
in  any  circuit  court  of  the  United  States  in  the  district  in  which  the 
defendant  resides  or  is  found,  without  respect  to  the  amount  in  con- 
troversy, and  shall  recover  threefold  the  damages  by  him  sustained, 
and  the  costs  of  the  suit,  including  a  reasonable  attorney's  fee. 

Section  8.  That  the  word  "person"  or  "persons,"  wherever  used 
in  this  act,  shall  be  deemed  to  include  corporations  and  associations 
existing  under  or  authorized  by  the  laws  of  the  United  States,  the 
laws  of  any  of  the  territories,  the  laws  of  any  state,  or  the  laws  of  any 
foreign  country. 

211.     The  Meaning  of  Restraint  of  Traders 

In  substance,  the  propositions  urged  by  the  government  are  re- 
ducible to  this  :  That  the  language  of  the  statute  embraces  every  con- 
tract, combination,  etc.,  in  restraint  of  trade,  and  hence  its  text  leaves 

28Adapted  from  the  opinion  of  the  court  in  the  case  of  The  Standard  Oil 
Company  of  New  Jersey  v.  United  States,  221  U.  S.  i  (1911).  By  this  decision 
the  Standard  Oil  Company  of  New  Jersey  was  ordered  "dissolved."  The  sig- 
nificance of  the  decision  lies  in  the  distinction  made  by  the  court  between 
"reasonable"  and  "unreasonable"  restraint  of  trade,  and  the  insistence  that  the 
Sherman  act  was  meant  to  apply  to  the  latter  exclusively.  This  is  the  subject 
of  discussion  in  the  selection  given  here.  The  Standard,  of  course,  was  found 
guilty  of  "unreasonable"  restraint  of  trade. 


464  CURRENT  ECONOMIC  PROBLEMS 

no  room  for  the  exercise  of  judgment,  but  simply  imposes  the  plain 
duty  of  applying  its  prohibitions  to  every  case  within  its  literal  lan- 
guage. The  error  involved  lies  in  assuming  the  matter  to  be  decided. 
This  is  true  because,  as  the  acts  which  may  come  under  the  classes 
stated  in  the  first  section  and  the  restraint  of  trade  to  which  that  sec- 
tion applies  are  not  specifically  enumerated  or  defined,  it  is  obvious 
that  judgment  must  in  every  case  be  called  into  play  in  order  to  de- 
termine whether  a  particular  act  is  embraced  within  the  statutory 
classes  and  whether,  if  the  act  is  within  such  classes,  its  nature  or 
effect  causes  it  to  be  a  restraint  of  trade  within  the  intendment  of 
the  act.  To  hold  to  the  contrary  would  require  the  conclusion  either 
that  every  contract,  act,  or  combination  of  any  kind  or  nature, 
whether  it  operated  a  restraint  on  trade  or  not,  was  within  the  statute, 
and  thus  the  statute  would  be  destructive  of  all  right  to  contract  or 
agree  or  combine  in  any  respect  whatever  as  to  subjects  embraced 
in  interstate  trade  or  commerce,  or  if  this  conclusion  were  not  reached, 
then  the  contention  would  require  it  to  be  held  that  as  the  statute  did 
not  define  the  things  to  which  it  related  and  excluded  resort  to  the 
only  means  to  which  the  acts  to  which  it  relates  could  be  ascertained — 
the  light  of  reason — the  enforcement  of  the  statute  was  impossible 
because  of  its  uncertainty.  The  merely  generic  enumeration  which 
the  statute  makes  of  the  acts  to  which  it  refers  and  the  absence  of  any 
definition  of  restraint  of  trade  as  used  in  the  statute  leaves  room  for 
but  one  conclusion,  which  is  that  it  was  expressly  designed  not  to 
unduly  limit  the  application  of  the  act  by  precise  definition,  but  while 
clearly  fixing  a  standard — that  is,  by  defining  the  ulterior  boundaries 
which  could  not  be  transgressed  with  impunity — to  leave  it  to  be 
determined  by  the  Hght  of  reason,  guided  by  the  principles  of  law 
and  the  duty  to  apply  and  enforce  the  public  policy  embodied  in  the 
statute  in  every  given  case,  whether  any  particular  act  or  contract 
was  within  the  contemplation  of  the  statute. 

212.     An  Appraisal  of  the  Sherman  Act^^ 

BY  ALLYN  A.  YOUNG 

The  Sherman  act  is  a  general  statute,  declaratory  of  public  policy. 
As  such  it  must  be  judged  by  (i)  the  soundness  of  the  policy  which 
it  declares,  (2)  the  accuracy  and  completeness  with  which  it  declares 
that  public  policy,  and  (3)  the  adequacy  of  the  mechanism  which  it 
provides  for  making  that  policy  effective. 

29Adapted  from  "The  Sherman  Act  and  the  New  Anti-Trust  Legislation," 
Journal  of  Political  Economy,  XXIII,  213-20.  Copyright  by  the  University 
of  Chicago,  1918. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  465 

1.  There  can  be  little  doubt  that  the  public  policy  which  the  act 
was  intended  to  embody  is  that  competition  should  be  maintained, 
artificial  monopoly  destroyed,  and  its  growth  prevented.  It  is  clear 
from  the  debates  attending  its  enactment  that  its  hostility  toward 
large  industrial  combinations  was  especially  directed  against  (i) 
their  supposed  power  over  prices  and  (2)  their  aggressive  suppres- 
sion of  competition.  Whatever  the  economic  advantages  of  monopoly 
may  be,  there  will  be  little  question  of  the  soundness  of  the  policy 
which  attempts  to  deprive  it  of  its  power  for  evil  in  these  two  par- 
ticulars.'" 

2.  Is  the  Sherman  act  an  accurate  expression  of  the  public  policy 
which  it  seeks  to  declare?  If  by  accuracy  is  meant  precision,  it  has 
little  of  it.  It  was,  in  its  inception,  a  lawyer's  statute,  speaking  in  the 
language  of  the  common  law.  At  the  time  it  was  evident  that  it  would 
be  difficult  for  Congress  to  come  to  an  agreement  on  particulars. 
Moreover,  its  general  phrases  were  chosen  intentionally,  we  are  told 
by  one  of  its  framers,  in  order  that  the  responsibility  of  determining 
its  exact  scope  might  be  left  to  the  courts.  For  seven  years  its  in- 
terpretation was  uncertain.  The  decisions  of  the  lower  court  were 
conflicting,  and  the  Supreme  Court's  holdings  purely  negative.  Even 
after  an  utterance  from  this  court,  the  words  "restraint  of  trade" 
still  remained  to  be  defined,  and  in  the  next  thirteen  years  the  work 
of  definition  progressed  only  so  far  as  the  particular  cases  decided 
were  typical  of  the  classes  of  cases  possible.  The  standard  of  public 
policy  outlined  in  the  Standard  Oil  decision  was  the  first  general 
criterion  of  the  scope  of  the  act.  There  is  little  doubt  that  the  pres- 
ent interpretation  of  the  statute  is  in  harmony  with  the  purposes 
which  were  in  mind  at  the  time  of  its  enactment.  There  is  now  no 
question  that  if  the  purposes  of  combination  are  monopoly,  they  come 
within  the  condemnation  of  the  act.  There  is  no  reason  to  think, 
for  example,  that  price  agreements  and  agreements  to  restrict  output, 
whether  of  local  or  general  scope,  are  not  as  illegal  now  as  they  have 
been  at  any  time. 

soMost  of  the  more  weighty  discussions  of  the  economic  advantages  of 
monopoly  have  to  do  with  the  eflfect  of  monopoly  upon  the  aggregate  produc- 
tion of  wealth  measured  in  terms  either  of  subjective  satisfaction  or  of  objec- 
tive commodity  units.  Even  from  this  point  of  view  the  case  for  monopoly 
is  exceedingly  dubious  and,  at  best,  has  a  validity  that  is  restricted  and  con- 
ditioned in  many  ways.  Aloreover  such  considerations  are  relatively  unim- 
portant compared  with  matters  like  the  eflfect  of  monopoly  upon  distribution, 
upon  the  scope  for  individual  initiative,  upon  economic  opportunity  in  general, 
and  upon  a  host  of  social  and  political  relations.  In  short,  it  is  a  question  less 
of  the  relative  "economy"  of  monopoly  or  competition  than  of  the  kind  of 
economic  organization  best  calculated  to  give  us  the  kind  of  society  we  want. 
Until  our  general  social  ideals  are  radically  changed,  it  will  take  more  than 
economic  analysis  to  prove  that  it  would  be  sound  public  policy  to  permit 
monopoly  in  that  part  of  the  industrial  field  where  competition  is  possible. 


466  CURRENT  ECONOMIC  PROBLEMS 

As  a  general  expression  of  the  public  policy  which  it  is  supposed 
to  embody  the  Sherman  act  is  adequate.  The  difficulty  is  that  it 
goes  too  far.  In  the  first  place,  it  is  so  worded  that  it  is  used  as 
a  weapon  against  strikes,  boycotts,  and  other  concerted  efforts  to 
interfere  with  the  conduct  of  any  business  undertaking  which  ships 
its  goods  across  state  lines  or  to  other  countries.  These  things  may 
be  undesirable;  very  likely  some  of  them  are.  But  they  are  so  far 
out  of  line  with  the  other  things  condemned  by  the  Sherman  act, 
and  in  most  instances  have  so  little  relation  to  "monopolizing"  that 
they  should  be  cut  from  the  list  of  offenses  condemned  by  the  act. 
In  the  second  place,  the  apphcation  of  the  Sherman  act  to  railroads 
is  inconsistent  with  the  standards  of  public  policy  embodied  in  the 
Interstate  Commerce  Act.  We  regulate  railroad  rates  and  services 
on  the  assumption  that  railroads  are  natural  monopolies,  and  that 
combinations  or  rate  agreements  are  inevitable.  But  at  the  same 
time  we  condemn  railroad  combinations  and  rate  agreements,  and, 
as  in  the  New  Haven  case,  bring  criminal  indictments  against  the 
men  responsible  for  such  combinations.  From  railroads  we  exact 
the  observance  of  two  mutually  inconsistent  standards  of  morality. 
The  real  evils  in  railway  combinations  are  matters  of  corporation 
finance.  These  should  be  dealt  with  by  statutes  appropriate  to  the 
purpose ;  and  the  Sherman  act  should  be  so  amended  as  to  be  rele- 
gated to  its  proper  field  of  preventable  industrial  monopolizing. 

Finally,  there  comes  the  question  of  whether  even  within  the 
industrial  field  we  want  to  prohibit  monopoly  as  well  as  aggressive 
monopolizing.  Probably  a  monopoly  achieved  merely  by  the  su- 
perior efficacy  of  a  formerly  competitive  business  unit  (if  such  were 
possible)  would  not  be  condemned  by  the  courts  as  a  violation  of 
the  Sherman  act.  And  what  is  the  status  of  a  monopoly  built  up 
merely  by  the  peaceful  union  of  absorbtion  of  competitive  units? 
In  such  a  case  on  which  side  public  policy  lies  it  is  hard  to  determine. 

3.  Does  the  Sherman  act  provide  an  efficient  mechanism  for 
achieving  its  own  ends?  That  its  criminal  features  have  been  rela- 
tively ineffective  is  generally  admitted.  Furthermore,  it  has  been 
found  in  practice  that  it  is  very  difficult  to  secure  a  criminal  convic- 
tion from  a  jury  for  an  offense  so  general,  so  abstract,  so  tainted 
with  the  general  and  customary  imputation  of  immorality  as  "re- 
straint of  trade"  or  "monopolizing."  There  is  no  reason  to  believe 
that  it  will  ever  be  easy  to  secure  convictions  for  restraint  of  trade 
in  cases  where  the  several  steps  taken  in  the  creation  of  the  restraint 
are  unobjectionable  except  as  a  part  of  a  general  scheme.  As  it  is 
the  statute  provides  only  an  indirect  and  uncertain  way  of  penalizing 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  473 

unification  and  standardization  in  American  industry  that  has  never 
existed  before.  American  business  men  who  standardized  their 
products  now  hesitate  to  return  to  the  old  competitive  struggle. 

Combinations  were  necessary  to  secure  the  war-time  standardi- 
zation. The  war-service  committees  that  were  organized  in  each 
trade  under  the  United  States  Chamber  of  Commerce  were  the  tem- 
porary war-time  consolidations  that  substituted  some  degree  of  uni- 
formity for  an  every-man-for-himself  policy.  These  ephemeral 
industrial  pools,  formed  only  for  the  period  of  emergency,  derived 
their  binding  force  and  their  resulting  powers  to  compel  standardiza- 
tion from  the  spirit  of  national  sacrifice.  Permanent  industrial  com- 
binations to  effect  standardization  must  run  the  gauntlet  of  a  different 
set  of  social  conditions ;  they  must  meet  the  test  of  industrial  fitness 
and  the  scrutiny  of  the  law. 

The  existing  law  runs  counter  to  the  great  combinations  that 
would  sponsor  standardization.  The  only  methods  by  which  thor- 
oughgoing standardization  can  be  attained,  i.e.,  by  combination,  are 
declared  to  be  unlawful.  The  circumstance  that  the  combination 
of  industry  was  for  the  beneficial  purpose  of  lowering  costs  by  large- 
scale  production  would  not  blind  the  eyes  of  the  courts  to  the  fact 
that  the  keen  competition  over  staples  was  thereby  restrained.  The 
very  power  which  arises  out  of  large  combinations  is  itself  illegal, 
regardless  of  the  mode  of  its  exercise. 

The  way  toward  standardization  lies  between  the  whirlwind  of 
ruinous  competition  and  the  sharp  rocks  of  the  Sherman  act.  The 
breach  between  economic  advantage  and  the  law  seems  to  be  widen- 
ing, and  sooner  or  later  a  change  must  come.  The  law  is  the  first  to 
show  signs  of  bending.  The  Webb-Pomerene  bill  permits  combina- 
tion for  export  business.  Since  that  necessity  means  perfect  har- 
mony among  all  the  firms  of  a  domestic  industry  for  the  one  purpose 
of  foreign  trade,  it  will  be  difficult  indeed  to  cause  these  firms  to 
fight  in  the  other  purpose  of  domestic  business. 

As  the  foreign  demand  for  American  goods  increases  there  will 
come  an  increasing  tendency  toward  large-scale  production.  As  we 
develop  more  and  more  into  a  manufacturing  nation,  the  industries  of 
the  country  will  be  knit  more  closely  together. 

As  some  American  industries  thus  tend  to  expand  into  monopolies 
of  world-wide  scope,  foreign  combinations  of  trades  will  also  attain 
monopoly  size  by  entering  our  markets  and  exchanging  their  wares 
for  the  products  of  our  monopolies.  In  this  merciless  international 
competition,  the  small  business  unit  will  lose  even  the  little  market  that 
it  has,  and  the  industries  of  the  world  will  become  concentrated  into 
monopolies  that,  from  manufacturing  centers  located  at  the  points 


474  CURRENT  ECONOMIC  PROBLEMS 

of  greatest  geographical  advantage,  will  send  their  standardized 
products  by  swift  and  cheap  carriers  to  the  farthest  recesses  of  the 
Orient  and  the  developing  jungles  of  Africa  and  South  America. 

Many  business  men  already  see  the  change  forecasted  in  the 
industrial  barometer,  and  they  are  preparing  for  the  time  when  the 
legal  dyke  will  no  longer  be  able  to  hold  back  the  gathering  flood. 
In  the  meantime  the  prospective  dangers  of  unregulated  monopoly 
should  hasten  the  preparation  of  new  instruments  of  social  control. 
We  must  draw  the  fangs  of  our  new-born  monopolies  before  they 
use  their  adult  powers  to  seize  control  of  our  political  and  financial 
machinery  for  their  selfish  ends.  The  practice  of  standardization 
will  create  a  new  fund  of  wealth,  but  we  muirconfrol  the  foixes~rtrrt- 
bring  it  forth  so  that  the  masses  of  consumers  will  share  the  benefits. 

216.     Results  of  Regulating  Combinations^^ 

BY  E.  DANA  DURAND 

Few  of  those  who  have  advocated  the  policy  of  permitting  com- 
binations to  exist  subject  to  regulation  seems  to  have  given  thought 
to  the  magnitude  of  the  task,  its  difficulties,  or  its  ultimate  outcome. 
They  have  had  in  mind  the  comparatively  few  closely  knit  trusts  of 
the  present  time ;  the  so-called  "good  trusts"  with  their  alleged 
superior  efficiency  and  their  more  or  less  reasonable  policy  toward 
the  public. 

In  the  first  place  it  would  be  difficult  to  limit  the  number  of 
trusts  under  such  a  policy.  It  is,  of  course,  conceivable  that  the 
government  should  undertake  to  suppress  combinations  in  general 
while  permitting  a  few  trusts  to  exist.  A  limited  number  might  be 
tolerated  because  of  the  special  economic  charactertistics  of  the 
industries  concerned  which  tended  to  make  combination  particularly 
economical.  If,  however,  the  people  once  concede  the  right  of  a 
monopolistic  combination  to  exist,  independently  of  extraordinary 
conditions,  a  sense  of  justice  should  apparently  compel  them  to  per- 
mit combinations  ad  libitum.  Under  no  theory  of  justice  coukl  all 
the  trusts  heretofore  organized  be  permitted  to  continue  without 
granting  permission  to  organize  trusts  in  every  other  field. 

In  the  second  place,  it  would  seem  that  if  combinations  having 
power  to  restrain  trade  are  to  be  permitted  at  all,  they  must  be  per- 
mitted to  become  as  comprehensive  as  they  desire.  Why  should  a 
combination  not  be  allowed  to  take  over  loo  per  cent  of  the  business 
in  its  field  quite  as  readily  as  80  or  70  per  cent?  Few  desire 
to  prohibit  combinations  controlling  only  a  small  proportion  of  a 

35Adapted  from  The  Trust  Problem,  pp.  46-59.  Copyright  by  Harvard 
University,  1914. 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  475 

given  industry;  but  if  we  permit  that  limit  to  be  overstepped  at  all, 
there  is  no  limit.  One  can  only  speculate  upon  how  numerous  and 
how  comprehensive  the  trusts  and  pools  would  become  if  the  policy 
were  adopted  of  permitting  them  freely  but  subjecting  them  to  regu- 
lation. In  all  probability  the  number  would  become  very  great. 
Beyond  question  every  combination,  unless  prevented  by  the  govern- 
ment, would  take  in  just  as  large  a  proportion  of  the  trade  as  could 
be  persuaded  to  enter  it.  In  many  cases  this  would  mean  the  entire 
trade. 

If  corporations  were  freely  permitted  and  no  limit  placed  upon 
their  magnitude,  neither  actual  nor  potential  competition  would  be 
an  adequate  check  upon  prices  and  charges  for  service.  Govern- 
ment regulation  would  unquestionably  be  necessary. 

Some  have  suggested  that  regulation  would  be  comparatively 
simple.  Only  bad  trusts  would  be  interfered  with,  and  the  fear  of 
government  intervention  would  make  most  of  the  trusts  good.  The 
government,  some  seem  to  think,  could  let  the  trust  go  its  own  way 
until  it  was  proved  to  have  become  extortionate  or  to  have  used 
unfair  methods,  and  could  then  step  in  and  punish  its  officers,  or  sus- 
pend its  right  to  do  business.  But  how  is  the  trust  manager  to  know 
in  advance  what  prices  and  what  practices  will  be  adjudged  so 
unreasonable  as  to  call  for  criminal  prosecution  ?  What  advantage 
would  there  be  in  breaking  up  a  trust,  if  another  trust  could  be 
formed  in  its  place  the  next  day?  It  would  be  intolerable  to  the 
users  of  its  products  and  services  to  stop  its  business  even  tem- 
porarily. A  good  trust  may  become  a  bad  trust  overnight.  Shall  it 
be  a  lawful  organization  today  and  an  outlawed  wreck  tomorrow? 
Regulation  implies  continuity  of  the  combinations.  Even  if  the 
government  adopted  the  policy  of  punishing  trust  managers  as  a 
penalty  for  extortionate  prices  and  unfair  practices,  this  would  re- 
quire as  thorough  an  investigation  and  as  difficult  a  judgment  as  to 
determine  the  proper  prices  and  practices  for  the  future. 

In  its  very  essence,  however,  regulation  implies,  not  punishment 
of  past  action,  but  prescription  of  future  action.  This  means  that 
the  government,  if  it  undertakes  regulation  of  trusts,  will  ultimately 
have  to  fix  their  prices  or  limit  their  profits,  or  both.  There  is  no 
way  to  insure  reasonable  prices  under  monopoly  control,  but  to 
restrict  them.  If  the  government  enters  upon  this  policy  ought  it  not 
to  go  a  step  further  and  guarantee  to  the  combination  a  permanent 
monopoly,  protecting  them  against  competition  ?  The  public  is  com- 
ing to  accept  the  view  that  justice  to  investors  in  public  service 
industries  demands  protection  against  competition.  If  the  investor 
in  trust  securities  has  had  his  profits  held  down  by  government 


476  CURRENT  ECONOMIC  PROBLEMS 

regulation,  it  is  hardly  fair  to  permit  those  profits  to  be  still  further 
lowered,  perhaps  wholly  destroyed,  by  the  advent  of  a  competitor. 

Whatever  might  be  the  outcome  of  government  regulation,  there 
can  be  no  doubt  of  the  immense  difficulty  of  just  and  efficient  regu- 
lation of  the  prices  or  the  profits  of  industrial  combinations.  The 
federal  government  and  the  states  would  have  to  maintain  elaborate 
and  powerful  machinery  to  control  the  combinations.  Consider  the 
nature  of  the  task  which  would  confront  an  administrative  body.  In 
the  first  place,  it  would  have  to  possess  at  all  times  detailed  informa- 
tion regarding  all  the  concerns  under  its  jurisdiction.  The  prices  of 
many  commodities  are  necessarily  variable.  The  cost  of  material 
may  change  greatly  and  rapidly.  The  conditions  of  demand  are 
changeable.  Grave  injury  might  be  done  to  the  public  during  the 
time  required  for  securing  information  on  which  to  base  action  if 
such  information  were  not  already  in  the  possession  of  the  regu- 
lating authority. 

In  the  second  place,  the  amount  .oX.detajlj]iyolved_^^ 
enormous.  A  proper  fixing  of  prices  would  require  complete 
knowledge  of  the  costs  of  production  and  of  the  amount  of  invest- 
ment. To  make  information  accurate,  the  government  would  have 
to  prescribe  the  methods  of  accounting.  It  would  be  impossible  to 
prescribe  uniform  methods  as  is  done  for  the  railroads.  The  bewil- 
dering variety  of  conditions  in  the  different  industries  would  have 
to  be  provided  for.  Detailed  reports,  based  on  these  prescribed 
methods,  would  have  to  be  made  to  the  government,  and  these  would 
have  to  be  scrutinized  and  studied  with  the  utmost  care.  The  gov- 
ernment would  have  to  employ  a  vast  corps  of  expert  accountants, 
statisticians,  and  other  specialists.  The  difficulties  of  cost  account- 
ing are  so  great  that  many  of  the  large  business  concerns  have  found 
it  impossible  to  ascertain  the  costs  of  their  products  on  scientific 
principles.  The  business  concern  can  get  along  without  accurate 
knowledge  of  its  own  costs.  The  government,  however,  in  fixing 
prices,  must  know  all  about  cost,  both  operating  costs  and  capital 
charges.  They  are  the  very  things  which  primarily  determine  the 
reasonableness  of  prices. 

In  the  third  place,  the  determination  of  costs  and  investments 
for  the  purpose  of  fixing  prices  would  involve  immensely  difficult 
problems  of  judgment.  The  judgment  of  the  regulating  body  would 
be  constantly  challenged  and  the  result  would  probably  be  endless 
litigation.  The  proper  allowance  for  depreciation  and  obsolescence, 
the  proper  apportionment  of  overhead  charges  among  different  prod- 
ucts and  services,  the  proper  methods  of  valuing  the  different 
elements  in  investment — these  would  have  to  be  passed  upon  by  the 


PROBLEM  OF  CAPITALISTIC  MONOPOLY  477 

regulating  authority.  Such  problems  are  difficult  enough  as  they 
confront  the  Interstate  Commerce  Commission.  They  would  be  far 
more  difficult  for  a  body  dealing  with  multifarious  combinations  in 
widely  different  industries. 

Even  if  the  regulating  authority  should  succeed  in  working  out  a 
satisfactory  determination  of  costs  of  production  and  value  of  invest- 
ment, it  would  still  be  beset  with  troubles  in  fixing  prices  or  limiting 
profits.  Demand  for  goods  is  variable  even  in  non-competitive 
industries.  "Unchanging  prices  or-  prices  bearmg  an  unchanging 
relatTon  to  costs  would  not  be  practical  in  mining,  manufacturing, 
and  mercantile  business.  A  combination  might  at  times  be  justi- 
fied in  reducing  prices  below  a  normal  level  to  stimulate  demand 
and  keep  its  force  employed,  or  to  meet  foreign  competition.  The 
government  would  then  have  to  determine  how  much  prices  could 
subsequently  be  advanced  in  order  to  offset  these  reductions.  In 
other  words,  the  government  would  be  dealing  with  a  constantly 
changing  problem  of  demand.  Particularly  difficult  would  be  the 
fixing  of  proper  prices  for  products  produced  at  joint  cost.  Take 
petroleum  for  example.  A  wide  variety  of  products  are  derived 
from  the  one  raw  material,  crude  oil.  Some  of  these  are  in  so 
little  demand  that  they  must  be  sold  for  less  than  the  price  of  the 
crude  oil  istelf.  Others  are  in  great  demand  and  can  be  sold  for 
high  prices.  It  is  impossible  to  use  costs  as  a  basis  for  determining 
prices  of  the  specific  products.  For  a  regulating  body  to  determine 
the  proper  relationships  of  the  prices  of  these  joint  products  is  vir- 
tually impossible. 

One  could  continue  almost  indefinitely  setting  forth  the  com- 
plexities and  difficulties  of  government  regulation  of  the  prices  and 
profits  of  combinations.  A  vague  form  of  regulation  will  not  do. 
It  would  be  difficult  to  prove  that  the  public  would  be  any  better  off 
under  a  regime  of  half -regulated  monopoly  than  under  a  regime 
of  competition  enforced  as  well  as  possible  by  laws  against  combi- 
nations and  monopolies.  Combination  must  be  proved  decidedly 
more  efficient  than  competition  before  the  people  will  be  justified 
in  trusting  trusts  under  any  but  the  most  rigorous  government 
control. 

Government  regulation  of  prices  and  profits  always  involves  a 
large  element  of  waste,  of  duplication  of  energy  and  cost.  It  means 
that  two  sets  of  persons  are  concerning  themselves  with  the  same 
work.  The  managers  and  employees  of  the  corporation  must  study 
cost  accounting  and  conditions  of  demand  in  determining  price  pol- 
icy. The  officers  and  employees  of  the  government  must  follow  and 
do  it  all  over  again.  Moreover,  the  fact  that  the  two  sets  of  persons 
have  different  motives  in  approaching  their  work^means  f f  ictioit  and 


478  CURRENT  ECONOMIC  PROBLEMS 

litigation,  and  these  spell  further  expense.  To  superimpose  a  vast 
governmental  machinery  upon  the  vast  machinery  of  private  busi- 
ness is  an  extravagance  which  should  be  avoided  if  it  is  possible 
to  do  so. 

The  policy  of  government  regulation  of  industry  may  readily 
become  a  stepping-stone  to  government  ownership  and  socialism. 
The  chances  are  strong  that  the  government  of  the  United  States 
will  take  over  the  telegraphs  and  telephones  in  the  near  future  and 
the  railroads  within  less  than  a  quarter  of  a  century.  Lt  xegulation 
by  the  government  proves  ineffective  in  securing  reasonable  rates, 
the  general  public  will  demand  government  ownership  .  If  regulation 
proves  so  effective  as  to  leave  only  moderate  returns  to  the  stock- 
holders of  the  corporations,  the  stockholders  are  likely  to  urge  gov- 
ernment purchase,  which  would  at  least  assure  them  a  more  certain 
income.  In  either  case  the  excessive  cost  of  government  regula- 
tion will  be  urged  as  a  reason  for  government  ownership.  In  the 
same  way,  if  the  government  undertakes  detailed  regulation  of  com- 
binations in  manufacturing,  mining,  and  trade,  there  is  bound  to  be 
a  strong  movement  for  government  ownership  in  these  fields  also. 

Government  ownership  of  this  or  that  industry  is  not  necessarily 
a  bad  thing.  Even  government  ownership  of  a  large  proportion  of 
the  industries  of  the  country,  even  complete  socialism,  need  not 
necessarily  affright  us.  It  is  sufficient  to  point  out  that  the  people 
ought  not  to  enter  on  the  path  of  permitting  and  regulating  com- 
binations without  considering  the  advantages  and  disadvantages  of 
this,  the  possible  ultimate  outcome,  as  well  as  those  of  the  immediate 
policy  itself.  If  it  could  be  proved  that  combination  is  materially 
more  economical  than  competition,  we  should  doubtless  be  wise  to 
say  farewell  to  competition.  Presumably  in  this  case  we  ought  to 
test  thoroughly  the  practicability  of  government  regulation  of  private 
monopoly  before  proceeding  further.  The  people  would  naturally 
first  try  the  plan  of  government  ownership,  if  at  all,  in  limited  fields, 
and  compare  the  results  with  those  of  regulated  monopoly  before 
undertaking  general  government  ownership.  It  is  by  no  means 
improbable  that  the  ultimate  outcome  would  be  socialism.  The 
future  is  very  likely  to  see  either  a  regime  of  general  competition — 
with,  of  course,  some  special  exceptions — or  a  regime  of  universal 
communism.  Clearly,  then,  we  should  be  very  sure  of  our  ground 
before  we  take  the  first  step  toward  possible  communism.  We 
should  convince  ourselves  beyond  all  doubt  that  competition  is  im- 
possible ;  or  that,  if  possible,  it  is  less  efficient  than  monopoly — not 
merely  at  certain  times  and  in  certain  places,  but  generally  and  per- 
manently— before  we  tolerate  widespread  combination  in  the  field 
of  business. 


X 

THE  PROBLEMS  OF  POPULATION 

It  is  generally  agreed  to  be  desirable  to  use  our  powers  of  social  control 
to  eliminate,  or  greatly  reduce,  the  grosser  social  evils,  such  as  misery,  poverty, 
vice,  and  crime.  Perhaps  the  great  majority  of  us  would  go  farther,  and  use 
such  powers  in  quite  a  positive  way  to  make  society  conform  more  closely 
to  our  ideals.  But  we  differ,  as  "reformers"  have  always  done,  as  to  methods. 
In  general  we  belong  to  two  schools,  the  one  stressing  control  of  "environ- 
ment," the  other  control  of  "population."  The  former  demands  greater  equality 
in  the  distribution  of  income,  a  bettering  of  living  and  working  conditions,  a 
state  relief  of  the  stress  due  to  "economic  insecurity,"  and  like  measures.  The 
latter  variously  insists  upon  the  reduction  of  numbers  through  "control  of 
births,"  the  restriction  of  immigration,  and  a  "scientific  breeding"  of  a  "superior 
race"  from  the  "eugenically  fit."  Some  of  the  latter  school  emphasize  quan- 
titative, others  qualitative,  control  of  numbers. 

The  quantitative  question  has  been  much  the  more  clearly  appreciated. 
From  the  blessing  "of  the  seed  of  Abraham"  to  England's  recent  imperative 
demand  for  "war  brides,"  militaristic  thought  has  always  associated  national 
greatness  with  a  large  population.  A  country  in  the  stage  of  increasing  re- 
turns places  a  high  value  upon  sheer  quantity  of  people,  invites  large  families 
through  its  social  conventions,  and  encourages  its  cities  to  boast  of  their 
numbers.  It  is  only  the  presence  or  the  anticipation  of  diminishing  returns 
that  causes  a  nation  to  see  truth  in  the  Malthusian  spector  of  pressure  of 
population  upon  the  means  of  subsistence. 

Half  unconsciously,  half  deliberately,  we  of  the  United  States  have  tried 
to  realize  our  "national  destiny"  by  exercising  control  over  our  numbers.  But 
our  problem  has  not  until  recently  involved  restriction  of  population.  The 
movement  for  "smaller  families  and  better"  is  one  of  a  few  decades,  and  it  has 
affected  only  the  more  settled  stocks.  It  cannot  be  said  to  have  exercised  as 
yet  any  general  influence  in  restricting  numbers.  Our  policy  has  been,  on  the 
contrary,  one  of  increasing  our  population  with  mechanical  rapidity,  by  sup- 
plementing a  high,  but  falling,  birth-rate  with  an  extremely  high  rate  of  in- 
crease through  immigration.  By  maintaining  an  "open  door"  we  have  allowed 
the  population  of  the  Western  world  slowly  to  adapt  itself  to  natural  resources 
considerably  augmented  by  the  addition  of  America.  In  the  process  of  restor- 
ing an  equilibrium  throughout  America  and  Europe  as  a  single  social  entity, 
population  has  flowed  to  the  regions  where  it  has  the  highest  value.  The  pass- 
ing of  the  "old"  and  the  coming  of  the  "new"  immigration  shows  that  the 
leveling  process  in  the  Western  World  is  well  under  way,  and  that  Southeast- 
ern Europe  is  being  brought  within  the  common  scheme  of  values.  If  immigra- 
tion be  left  unrestricted,  the  "problem"  will  eventually  disappear ;  but  it  will 
disappear  because  movement  will  no  longer  pay.  This  will  come  about  when 
the  lower  level  of  material  culture  becomes  dominant  for  the  entity. 

We  have  increased  our  population  by  immigration  because  we  have  needed 
numbers.  Our  vast  natural  resources  have  demanded  for  their  development 
vast  quantities  of  cheap  labor.  A  continuous  immigrant  stream  has  supplied 
an  increasing  demand.  The  result  has  been  the  rapid  development  of  a  vast 
pecuniary  system,  in  which  the  older  stocks  have  generally  been  pushed  up 
into  positions  of  greater  responsibility  and  higher  wages.  Our  standards  of 
living  have  been  further  advanced  by  the  myriads  of  cheap  goods  which  immi- 
grant labor  has  enabled  our  mills  and  mines  to  turn  out. 

But,  like  protection,  the  results  of  immigration  have  not  been  and  could 
not  have  been,  limited  to  the  purely  industrial  results  which  were  anticipated. 
Immigration,  in  connection  with  such  complementary  "forces"  as  protection, 

479 


480  CURRENT  ECONOMIC  PROBLEMS 

the  rapid  accumulation  of  capital,  the  swift  adaptation  of  the  machine  tech- 
nique to  a  new  continent,  has  contributed  to  the  general  transformation  of 
American  society  which  has  come  about  in  the  last  fifty  years.  It  has  played 
its  part  in  the  overdevelopment  of  our  natural  resources,  the  rapid  growth 
of  our  mining  and  manufacturing,  the  extension  of  our  pecuniary  system, 
the  evolution  of  our  urban  culture,  and  the  institutions,  attitudes,  and  prob- 
lems which  have  been  incident  to  this.  Its  role  in  the  production  of  our  "pros- 
perity"' has  been  by  no  means  a  negligible  one.  Its  social  effects  are  very 
closely  bound  up  with  the  tariff.  By  accelerating  the  rate  of  our  development 
and  by  tying  up  larger  and  larger  proportions  of  our  resources  in  industries 
supplying  capricious  wants,  it  has  intensified  the  rhythm  of  the  business  cycle. 
By  blessing  the  country  with  an  endless  stream  of  "green"  labor,  it  has  serious- 
ly weakened  the  bargaining  position  of  native  laborers,  has  retarded  the  devel- 
opment of  group  solidarity,  and  has  slackened  the  rate  of  improvement  of 
factory  conditions.  It  has  caused  our  national  life  to  remain  "in  a  state  of 
perpetual  transition,"  and  inhibited  the  formulation  of  the  standards  which 
a  stable  society  must  possess.  Through  the  very  plasticity  of  the  immigrant 
it  has  preserved  too  much  of  the  older  institutional  system,  despite  the  sweep- 
ing transformation  of  our  social  life.  To  this  end  it  has  strengthened  the  hold 
of  the  older  individualism ;  it  has  increased  the  inequalities  in  wealth ;  it  has 
rendered  the  strategic  position  of  property  stronger;  it  has  added  huge  in- 
crements of  illiteracy  to  the  body  of  citizens;  it  has  delayed  our  achivement 
of  social  unity. 

Not  content  with  complicating  all  our  social  problems  and  adding  a  'quota 
of  new  ones,  it  has  presented  us  a  perplexing  and  baffling  immigration  prob- 
lem. In  the  past  we  have  solved  this  in  the  formula,  "Whosoever  will,  let  him 
come."  Our  futile  attempts  at  restriction  have  involved  the  contradiction 
of  making  use  of  a  qualitative  test,  that  of  literacy,  to  solve  a  problem  which 
we  have  conceived  of  only  in  quantitative  terms.  But  if  the  era  of  emigration 
is  not  upon  us,  and  if  the  great  barbarian  invasion  is  not  at  an  end,  to  control 
our  growth  we  must  formulate  a  more  elaborate  policy.  In  that  task  we  must 
ask  ourselves  some  very  pertinent  questions.  What  place  is  the  immigrant  to 
have  in  the  future  American  society?  Is  he  ultimately  to  become  one  of  us, 
or  is  he  to  constitute  a  permanent  proletariat  in  a  class  society?  How  many 
immigrants  can  we  use?  What  are  we  to  use  them  for?  What  policy  will 
result  in  securing  the  right  number,  of  the  right  kinds,  and  in  the  right  pro- 
portions? Have  we  elaborated  machinery  for  making  the  immigrants  the 
kinds  of  people  we  want  them  to  be?  Can  such  machinery  be  elaborated? 
What  influences  is  the  newcomer  exerting,  or  destined  to  exert,  upon  our 
ideals,  our  standards,  our  institutions  and  our  programs?  And  what  in  the 
less  immediate  future  is  going  to  be  the  good  of  it  all? 

As  we  as  a  nation  become  older,  our  problems  little  by  little  lose  their 
gigantic  and  crude  character.  Our  solutions  must  accordingly  become  more 
delicate  and  exact.  With  this  change  in  our  national  life  we  are  beginning 
to  give  more  attention  to  the  qualitative  side  of  the  population  problem.  As  yet 
we  have  aimed  only  at  "negative"  results.  We  have  tried  to  prevent  the  mar- 
riage and  breeding  of  the  "unfit,"  such  as  the  insane,  the  feeble-minded,  and 
those  possessed  of  chronic  and  hereditary  ( ?)  diseases.  We  have  made  some 
attempt  to  prevent  the  marriages  of  those  of  radically  different  stocks,  such 
as  whites  and  blacks.  But  we  have  as  yet  formulated  no  positive  program 
aimed  at  a  definite  result.  We  have,  with  trifling  exceptions,  allowed  men  of 
any  race  to  come  and  sojourn  with  us.  To  prevent  their  becoming  contributors 
to  a  future  American  race  we  have  depended  only  upon  such  social  restraints 
as  inhere  in  racial  antipathy  and  in  the  difference  in  social  and  economic  posi- 
tions between  members  of  different  stocks.  A  permanent  control  of  the  qaulity 
of  population  involves  both  the  immigration  and  the  eugenics  problems.  We 
must  allow  only  those  whom  we  desire  to  come  in  or  to  be  born.  But  whom 
do  we  desire?  This  problem  is  not  the  simple  one  of  the  breeder  of  race 
horses,  draught  animals,  or  fine  porkers.  There  is  no  single  and  simple  qual- 
ity that  we  are  to  breed  for,  such  as  speed,  physical  strength,  or  quantity  of 
flesh.  The  answer  is  contingent  upon  the  answer  to  the  larger  and  more 
difficult  question  of  the  kind  of  .society  we  want  to  develop. 


PROBLEMS  OF  POPULATION  481 

A.     THE  QUESTION  OF  NUMBERS 
217.     Utopia  and  the  Serpent' 

BY  THOMAS  HUXLEY 

Suppose  a  shipload  of  English  colonists  to  form  a  settlement  in 
such  a  country  as  Tasmania  was  in  the  middle  of  the  last  century. 
On  landing  they  find  themselves  in  the  midst  of  a  state  of  nature, 
widely  differing  from  that  left  behind  them.  They  proceed  to  put 
an  end  to  this  state  of  things  over  the  area  they  wish  to  occupy.  They 
clear  away  the  native  vegetation,  and  introduce  English  vegetable  and 
animal  life,  and  English  methods  of  cultivation.  Considered  as  a 
whole  the  colony  is  a  composite  unit  introduced  into  the  old  state  of 
nature ;  and,  thenceforward,  a  competitor  in  the  struggle  for  exist- 
ence. Under  the  conditions  supposed  there  is  no  doubt  of  the  result, 
if  the  work  of  the  colonists  be  carried  out  intelligently.  On  the  other 
hand,  if  they  are  slothful,  stupid,  or  careless,  there  is  no  doubt  that 
the  old  state  of  nature  will  have  the  best  of  it. 

Let  us  now  imagine  that  some  administrative  authority,  as  far 
superior  to  men  as  men  are  to  their  cattle,  is  set  over  the  colony. 
The  administrate^^  would,  so  far  as  possible,  put  a  stop  to  the  influence 
of  external  competition  by  thoroughly  extirpating  the  native  rivals, 
whether  man,  beast,  or  plants.  And  he  would  select  his  human  agents 
with  a  view  to  his  ideal  of  a  successful  colony.  Next,  in  order  that  no 
struggle  for  means  of  existence  between  human  agents  should  weaken 
the  efficiency  of  the  corporate  whole,  he  would  make  arrangements  by 
which  each  would  be  provided  with  those  means.  In  other  words, 
selection  by  means  of  a  struggle  for  existence  between  man  and  man 
would  be  excluded.  As  the  same  time,  the  obstacles  to  the  develop- 
ment of  the  full  capacities  of  the  colonists  would  be  removed  by  the 
creation  of  artificial  conditions  of  existence  of  a  more  favorable  char- 
acter. Protection  against  heat  and  cold ;  drainage  and  irrigation,  as 
preventitives  of  excessive  rain  and  drought ;  roads  and  canals,  to 
overcome  obstacles  to  locomotion  ;  mechanical  agencies  to  supplement 
the  natural  strength  of  men,  would  all  be  afforded.  With  every  step 
in  this  progress  in  civilization,  the  colonists  would  become  more  and 
more  independent  of  nature.  To  attain  his  ends  the  administrator 
would  avail  himself  of  the  courage,  industry  and  co-operative  intel- 
ligence of  the  settlers ;  and  it  is  plain  that  the  interests  of  the  com- 
munity would  be  best  served  by  increasing  the  proportion  of  persons 
who  possess  such  qualities,  in  other  words,  by  selection  directed 
toward  an  ideal.  Thus  the  administrator  might  look  for  the  establish- 
ment of  an  earthly  paradise,  a  true  garden  of  Eden,  in  which  all  things 

^Adapted  from  "Prolegomena"  to  Evolution  and  F*hics  (1894),  pp.  v-vii. 


482  CURRENT  ECONOMIC  PROBLEMS 

should  work  together  toward  the  well-being  of  the  gardeners,  in  which 
men  themselves  should  have  been  selected  with  a  view  to  their  effi- 
ciency as  organs  for  the  performance  of  the  functions  of  a  perfected 
society. 

But  this  Eden  would  have  its  serpent,  and  a  very  subtle  beast 
too.  Man  shares  with  the  rest  of  the  living  world  the  mighty  instinct 
of  reproduction  and  its  consequence,  the  tendency  to  multiply  with 
great  rapidity.  The  better  the  measures  of  the  administrator  achieved 
their  object,  the  more  completely  the  destructive  agencies  of  the  state 
of  nature  were  defeated,  the  less  would  that  multiplication  be  checked. 
Thus  as  soon  as  the  colonists  began  to  multiply,  the  administrator 
would  have  to  face  the  tendency  to  the  reintroduction  of  natural 
struggle  into  his  artificial  fabric,  in  consequence  of  the  competition, 
not  merely  for  the  commodities,  but  for  the  means  of  existence.  When 
the  colony  reached  the  limit  of  possible  expansion,  the  surplus  popu- 
lation must  be  disposed  of  somehow ;  or  the  fierce  struggle  for  exist- 
ence must  recommence  and  destroy  the  artificially  created  system. 

218.     Appraisals  of  Population 

a)     by  an  early  historian  ^  ♦ 

And  thy  seed  shall  be  as  the  dust  of  the  earth,  and  thou  shalt 
spread  abroad  to  the  west,  and  to  the  east,  and  to  the  north,  and  to 
the  south ;  and  in  thee  and  thy  seed  shall  all  the  nations  of  the  earth 
be  blessed. 

b)     by  an  early  poet' 

Lo,  children  are  a  heritage  of  Jehovah ; 

And  the  fruit  of  the  womb  is  his  reward. 

As  arrows  in  the  hands  of  a  mighty  man 

So  are  the  children  of  youth. 

Happy  is  the  man  that  hath  his  quiver  full  of  them. 

C)       by  ARISTOTLE* 

There  is  an  inconsistency  in  equalizing  the  property  and  not  regu- 
lating the  number  of  the  citizens.  One  would  have  thought  that  it 
was  even  more  necessary  to  limit  population  than  property ;  and  that 
jie  limit  should  be  fixed  by  calculating  the  chances  of  mortality  in  the 
children,  and  of  sterility  in  married  persons.    The  neglect  of  this  sub- 

2From  Gen.  28:14  (800  b.c.). 

sFrom  Ps.  127:3-5  (200  B.C.)- 

^Adapted  from  The  Politics,  II,  6  (357  B.C.)  ;  tr.  by  B.  Jowett. 


PROBLEMS  OF  POPULATION  483 

ject,  which  in  existing  states  is  so  common,  is  a  never- failing  cause  of 
poverty  among  the  citizens,  and  poverty  is  the  parent  of  revolution 
and  crime. 

d)       by  sir  WILLIAM   TEMPLE^ 

The  true  and  natural  ground  of  trade  and  riches  is  the  number  of 
people  in  proportion  to  the  compass  of  the  ground  they  occupy.  This 
makes  all  things  necessary  to  life  dear,  and  forces  men  to  industry 
and  parsimony.  These  customs  which  grow  first  from  necessity  be- 
come with  time  to  be  habitual  to  the  country.  And  wherever  they  are 
so,  that  place  must  grow  great  in  traffic  and  riches,  if  not  disturbed 
by  some  accident  or  revolution,  by  which  the  people  come  either  to 
be  scattered  "or  destroyed.  When  things  are  once  in  motion  trade 
begets  trade  as  fire  does  fire ;  and  people  go  much  where  people  have 
already  gone. 

e)     by  sir  josiah  child  " 

You  cry  up  the  Dutch  to  be  a  brave  people,  rich  and  full  of  cities, 
that  they  swarm  with  people  as  bee-hives  with  bees ;  if  a  plague  come 
they  are  filled  up  presently  and  such  like ;  yet  they  do  all  this  by  invit- 
ing all  the  world  to  come  and  live  among  them.  You  complain  of 
Spain,  because  their  inquisition  is  so  high,  they'll  let  nobody  come  and 
live  among  thpm,  and  that's  the  main  cause  of  their  weakness  and 
poverty.  Will  not  a  multitude  of  people  strengthen  us  as  well  as  the 
want  of  it  weaken  them?    Sure  it  will. 

f)       by   DANIEL  DEFOE  ^ 

Whence  is  all  this  poverty  of  a  country  ?  *Tis  evident  'twas  want 
of  trade  and  nothing  else.  Trade  encourages  manufacture,  prompts 
jinvention,  increases  labor  and  pays  wages.  As  the  number  of  people 
(increase,  the  consumption  of  provisions  increases.  As  the  consump- 
tion of  provisions  increases,  more  lands  are  cultivated.  In  a  word  as 
the  land  is  employed  the  people  increase,  of  course,  and  the  prosperity 
of  a  nation  rises  and  falls  just  as  trade  is  supported  or  decayed.    'Tis 

3y  their  multitude,  I  say,  that  all  wheels  of  trade  are  set  on  foot,  the 
lanufacture  and  produce  of  the  land  and  the  sea  are  finished,  cured 

md  fitted  for  the  markets  abroad ;  'tis  by  the  largeness  of  their  get- 
'tings  that  they  are  supported. 

^Adapted  from  "An  Essay  upon  the  Advancement  of  Trade  in  Ireland," 
in  Works,  III   (1673),  2-3. 

^Adapted  from  "England's  Great  Happiness"  (1677),  in  McCuUoch's  Select  Col- 
lection of  Early  English  Tracts  on  Commerce,  p.  263. 

''Adapted  from  "Extracts  from  a  Plan  of  English  Commerce,  Being  a 
Complete  Compendium  of  the  Trade  of  This  Nation"  (1730)  in  McCuUoch's 
Select  Collection  of  Scarce  and  Valuable  Tracts  on  Commerce,  pp.  1 12-13. 


484  CURRENT  ECONOMIC  PROBLEMS 

g)       by    sir    JAMES    STEUART® 

The  generative  faculty  resembles  a  spring  with  a  loaded  weight, 
which  always  exerts  itself  in  proportion  to  the  diminution  of  resist- 
ence;  when  food  has  remained  some  time  without  augmentation  or 
diminution  the  spring  is  overpowered ;  the  force  of  it  becomes  less 
than  nothing,  inhabitants  will  diminish  at  least  in  proportion  to  the 
over  charge.  If  on  the  other  hand  food  be  increased  the  spring  will 
exert  itself  in  proportion  as  the  resistence  diminishes ;  people  will 
begin  to  be  better  fed ;  they  will  multiply,  and  in  proportion  as  they 
increase  in  numbers,  the  food  will  become  scarce  again. 

h)       by  ARTHUR  YOUNG* 

In  spite  of  the  assertions  of  all  political  writers  for  the  last  twenty 
years,  who  place  the  prosperity  of  a  nation  in  the  greatest  possible 
population,  an  excessive  population  without  a  great  amount  of  work 
and  without  abundant  productions  is  a  devouring  surplus  for  a  state ; 
for  this  excessive  population  does  not  get  the  benefits  of  subsistence, 
which,  without  this  excess,  they  would  partake  of;  the  amount  of 
work  is  not  sufficient  for  the  number  of  hands ;  and  the  price  of  work 
is  lowered  by  the  great  competition  of  the  laborers,  from  which  fol- 
lows indigence  to  those  who  cannot  find  work. 

l)       BY  ADAM  FERGUSON  ^° 

The  number  in  which  we  should  wish  mankind  to  exist  is  limited 
only  by  the  extent  of  place  for  their  residence  and  of  provision  for 
their  subsistence  and  accommodation ;  and  it  is  commonly  observed 
that  the  numbers  of  mankind  in  every  situation  do  multiply  up  to  the 
means  of  subsistence.  To  extend  these  limits  is  good ;  to  narrow  them 
is  evil ;  but  although  the  increase  in  numbers  may  thus  be  considered 
as  object  of  desire,  yet  it  does  not  follow  that  we  ought  to  wish  the 
species  thus  indefinitely  multiplied. 

j)       BY  A  "much  harmed"  NATIVE  OF  BRITISH  INDIA" 

I  am  humble  man  and  great  family,  large  suns  and  daughters  with 
magnificent  appetites.    Much  often  have  I  written  the  great  notorious 

^Adapted  from  Principles  of  Political  Economy,  Being  an  Essay  on  the 
Science  of  Domestic  Policy  in  Free  States  (1767),  p.  20. 

^Adapted . from  The  Farmer's  Tour  Through  the  East  of  England  (1771 ) 
p.  429.  .    ^' 

i^Adapted   from  Principles  of  Moral  and  Political  Science    (1702)     II 

pp.   409-10.  K    ,:,    J,  ,  . 

"A  letter  from  Ram  Sylup,  a  native  of  India,  to  an  ex-officer  of  the  gov- 
ernment, asking  for  a  position. 


PROBLEMS  OF  POPULATION  485 

gentlemens  who  have  terribly  failed  in  goodness;  therefore,  your 
honor  will  not  be  considerable  angered  with  me,  for  because  though 
not  altogether  dead  for  want  of  money,  I  am  much  harmed  man  and 
magnanimously  anxious  for  display  of  my  talents. 

It  is  great  sheer  pity,  all  my  big  education  is  going  horribly  cast 
aside.  Your  honor,  I  am  like  one  man  in  what  your  English  poet 
calls  "bqrn  blowing  unseen"  and  your  honor  is  the  P.  S.  Department 
with  its  great  sercelated  departments — building  big  roads  and  bridges 
which  falling  down,  no  matter  for  that,  makes  the  money — and  be- 
cause your  honor  is  now  completely  dismissed  for  procuring  the  cash, 
yet  still  much  influence  is  with  your  honor  in  the  wide  place  of  area 
of  P.  S.  Dept. 

Your  kind  honor  will  pass  over  the  fury  of  my  great  petishion.  I 
am  telling  you  of  much  troubles,  experiments,  and  much  lirned  things. 
I  got  much  studies  in  big  Dichonharry  on  grate  talents  on  all  things. 
But  this  manifold  family  which  I  have  generated,  God  knows  every 
year  she  does  my  wife  make  incremental  successions  to  the  ramifica- 
tions of  this  generation.  My  age  was  nineteen  when  I  did  begin  to 
have  children  and  now  my  age  is  thirty-four  and  only  one  child  dead, 
and  by  the  Lord  there  will  be  no  end  to  this  mischief. 

B.     THE  MALTHUSIAN  THEORY 
219.     The  Theory  of  Population' - 

BY   THOMAS   ROBERT    MALTHUS 

In  an  inquiry  concerning  the  improvement  of  society,  the  mode 
of  conducting  the  subject  which  naturally  presents  itself  is  (i)  to 
investigate  the  causes  which  have  hitherto  impeded  the  progress  of 
mankind  towards  happiness;  and  (2)  to  examine  the  probability  of 
the  total  or  partial  removal  of  these  causes  in  the  future.  The  prin- 
cipal object  of  this  essay  is  to  examine  the  effects  of  one  great  cause 
intimately  united  with  the  very  nature  of  man.  This  is  the  constant 
tendency  of  all  animated  life  to  increase  beyond  the  nourishment  pro- 
vided for  it. 

Through  the  animal  and  vegetable  kingdoms  Nature  has  scat- 
tered the  seeds  of  life  abroad  with  the  most  profuse  and  liberal  hand. 
If  the  germs  of  existence  contained  in  the  earth  could  freely  develop 
themselves,  they  would  fill  millions  of  worlds  in  the  course  of  a  few 
thousand  years.  Necessity,  that  imperious,  all-pervading  law  of 
nature,  restrains  them  and  man  alike  within  prescribed  bounds. 

i^Adapted  from  An  Essay  on  the  Principle  of  Population,  or  a  View  of 
the  Past  and  Present  Effects  on  Hurncn  Happiness  (6th  ed. ;  1826),  I,  1-24. 


486  CURRENT  ECONOMIC  PROBLEMS 

The  effects  of  nature's  check  on  man  are  compHcated.  Impelled 
to  the  increase  of  his  species  by  an  equally  powerful  instinct,  reason 
interrupts  his  career,  and  asks  him  whether  he  may  not  bring  beings 
into  the  world,  for  whom  he  cannot  provide  the  means  of  support. 
If  he  hear  not  this  suggestion,  the  human  race  will  be  constantly  en- 
deavoring to  increase  beyond  the  means  of  subsistence.  But  as,  by 
that  law  of  our  nature  which  makes  food  necessary  to  the  life  of  man, 
population  can  never  actually  increase  beyond  the  lowest  nourishment 
capable  of  supporting  it,  a  strong  check  on  population,  namely,  the 
difficulty  of  acquiring  food,  must  be  constantly  in  operation.  This 
difficulty  must  fall  somewhere,  and  must  necessarily  be  severely  felt 
in  some  or  other  of  the  various  forms  of  misery  by  a  large  portion 
of  mankind.  This  conclusion  will  sufficiently  appear  from  a  review 
of  the  different  states  of  society  in  which  man  has  existed.  But  the 
subject  will  be  seen  in  a  clearer  light,  if  we  endeavor  to  ascertain  what 
would  be  the  natural  increase  in  population,  if  left  to  exert  itself  with 
perfect  freedom. 

Many  extravagant  statements  have  been  made  of  the  length  of 
the  period  within  which  the  population  of  a  country  can  double. 
To  be  perfectly  sure  we  are  far  within  the  truth,  we  will  take  a  slow 
rate,  and  say  that  population,  when  unchecked,  goes  on  doubling  itself 
every  twenty-five  years,  or  increases  in  a  geometrical  ratio.  The  rate 
according  to  which  the  production  of  the  earth  may  be  supposed  to 
increase,  it  will  not  be  so  easy  to  determine.  However,  we  may  be 
perfectly  certain  that  the  ratio  of  their  increase  in  a  limited  territory 
must  be  of  a  totally  different  nature  from  the  ratio  of  the  increase  in 
population.  A  thousand  millions  are  just  as  easy  doubled  every 
twenty-five  years  by  the  power  of  population  as  a  thousand.  But  the 
food  will  by  no  means  be  obtained  with  the  same  facility.  Man  is  con- 
fined in  room.  When  acre  has  been  added  to  acre  till  all  the  fertile 
land  is  occupied,  the  yearly  increase  in  food  must  depend  upon  the 
melioration  of  the  land  already  in  possession.  This  is  a  fund,  which, 
from  the  nature  of  all  soils,  instead  of  increasing  must  be  gradually 
diminishing.  But  population,  could  it  be  supplied  with  food,  would 
go  on  with  unexhausted  vigor ;  and  the  increase  in  one  period  would 
furnish  a  power  of  increase  in  the  next,  and  this  without  any  limit. 
If  it  be  allowed  that  by  the  best  possible  policy  the  average  produce 
could  be  doubled  in  the  first  twenty-five  years,  it  will  be  allowing  a 
greater  increase  than  could  with  reason  be  expected.  In  the  next 
twenty-five  years  it  is  impossible  to  suppose  that  the  produce  could 
be  quadrupled.  It  would  be  contrary  to  our  knowledge  of  the  prop- 
erties of  land. 


PROBLEMS  OF  POPULATION  487 

Let  us  suppose  that  the  yearly  additions  which  might  be  made  to 
the  former  average  produce,  instead  of  decreasing  as  they  certainly 
would  do,  were  to  remain  the  same ;  and  that  the  product  of  the  land 
might  be  increased  every  twenty-five  years,  by  a  quantity  equal  to 
what  it  at  present  produces.  The  most  enthusiastic  speculator  can 
not  suppose  a  greater  increase  than  this.  Even  then  the  land  could 
not  be  made  to  increase  faster  than  in  an  arithmetical  ratio.  Taking 
the  whole  earth,  the  human  species  would  increase  as  the  numbers  i, 
2,  4,  8,  16,  32,  64,  128,  256,  and  subsistence  as  i,  2,  3,  4,  5,  6,  7,  8,  9. 
In  two  centuries  the  population  would  be  to  the  means  of  subsistence 
as  256  to  9;  in  three  centuries  as  4096  to  13,  and  in  two  thousand 
years  the  difference  would  be  almost  incalculable. 

In  this  supposition  no  limits  whatever  are  placed  to  the  produce 
of  the  earth.  It  may  increase  forever  and  be  greater  than  any  assigna- 
ble quantity ;  yet  still  the  power  of  population,  being  in  every  period 
so  much  greater,  the  increase  of  the  human  species  can  only  be  kept 
down  to  the  level  of  the  means  of  subsistence  by  the  constant  opera- 
tion of  the  strong  law  of  necessity,  acting  as  a  check  upon  the  greater 
power. 

But  this  ultimate  check  to  population,  the  want  of  food,  is  never 
the  immediate  check  except  in  cases  of  famine.  The  latter  consists 
in  all  those  customs,  and  all  those  diseases,  which  seem  to  be  gen- 
erated by  a  scarcity  of  the  means  of  subsistence ;  and  all  those  causes 
which  tend  permanently  to  weaken  the  human  frame.  The  checks 
may  be  classed  under  two  general  heads — the  preventative  and  the 
positive. 

The  preventative  check,  peculiar  to  man,  arises  from  his  reason- 
ing faculties,  which  enables  him  to  calculate  distant  consequences. 
He  sees  the  distress  which  frequently  presses  upon  those  who  have 
large  families  ;  he  cannot  contemplate  his  present  possessions  or  earn- 
ings, and  calculate  the  amount  of  each  share,  when  they  must  be 
divided,  perhaps,  among  seven  or  eight,  without  feeling  a  doubt 
whether  he  may  be  able  to  support  the  offspring  which  probably  will 
be  brought  into  the  world.  Other  considerations  occur.  Will  he 
lower  his  rank  in  life,  and  be  obliged  to  give  up  in  great  measure  his 
former  habits?  Does  any  mode  of  employment  present  itself  by 
which  he  may  reasonably  hope  to  maintain  a  family?  Will  he  not 
subject  himself  to  greater  difficulties  and  more  severe  labor  than  in  his 
present  state?  Will  he  be  able  to  give  his  children  adequate  educa- 
tional advantages?  Can  he  face  the  possibility  of  exposing  his  chil- 
dren to  poverty  or  charity,  by  his  inability  to  provide  for  them  ?  These 
considerations  prevent  a  large  number  of  people  from  pursuing  the 
dictates  of  nature. 


488  CURRENT  ECONOMIC  PROBLEMS 

The  positive  checks  to  population  are  extremely  various,  and  in- 
clude every  cause,  whether  arising  from  vice  or  misery,  which  in 
any  degree  contributes  to  shorten  the  natural  duration  of  human 
life.  Under  this  head  may  be  enumerated  all  unwholesome  occupa- 
tions, severe  labor,  exposure  to  the  seasons,  extreme  poverty,  bad 
nursing  of  children,  great  towns,  excesses  of  all  kinds,  the  whole  train 
of  common  diseases,  wars,  plagues,  and  famines. 

The  theory  of  population  is  resolvable  into  three  propositions: 
(i)  Population  is  necessarily  limited  by  the  means  of  subsistence. 

(2)  Population  invariably  increases  where  the  means  of  subsistence 
increase,  unless  prevented  by  some  very  powerful  and  obvious  checks. 

(3)  These  checks  which  keep  population  on  a  level  with  the  means  of 
subsistence  are  all  resolvable  into  moral  restraint,  vice,  and  misery. 

220.     Malthusianism  a  Support  of  Capitalism^^ 

BY  PIERCY  RAVENSTONE 

We  have  new  doctrines  preached  to  us.  Men,  it  is  now  discov- 
ered, grow  more  readily  than  plants.  Human  beings  overrun  the 
world  with  the  rapidity  of  weeds.  Hence  the  hopeless  misery.  The 
earth  groans  under  the  weight  of  numbers.  The  rich,  it  is  now  dis- 
covered, give  bread  to  the  poor.  Labor  owes  its  support  to  idleness. 
Those  who  produce  everything  would  starve  but  for  the  assistance 
of  those  who  produce  nothing.  The  numbers  of  the  poor  are  to  be 
checked  by  all  possible  means :  every  impediment  is  to  be  placed  in 
the  way  of  their  marriages,  lest  they  should  multiply  too  fast  for  the 
capital  of  the  country.  The  rich,  on  the  contrary,  are  to  be  encour- 
aged, everything  is  to  be  done  for  their  benefit.  For  though  they 
produce  nothing  themselves,  their  capital  is  the  cause  of  everything 
produced ;  it  gives  fertility  to  our  fields  and  fecundity  to  our  flocks. 

These  doctrines  are  new.  It  was  long  the  established  creed  of 
every  statesman,  that  in  the  extent  of  its  population  consisted  the 
strength,  the  power,  and  the  opulence  of  every  nation;  that  it  was 
therefore  the  duty  of  every  sovereign  to  increase,  by  all  practicable 
means,  the  number  of  the  people  committed  to  his  charge.  On  what- 
ever other  points  statesmen  and  legislators  might  differ,  on  this  they 
were  all  agreed.  From  Lycurgus  to  Montesquieu  the  doctrine  under- 
went no  change.  Marriage  was  everywhere  held  up  as  honorable; 
children  were  considered  as  entitling  their  fathers  to  peculiar  privilege 
and  the  mark  of  scorn  was  imprinted  on  the  selfish  being  who  re- 

^'Adapted  from  A  Few  Doubts  as  to  the  Correctness  of  Some  Opinions 
Generally  Entertained  on  the  Subjects  of  Population  and  Political  Economy 
(1821),  pp.  s-24. 


PROBLEMS  OF  POPULATION  489 

mained  single.  Poverty  gave  no  exception ;  it  rather  increased  the 
obhgation.  His  country  gratefully  received  in  children  the  contribu- 
tion of  him  who  had  nothing  else  to  give.  The  wealth  of  a  nation 
consisted  in  the  number  and  strength  of  its  peasantry.  Men  did  not 
dream  that  riches  could  be  separated  from  numbers.  By  these  newer 
doctrines  pestilence  and  famine  are  ministers  of  God,  executing  his 
eternal  decrees,  and  rescuing  us  from  the  necessity  of  overwhelming 
wretchedness.  The  doctrine  has  robbed  Divinity  of  all  the  charities 
of  his  nature,  leaving  to  him  little  else  than  the  functions  of  an  enemy 
of  mankind. 

The  great  and  the  rich  could  not  be  much  offended  at  discovering 
that  whilst  their  rights  were  augmented,  they  were  entirely  absolved 
from  the  performance  of  those  actions  which  the  less  enlightened 
judgment  of  other  times  had  classed  among  the  most  important  and 
essential  of  their  duties.  To  be  merciful  to  our  own  faults,  to  believe 
our  idle  expenses  meritorious,  to  set  up  selfishness  as  the  idol  of  our 
idolatry,  and  to  drive  away  charity,  are  duties  not  very  repugnant  to 
our  nature.  They  demand  no  sacrifice  in  their  performance.  The 
temple  of  virtue  will  be  crowned  with  votaries,  if  it  be  made  to  lead 
to  the  shrine  of  self-interest. 

Those  severer  morals  which  taught  that  the  poor  were  equally 
partakers  of  the  divine  nature  with  the  rich ;  that  they  were  equally 
fashioned  in  the  image  and  likeness  of  God;  that  their  industry  being 
the  cause  of  all  that  was  produced,  and  the  rich  being  in  reality  only 
pensioners  on  their  bounty,  the  latter  were  only  trustees  for  the  good 
of  society ;  that  their  wealth  was  given  not  for  their  own  enjoyment, 
but  for  its  better  distribution  through  the  different  channels  of  so- 
ciety, were  not  likely  long  to  maintain  their  hold  on  the  minds  of  the 
wealthy  against  those  sedative  doctrines  which  flattered  the  passions, 
converted  faults  into  good  qualities,  and  made  even  conscience  pander 
to  vices. 

It  is  an  old  and  dreary  system  which  represents  our  fellow- 
creatures  as  so  many  rivals  and  enemies,  which  makes  us  believe  that 
their  happiness  is  incompatible  with  our  own,  which  builds  our 
wealth  on  their  poverty,  and  teaches  that  their  numbers  cannot  con- 
sist with  our  comforts  and  enjoyments ;  which  would  persuade  us  to 
look  on  the  world  as  a  besieged  town,  where  the  death  of  our  neigh- 
bors is  hailed  with  secret  satisfaction  since  it  augments  the  quantity 
of  provisions  likely  to  fall  to  our  share.  To  consider  misery  and  vice 
as  mere  arrangements  of  the  Divinity  to  prevent  the  inconvenience  of 
a  too  great  population  of  the  world,  is  to  adopt  predestination  in  its 
worst  form.  In  committing  crimes  we  should  only  be  executing  the 
will  of  God;  in  alleviating  the  distresses  of  others,  in  feeding  the 


490  CURRENT  ECONOMIC  PROBLEMS 

hungry  and  clothing  the  naked,  we  should  be  running  counter  to  the 
decrees  of  Providence. 

But  before  we  can  adopt  these  conclusions,  it  behoovi-s  us  to 
examine  on  what  foundation  the  system  is  built.  We  must  remem- 
ber that  it  is  the  common  interests  of  all  members  which  holds  so- 
ciety together.  Misery  is  not  of  God's  creation  ;  vice  is  not  the 
minister  of  His  will.  I  shall  show  that  the  increase  in  numbers  in 
the  human  species  is  wholly  uninfluenced  by  human  institutions.  It 
is  by  no  means  so  varied  in  its  operation  as  Mr.  Malthus  has  sup- 
posed; it  affords  no  ground  for  alarm;  it  calls  for  no  restrictive 
measures,  since  the  increase  in  subsistence  is  entirely  dependent  on 
the  increase  in  numbers.  Every  man  brings  into  the  world  the 
means  of  producing  his  own  sustenance.  Wherever  the  numbers  of 
the  people  increase  more  rapidly  than  the  means  of  subsistence,  the 
fault  is  not  with  Providence,  but  in  the  regulations  of  society.  Cap- 
ital is  no  addition  to  the  wealth  of  a  nation ;  it  conduces  nothing  to 
the  improvement  of  the  industry;  it  is  merely  a  new  distribution  of 
the  property  of  society,  beneficial  to  some,  wholly  because  it  is 
injurious  to  others. 

221.     Malthus  versus  the  Malthusians" 

BY  LEONARD  T.  HOBHOUSE 

The  appearance  of  the  biological  theory  of  progress,  of  which 
we  have  been  hearing  much  of  late,  was  announced  by  the  terrible 
douche  of  cold  water  thrown  by  Malthus  on  the  speculative  optimism 
of  the  eighteenth  century.  The  generation  preceding  the  French 
Revolution  was  a  time  of  buoyant  and  sanguine  outlook.  There 
floated  before  men  the  idea  of  an  age  of  reason  when  men  should 
throw  off  the  incubus  of  the  past  and  resume  a  life  in  accordance 
with  nature  in  a  social  order  founded  ^  a  rational  consideration 
of  natural  rights.  Nature  both  in  the  politics  and  the  economics 
of  the  time  assumes  a  half  personal  and  wholly  benevolent  character 
while  human  restrictions,  human  conventions,  play  the  part  of  the 
villain  in  the  piece.  At  this  point  Malthus  intervened  by  calling 
attention  to  a  "natural"  law  of  great  significance.  This  was  the 
law  that  human  beings  multiplied  in  a  geometrical  ratio ;  that  it  was 
only  by  the  checks  of  famine,  pestilence,  and  war  that  they  were 
prevented  from  overspreading  the  earth,  and  that,  to  cut  the  mat- 
ter short,  whatever  the  available  means  of  subsistence,  mankind 
would  always,  in  the  absence  of  prudential  checks,  multiply  up  to 
the  limit  at  which  those  means  became  inadequate.    True,  the  means 

^♦Adapted  from  Social  Evolution  and  Political  Theory,  pp.  13-16.  Copy- 
right by  the  Columbia  University  Press,  191 1. 


PROBLEMS  OF  POPULATION  491 

of  subsistence  might  be  extended.  New  countries  might  be  opened 
up.  New  sources  of  food  supply  might  be  discovered.  Every  such 
extension,  the  Malthusian  argued,  would  only  redouble  the  rate  of 
multiplication.  Checks  would  cease,  men  and  women  would  marry 
earlier ;  very  soon  population  would  again  be  pressing  on  the  means 
of  subsistence.  The  advance  in  civilization  told  in  the  same  direc- 
tion. Population  was  increasing,  must  increase.  It  could  be  held 
in  check  only  by  the  one  great  barrier  of  the  subsistence  limit 
against  which  the  fringe  of  advancing  population  must  forever  beat 
in  misery.  There  could  be  no  solution  of  the  social  question;  for 
in  the  nature  of  things  there  must  be  a  line  where  the  surf  of  the 
advancing  tide  breaks  upon  the  shore,  and  that  shore  was  death 
from  insufficiency  of  nourishment.  You  observe  that  in  summariz- 
ing the  argument  I  speak  partly  of  Malthus,  partly  of  the  Malthus- 
ians.  Malthus  himself,  particularly  in  his  second  edition,  laid  stress 
on  the  prudential  checks.  He  cannot  fairly  be  accused  of  fostering 
the  pessimistic  views  often  fastened  upon  him.  But  for  many  a 
long  year  after  he  wrote,  the  efficacy  of  the  prudential  checks  ap- 
peared to  be  very  slight.  It  was  his  first  edition  that  was  generally 
absorbed  and  that  profoundly  influenced  social  thought  for  nearly 
a  century.  It  was  not  till  the  seventies  that  there  came  into  opera- 
tion that  general  fall  in  the  birth-rate,  which  has  justified  Malthus 
against  the  Malthusians,  has  put  the  calculations  of  the  future  growth 
of  population  on  a  radically  different  basis,  and  has  brought  about 
among  other  things  a  complete  reconstruction  of  the  biological 
argument  against  progress.  I  venture  to  think  we  may  draw  a 
lesson  from  the  fate  of  Malthusianism.  Mathematical  arguments 
drawn  from  the  assumption  that  human  beings  proceed  with  the 
statistical  regularity  of  a  flock  of  sheep  are  exceedingly  difficult 
to  refute  in  detail,  and  yet  they  rest  on  an  insecure  foundation. 
Man  is  not  merely  an  animal.  He  is  a  rational  being.  The  Mal- 
thusian theory  was  one  cause  of  the  defeat  of  its  own  prophecies. 
It  was  the  belief  that  population  was  growing  too  fast  that  operated 
indirectly  to  check  it.  Those  who  fear  that  population  is  now 
growing  too  slowly,  may  take  some  comfort  from  the  reflection. 
We  are  not  hastily  to  assume  inevitable  tendencies  in  human  society, 
because  the  moment  society  is  aware  of  its  tendencies  a  new  fact 
is  introduced.  Man,  unlike  other  animals,  is  moved  by  the  knowl- 
edge of  ends,  and  can  and  does  correct  the  tendencies  whose 
results  he  sees  to  be  disastrous.  The  alarmist  talk  of  race  suicide 
may  serve  its  purpose  if  only  by  admonishing  us  of  the  fate  of  a 
theory  based  on  what  appears  to  be  a  most  convincing  biological 
calculation. 


492  CURRENT  ECONOMIC  PROBLEMS 

222.     Population  Pressure  and  War' ' 

BY  EDWARD  ALS WORTH    ROSS 

A  century  ago  Malthus  startled  the  world  by  demonstrating  that 
our  race  naturally  multiplies  faster  than  it  can  increase  its  food 
supply,  with  the  result  that  population  tends  ever  to  press  painfully 
upon  the  means  of  subsistence.  So  long  as  mankind  reproduces 
freely,  numbers  can  be  adjusted  to  resources  only  by  the  grinding 
of  destructive  agencies,  such  as  war,  famine,  poverty  and  disease. 
To  be  sure,  this  ghastly  train  of  ills  may  be  escaped  if  only  people 
will  prudently  postpone  marriage.  Since,  however,  late  marriage 
calls  for  the  exercise  of  more  foresight  and  self-control  than  can 
be  looked  for  in  the  masses,  Malthus  painted  the  future  of  humanity 
with  a  somberness  that  gave  political  economy  its  early  nickname 
of  "the  dismal  science." 

Malthus  is  not  in  the  least  "refuted"  by  the  fact  that,  during  his 
century,  the  inhabitants  of  Europe  leaped  in  number  from  one  hun- 
dred and  eighty-seven  millions  to  four  hundred  millions,  with  no 
increase  but  rather  diminution  of  misery.  It  is  true,  unprecedented 
successes  in  augmenting  the  food  supply  have  staved  off  the  over- 
population danger.  Within  a  lifetime,  not  only  have  the  arts  of 
food  raising  made  giant  strides,  but,  at  the  world's  rim,  great  virgin 
tracts  have  been  brought  under  the  plow,  while  steam  hurries  to 
the  larders  of  the  Old  World  their  surplus  produce.  But  such  a 
bounty  of  the  gods  is  not  rashly  to  be  capitalized.  While  there  is 
no  limit  to  be  set  to  the  progress  of  scientific  agriculture,  no  one 
can  show  where  our  century  is  to  find  its  Mississippi  Valley,  Argen- 
tina, Canada,  or  New  Zealand,  to  fill  with  herds  or  farms.  The 
vaunted  plenty  of  our  time  adjourns  but  does  not  dispel  the  haunting 
vision  of  a  starving  race  on  a  crowded  planet. 

Nevertheless,  the  clouds  that  hung  low  about  the  future  are 
breaking.  The  terrible  Malthus  failed  to  anticipate  certain  influ- 
ences which  in  some  places  have  already  so  far  checked  multiplica- 
tion as  to  ameliorate  the  lot  of  even  the  lower  and  broader  social 
layers.  The  sagging  of  the  national  birth-rate  made  its  first  appear- 
ance about  fifty  years  ago  in  France,  thereby  giving  the  other 
peoples  a  chance  to  thank  God  they  were  not  as  these  decadent  French. 
But  the  thing  has  become  so  general  that  today  no  people  dares  to 
point  the  finger  of  scorn.  In  1878  the  fall  of  the  birth-rate  began  in 
England.  During  the  eighties  it  invaded  Belgium,  Holland,  and 
Switzerland.    In  1889  it  seized  with  great  virulence  upon  Australia. 

isAdapted  from  Changing  America,  pp.  32-49-  Copyright  by  The  Century 
Company,  1912. 


PROBLEMS  OF  POPULATION  493 

Just  before  the  close  of  the  century  Finland,  Italy,  and  Hungary  fell 
into  line.  In  Germany  and  Austria  it  is  only  within  four  or  five 
years  that  the  economists  have  begim  to  discuss  "our  diminishing 
fecundity."  In  all  Christendom  only  Russia,  the  Balkan  states  and 
French  Canada  show  the  old-fashioned  birth-rates  of  forty,  fifty, 
or  even  fifty-five,  per  thousand.  The  tendency  in  the  United  States 
is  best  revealed  in  the  diminishing  number  of  children  under  five 
years  to  each  thousand  women  of  child-bearing  age.  The  decline 
from  i860  to  1890  is  24  per  cent. 

Owing  to  the  fact  that  the  death-rate  has  been  falling  even  faster 
than  the  birth-rate,  there  is,  so  far,  no  slackening  in  the  growth  of 
numbers.  Indeed,  part  of  the  fall  in  the  birth  rate  merely  reflects 
the  increasing  proportion  of  aged. 

The  forces  reducing  the  death-rate  are  by  no  means  the  same  as 
those  cutting  down  the  birth-rate,  nor  have  they  the  same  sphere  of 
operation.  Deaths  are  fewer  because  of  advances  in  medicine,  bettei 
medical  education,  public  hospitals,  pure  water  supply,  milk  inspec- 
tion, housing  reform  and  sanitation.  Births  are  rarer  owing  to  en- 
lightenment, the  ascent  of  women,  and  individualistic  democracy. 
The  former  may  be  introduced  quickly,  from  above.  The  latter 
await  the  slow  action  of  the  school,  the  press,  the  ballot,  the  loosen- 
ing of  custom. 

An  abrupt  fall  in  the  birth-rate  of  from  10  to  20  per  cent  among 
the  four  hundred  million  bearers  of  the  Occidental  torch  is  a  phe- 
nomenon so  vast  and  so  pregnant  as  to  excite  the  liveliest  specu- 
lation. Some  lay  it  to  physiological  sterility  produced  by  alcohol, 
city  life  and  over-civilization.  There  are,  indeed,  in  som^  quarters, 
notably  in  New  England,  evidences  of  a  decline  in  female  fertility ; 
but,  on  the  whole,  the  lower  birth-rate  reflects  the  smaller  size  of 
families  rather  than  the  greater  frequency  of  childless  couples. 

Others  insist  that  vice,  club  life,  the  comfortable  celibacy  of 
cities,  and  the  access  of  women  to  the  occupations  are  turning  peo- 
ple away  from  wedlock.  It  is  true  that  the  proportion  of  single 
women  is  increasing  with  us.  Still,  few  peoples  are  so  much  mar- 
ried as  Americans,  and,  for  all  that,  their  birth-rate  has  fallen  fast 
and  fallen  far.  Michigan,  which  is  about  as  addicted  to  the  mar- 
ried state  as  any  white  community  in  the  world,  has  only  two-thirds 
the  fecundity  of  England  and  half  that  of  Hungary. 

Perhaps  the  master-force  of  our  time  is  democracy.  The  bar- 
riers of  caste  are  down  so  that  more  and  more  a  man's  social  stand- 
ing depends  upon  himself'.  The  lists  of  life  are  open  to  all,  and  the 
passion  to  "succeed"  grows  with  the  value  of  the  prizes  to  be  won. 
Never  before  did  so  many  common  people  strain  to  reach  a  higher 


494  CURRENT  ECONOMIC  PROBLEMS 

rung  in  the  social  ladder.  But  prudence  bids  these  eager  climbers 
avoid  whatever  will  impede  one's  ascent  or  imperil  one's  footing. 
Children  are  incumbrances,  so  the  ambitious  dread  the  handicaj)  of 
an  early  marriage  and  a  large  family.  Even  the  unselfish,  whose 
aim  is  to  assure  their  children  a  social  position  equal  to  or  superior 
to  their  own,  will  see  to  if  that  there  are  not  more  children  than 
they  can  properly  equip. 

The  effect  of  democracy  is  reinforced  by  the  break-up  of  custom. 
As  fixed  class  distinctions  fade  out,  people  cease  to  be  guided  by  the 
traditional  standard  of  comfort.  It  is  no  longer  enough  to  live  as 
father  and  mother  lived.  Wants  and  tastes,  once  confined  to  the 
social  elect,  spread  resistlessly  downward  and  infect  the  masses. 
Here  the  decencies,  there  the  comforts,  yonder  the  vanities  of  life 
compete  with  the  possible  child  and  bar  it  from  existence. 

The  great  movement  that  has  burst  the  fetters  on  woman's  mind 
and  opened  to  her  so  many  careers  exalts  her  in  the  marriage  part- 
nership and  causes  the  heavy  price  of  motherhood  to  be  more  con- 
sidered by  her  husband  as  well  as  by  herself. 

However  we  account  for  the  fall  in  the  birth-rate,  there  is  no 
question  as  to  its  consequences.  The  decline  registers  itself  in  a 
rising  plane  of  comfort,  a  growth  of  small  savings,  and  a  wider 
diffusion  of  ownership.  Owing  to  the  better  care  enjoyed  by  the 
aged  when  they  do  not  have  to  compete  for  attention  with  an  over- 
large  brood  of  wailing  infants,  there  is  a  striking  increase  in  lon- 
gevity. A  greater  proportion  of  lives  are  rounded  out  to  the  Psalm- 
ist's term.  There  is  also  a  wonderful  saving  of  life  among  infants, 
for  often  prolificacy  does  nothing  but  fill  the  churchyards  with  wee 
mounds.  When  we  consider  that  in  1790  there  were  in  this  coun- 
try just  twice  as  many  children  under  16  to  adults  over  20  as  there 
are  today  we  understand  why  the  law  limits  child  labor  and  insists 
on  keeping  children  in  school. 

But  the  supreme  service  of  forethoughted  parenthood  is  that  it 
bids  fair  to  deliver  us  from  the  overpopulation  horror,  which  was 
becoming  more  imminent  with  every  stride  in  medicine  or  public 
hygiene.  Most  of  the  Western  peoples  have  now  an  excess  of  births 
over  deaths  of  i  per  cent  a  year.  If  even,  a  third  of  this  increase 
should  find  a  footing  over  sea,  then  home  expansion  would  still  be 
such  that,  at  a  future  date  no  more  remote  from  us  than  the  found- 
ing of  Jamestown,  Europe  would  groan  under  a  population  of  three 
billions,  while  the  United  States  of  that  day,  with  twice  as  many 
people  as  Europe  now  has,  would  be  to  China  what  China  is  to  the 
present  United  States.  Besides  its  attendant  misery  and  degrada- 
tion, population  pressure  sharpens  every  form  of  struggle  among 


PROBLEMS  OF  POPULATION  495 

men — comjpetition,  class  strife,  and  war — and  the  dream  of  a  moral 
redemption  of  our  race  would  vanish  into  thin  air  if  the  enlightened 
peoples  had  failed  to  meet  the  crisis  created  by  the  reduction  of 
mortality. 

Once  it  seemed  as  if  man's  propensity  to  multiply  foredoomed 
him  to  live  ever  in  the  presence  of  vast  immediate  woe.  However 
smiling  the  gardens  of  Daphne,  they  had  always  to  slope  down  into 
a  huge  malodorous  quagmire  of  wretchedness.  The  wheel  of  Ixion, 
the  cup  of  Tanatlus,  symbolized  humanity  striving  ever  by  labor 
and  ingenunity  to  relieve  itself  of  a  painful  burden,  only  to  have 
that  burden  inexorably  rolled  back  upon  it  by  its  own  fatal  fecun- 
dity. 

Now  that  cheap  travel  stirs  the  social  deeps  and  far-beckoning 
opportunity  fills  the  steerages,  immigration  becomes  ever  more  seri- 
ous to  the  people  that  hopes  to  rid  itself  at  least  of  slums,  ''masses" 
and  "submerged."  What  is  the  good  of  practicing  prudence  in  the 
family  if  hungry  strangers  may  crowd  in  and  occupy  at  the  banquet 
table  of  Hfe  the  places  reserved  for  its  children  ?  Shall  it,  in  order  to 
relieve  the  teeming  lands  of  their  unemployed,  abide  in  the  pit  of 
wolfish  competition  and  renounce  the  fair  prospect  of  a  growth  in 
suavity,  comfort,  and  refinement?  If  not,  then  the  low-pressure 
society  must  not  only  slam  its  doors  upon  the  indraught,  but  must 
double-lock  them  with  forts  and  ironclads,  lest  they  burst  open  by 
assault  from  some  quarter  where  "cannon  food"  is  cheap. 

The  rush  of  developments  makes  it  certain  that  the  vision  of  a 
globe  "lapt  in  universal  law"  is  premature.  If  the  seers  of  the  mid- 
century  who  looked  for  the  speedy  triumph  of  free  trade  had  read 
their  Malthaus  aright,  they  might  have  anticipated  the  tariff  barriers 
that  have  risen  on  all  hands  within  the  last  thirty  years.  So,  today, 
one  needs  no  prophet's  mantle  to  foresee  that  presently  the  world 
will  be  cut  up  with  immigration  barriers  which  will  never  be  leveled 
until  the  intelligent  accommodation  of  numbers  to  resources  has 
greatly  equalized  population  pressure  all  over  the  globe.  The  French 
resent  the  million  and  a  third  aliens  that  have  been  squeezed  into 
hollow  and  prosperous  France  by  pressure  in  the  neighbor  lands. 
The  English  restrict  immigration  from  the  Continent.  The  Germans 
feel  the  thrust  from  the  overstocked  Slavic  areas.  The  United 
States,  Canada,  Australia  and  South  Africa  are  barring  out  the 
Asiatic.  Dams  against  the  color  races,  with  spillways  of  course  for 
students,  merchants,  and  travelers,  will  presently  enclose  the  white 
man's  world.  Within  this  area  minor  dams  will  protect  the  high 
wages  of  the  less  prolific  peoples  against  the  surplus  labor  of  the 
more  prolific. 


496         CURRENT  ECONOMIC  PROBLEMS 

Assuredly,  every  small-family  nation  will  try  to  raise  such  a 
dam  and  every  big-family  nation  will  try  to  break  it  down.  The 
outlook  for  peace  and  disarmament  is,  therefore,  far  from  bright. 
One  needs  but  compare  the  population  pressures  in  France,  Ger- 
many, Russia  and  Japan  to  realize  that,  even  today,  the  real  enemy 
of  the  dove  of  peace  is  not  the  eagle  of  pride  or  the  vulture  of  greed 
but  the  stork ! 


C.     THE  COMING  OF  THE  IMMIGRANT 
223.     The  Immigrant  Invasion^ ^ 

BY  FRANK  JULIAN  WARNE 

At  the  time  of  the  appearance  of  the  comet  in  19 lo  there  was  in 
progress  the  most  remarkable  and  in  many  ways  the  most  wonder- 
ful invasion  of  one  country  by  peoples  of  foreign  countries  that  the 
world  had  ever  seen.  In  the  very  month  of  May,  when  the  comet's 
appearance  in  the  heavens  was  being  heralded  in  the  newspapers, 
as  many  as  one  hundred  and  fifty  thousand  representatives  of  differ- 
ent races  and  countries  of  the  world  were  entering  the  immigrant 
ports  of  the  United  States.  They  were  equal  to  one  hundred  and 
fifty  full  regiments  of  one  thousand  each ;  they  were  double  the 
entire  fighting  strength  of  the  United  States  Army.  More  than  one 
million  people  from  all  the  countries  on  the  globe  were  that  year 
passing  in  a  seemingly  never-ending  stream  into  the  United  States. 

They  came  from  the  British  and  the  Spanish  Americas,  from 
Europe  and  from  Africa,  from  Asia  and  from  India,  from  the 
islands  of  the  Pacific  and  the  islands  of  the^Atlantic.  From  the 
United  Kingdom  and  the  Russian  Empire,  from  the  Scandinavian 
countries  and  the  Netherlands,  from  the  German  Empire  and  the 
Dual  Kingdom  of  Austria-Hungary,  from  Turkey  in  Europe  and 
Turkey  in  Asia,  from  Italy  and  China  and  Japan,  they  came.  There 
was  not  a  single  geographical  or  politically  organized  area  of  im- 
portance from  which  they  did  not  come.  England,  Ireland,  Scot- 
land, Wales,  Norway,  Sweden,  Denmark,  Holland,  Belgium,  Swit- 
zerland, France,  Spain,  Portugal,  Roumania,  Greece,  Armenia,  Per- 
sia, Syria,  Sicily  and  Sardinia,  the  Cape  Verde  and  Azores  Islands, 
the  Canary  and  Balearic  Islands,  British  Honduras,  Tasmania,  and 
New  Zealand,  the  Philippines,  Hawaii,  the  East  and  the  West  Indies, 
Cuba,  Canada,  Mexico,  and  South  and  Central  American  countries — 
each  and  all  and  more  were  represented. 

i^Adapted  from  The  Immigrant  Invasions,  pp.  1-21.  Copyright  by  Dodd, 
Mead  &  Co.,  1913. 


PROBLEMS  OF  POPULATION  497 

The  sources  of  this  stream  of  immigration  are  four  great  stocks 
of  the  human  race — the  Aryan,  the  Semitic,  the  Sinitic,  and  the 
Sibiric.  From  the  homes  of  these,  as  they  have  scattered  them- 
selves among  the  Teutonic,  Celtic,  Slavonic,  Lettic,  Italic,  Hellenic, 
Illyric,  Indo-Iranic,  Chaldean,  Chinese,  Japanese,  Finnic,  and  Tar- 
taric groups,  this  stream  is  pouring.  The  peoples  composing  it  are 
Scandinavians,  Dutch,  Flemish,  Germans,  English ;  Irish,  Welsh, 
Scotch ;  Bohemians,  Dalmatians,  Moravians,  Croatians,  Poles,  Slov- 
enians, Bulgarians,  Russians,  Servians,  Ruthenians,  Montenegrins, 
Bosnians,  Herzegovinians,  Slovaks ;  Letts  and  Lithuanians ;  French, 
Italians,  Portuguese,  Roumanians,  and  Spaniards ;  Greeks ;  Alban- 
ians ;  Armenians,  Persians,  and  Gypsies ;  Hebrews  and  vSyrians ; 
Chinese ;  Japanese  and  Koreans ;  Finns  and  Magyars ;  and  Turks. 
Besides,  we  have  coming  to  us  Berbers  and  Arabs  from  northern 
Africa,  Bretons  from  western  France,  Esthonians  from  western 
Russia,  Eskimos  from  western  Alaska,  Spanish  Americans  from 
South  America.  Not  even  all  these  exhaust  the  multitudinous 
sources  contributing  to  our  foreign-born  population. 

Unlike  the  invasions  of  other  centuries  and  of  other  countries, 
the  present-day  immigration  to  the  United  States  is  not  by  organized 
armies  coming  to  conquer  by  the  sword.  It  is  made  up  of  detached 
individuals,  or  at  most,  of  family  or  racial  groups,  afoot,  the  sword 
not  only  sheathed  but  also  entirely  discarded  by  those  who  have 
no  idea  of  battling  with  arms  for  that  which  they  come  to  seek. 
They  do  not  come  as  armed  horsemen,  with  their  herds  of  cattle 
and  skin-canopied  wagons.  Nor  do  they  present  themselves  at  our 
doors  in  "great  red  ships,"  with  the  ensign  of  the  rover  hanging 
from  the  topmast,  and  clad  in  chain-mail  shirts  and  with  helmets. 

More  than  twenty-eight  million  have  entered  the  United  States 
from  all  parts  of  the  world  during  the  ninety  years  since  1820!  In 
the  course  of  the  nineteenth  century,  and  the  first  decade  of  the 
twentieth  century,  there  came  more  than  five  million  from  Germany, 
four  million  from  Ireland,  more  than  three  million  from  each  of 
Austria-Hungary,  and  Italy,  three  million  from  England,  Scotland, 
and  Wales ;  nearly  two  and  one-half  million  from  Russia ;  nearly 
two  million  from  Norway,  Denmark,  and  Sweden ;  and  about  five 
hundred  thousand  from  France. 

More  than  twenty-five  million  immigrants  came  within  the  sixty 
years  since  1850;  and  more  than  nineteen  million  came  within  the 
last  thirty  years.  The  ten  years  ending  with  1910  gave  us  a  total 
immigration  exceeding  8,795,000,  nearly  five  million  of  those  arriv- 
ing within  the  past  five  years.  In  the  single  year  1910  the  number 
of  arrivals  exceeded  one  million  by  41,000;  in  the  twelve  months 


498  CURRENT  ECONOMIC  PROBLEMS 

three  years  be'fore  they  had  reached  1,285,000,  this  being  the  largest 
single  yearly  inflow  of  foreign  born  in  the  history  of  the  country. 

Taking  the  average  for  the  past  ten  years,  we  find  that  there 
came  annually  more  than  eight  hundred  and  seventy-nine  thousand 
immigrants ;  for  every  month  more  than  seventy-three  thousand ; 
for  every  day,  Sundays  and  holidays  included,  two  thousand  four 
hundred  and  forty,  and  for  every  time  the  clock  struck  the  hour, 
day  and  night,  one  hundred  persons  born  in  some  foreign  country 
landed  on  the  shores  of  the  United  States. 

Truly  a  wonderful  invasion  I  A  stupendous  army !  An  army 
that  has  been  marching  continually  all  these  years — an  army  whose 
ranks,  although  changing  racially,  have  not  been  depleted  but  have 
steadily  and  at  times  alarmingly  increased  in  numbers  as  the  decades 
have  gone  by.  Here  is  a  prenomenon  before  which  we  must  stand 
in  awe  and  amazement  when  contemplating  its  consequences  to  the 
human  race! 

Think  you  that  any  such  numbers  invaded  the  Roman  world 
when  the  Huns  poured  in  from  the  East?  Was  Attila's  army  one- 
half,  even  one-tenth,  as  large  when  it  overran  Gaul  and  Italy?  Did 
the  Saxons  in  the  sixth  century  invade  England  in  any  such  num- 
bers? Or,  did  William  the  Conqueror  lead  any  such  army  in  the 
Norman  invasion  of  England  in  the  eleventh  century?  And  yet, 
upon  the  peoples  of  those  countries  the  mark  of  the  invader  is  seen 
to  this  day.  Think  you  that  America  alone  will  escape  the  conse- 
quences ? 

Let  us  look  at  the  volume  of  this  invasion  from  another  angle. 
There  were  in  the  United  States  in  19 10  more  than  13,500,000  per- 
sons who  had  been  born  in  some  foreign  country.  That  is,  one  out 
of  every  seven  of  our  population  came  here,  not  through  having 
been  born  here,  but  through  immigration.  The  largest  contribu- 
tion was  from  Germany,  the  next  largest  from  Russia;  then  came 
Ireland  and  Italy  in  a  close  race  for  third  place,  the  number  of  the 
former  exceeding  those  from  Italy  by  less  than  ten  thousand.  Aus- 
tria, including  Bohemia  and  a  part  of  what  formerly  was  Poland, 
held  fifth  place;  Canada  was  in  sixth  and  England  in  seventh  place, 
Sweden  in  eighth,  Hungary  in  ninth,  and  Norway  in  tenth. 
.  These  ten  countries  contributed  more  than  1 1 ,600,000  of  the 
13,500,000  or  all  but  1,900,000  of  our  foreign-born.  Their  propor- 
tion of  the  total  was  about  86  per  cent.  The  other  countries  or  geo- 
graphical and  political  divisions  represented  in  the  foreign-born 
population  of  the  United  States  in  19 10  were  Scotland,  Wales,  Den- 
mark, Holland,  Belgium,  Luxemburg,  Switzerland,  Portugal,  Spain, 
France,  Finland,  Roumania,  Bulgaria,  Servia,  Montenegro,  Turkey, 


PROBLEMS  OF  POPULATION  499 

Greece,  Newfoundland,  Cuba,  West  Indies,  Mexico,  Central  Amer- 
ica, South  America,  Japan,  China,  India,  Asia,  Africa,  Australia, 
Atlantic  Islands,  Pacific  Islands,  and  other  countries  not  specified. 

Religiously  they  are  believers  in  Roman  and  Greek  Catholicism, 
Protestantism  in  its  manifold  forms  and  variations,  Mohammedan- 
ism, Armenianism,  Buddhism,  Confucianism,  Judaism,  Shamanism, 
Islamism,  Shintoism,  and  hundreds  of  diversified  sects,  some  with 
such  strange  names  as  Chiah,  Sunni,  Parsee,  Nestorian,  Maronite, 
Druse,  Osmanlis,  Laotse,  and  so  on. 

Linguistically  they  are  German,  Dutch,  Scandinavian,  including 
ric,  Slavic,  including  Russian,  Serbo-Croatian,  Polish,  and  Bohe- 
Danish,  Norwegian,  and  Swedish,  Flemish,  English,  Gaelic,  Cym- 
mian ;  French,  Italian,  Spanish,  Roumanian,  Portuguese,  Rheto- 
Roman,  Greek,  Albanian,  Lithuanian,  Lettic,  Armenian,  Persian, 
Yiddish,  Semitic,  Turkish,  Finnish,  Magyar,  Chinese,  Japanese, 
Korean,  Mexican,  Spanish  American,  and  other  groups  distinguished 
by  the  language  they  speak.  Among  these  are  such  strange  and  un- 
familiar dialects  as  Friesian,  Thuringian,  Franconian,  Swabian, 
Alsatian,  Wallon,  Gascon,  Languedocian,  Rhodanian,  Catalan,  Gal- 
ego,  Friulan,  Gegish,  Toskish,  Pamir,  Caspian,  Syriac,  Aramaic, 
Shkipetar,  and  so  on. 

Some  conception  of  the  significance  of  the  numerical  strength 
of  the  foreign-born  in  the  United  States  is  gained  by  means  of  a 
few  simple  comparisons.  They  number  over  three  and  one-half 
millions  more  than  all  the  negro  population  of  the  entire  country. 
They  equal  more  than  twice  the  total  population,  and  nearly  three 
times  that  of  the  native,  of  the  six  New  England  States;  they  would 
populate  the  seven  states  of  Minnesota,  Iowa,  Missouri,  the  two 
Dakotas,  Nebraska,  and  Kansas,  with  their  present  density,  and  still 
have  an  extra  1,880,000;  they  supply  a  population  1,300.000  in  ex- 
cess of  the  total  found  today  in  the  South  Atlantic  division,  includ- 
ing, besides  the  District  of  Columbia,  also  Delaware,  Maryland,  the 
two  Virginias,  the  two  Carolinas,  Georgia,  and  Florida. 

Considering  the  native  population  only,  which  includes  also  the 
children  bom  here  of  foreign-born  parents,  our  total  foreign-born 
equals  all  the  natives  in  the  twenty-two  states  of  Maine,  New  Hamp- 
shire, Vermont,  Massachusetts,  Rhode  Island,  Connecticut,  Dela- 
ware, Florida,  the  two  Dakotas,  Kansas,  Montana,  Idaho,  Wyom- 
ing, Colorado,  New  Mexico,  Arizona,  Utah,  Nevada,  California, 
Oregon,  and  Washington. 


500  CURRENT  ECONOMIC  PROBLEMS 

224.     Immigration  in  a  Single  Year" 

BY   F.  A.  OGG 

It  is  not  easy  to  conceive  what  our  immigration  has  come  to  be. 
The  figures  are  too  stupendous  to  be  grasped  by  the  mind.  Let  one 
who  has  sat  in  the  magnificent  Stadium  at  Cambridge,  as  one  of  the 
40,000  spectators  at  a  Harvard- Yale  football  game,  reflect  that  if 
the  immigrants  entering  our  ports  during  the  fiscal  year  1906  were 
brought  together,  they  would  make  a  throng  twenty-five  and  a  half 
times  as  large  as  that  which  crowds  every  available  foot  of  space 
around  the  great  oval.  Let  him  consider  that  the  number  admitted 
in  this  twelvemonth  from  Norway  and  Sweden  alone  would  more 
than  fill  the  Stadiuip ;  that  the  number  from  Germany  would  do 
the  same ;  that  the  influx  from  Great  Britain  would  fill  it  two  and 
one-half  times.  That  from  Russia  would  fill  it  more  than  five  times ; 
that  from  Austria-Hungary  would  fill  it  more  than  six  times ; 
and  the  contributions  from  Italy  would  do  it  seven  times  with 
people  to  spare.  Let  him  further  call  to  mind  that,  on  the  average, 
the  Stadium  could  be  packed  with  the  aliens  who  are  landed  at  Ellis 
Island  every  seventeen  days  throughout  the  year. 

Then  let  him  consider  that  the  total  number  of  immigrants  ad- 
mitted in  1906  would  nearly  serve  to  populate  either  the  city  of 
Philadelphia,  or  the  cities  of  Boston  and  Baltimore  combined ;  that, 
in  fact  it  would  people  all  Maryland,  or  all  Nebraska,  or  the  whole 
region  occupied  by  Arizona,  New  Mexico,  Utah,  Idaho,  Wyoming, 
and  Montana.  These  six  states  and  territories  have  an  aggregate 
area  of  649,320  square  miles,  which  is  nearly  18  per  cent  of  the  total 
area  of  the  United  States. 

225.     The  Current  Status  of  Immigration^^ 

For  three  years  before  the  outbreak  of  the  war  the  United 
States  drew  more  than  1,000,000  immigrants  annually  from  foreign 
countries,  chiefly  from  Southeastern  Europe.  For  the  four  years  of 
the  war  the  average  increment  from  this  source  was  only  about 
260,000  yearly,  against  which  must  be  placed  an  average  annual 
loss  by  emigration  of  over  120,000. 

Note  the  following  comparisons:  There  arrived  in  1914,  1,218,- 
480  persons  from  overseas;  in  1915,  326,700;  in  1916,  298,826;  in 
1917,  295,403;  in  1918,  110,618.  There  departed  from  our  shores 
in  1914,  303,338;  in  1915,  204,074;  in  1916,  129,765 ;  in  1917,  66,277; 
in   1918,  94,585.     By  subtraction  we  get  the  net  grain   for   1914 

"  From  an  article  in  The  World's  Work,  XIV,  8879-S6.    Copyright,  1907. 

isAdapted  frorn  Problems  of  Industrial  Readjustment  in  the  United  States 
pp.  25-28.    Copyright  by  the  National  Industrial  Conference  Board,  1910. 


PROBLEMS  OF  POPULATION  501 

through  immigration  of  915,142;  in  1915,  of  122,626;  in  1916,  of 
169,061 ;  in  1917,  of  229,126;  and  in  1918,  of  16,033. 

In  other  words  the  great  stream  of  European  immigration  to  this 
country  was  abruptly  cut  down  by  the  war  to  less  than  one-third  of 
its  normal  volume.  In  this  way  a  theoretical  shortage  of  over 
2,000,000  workers  was  created  during  the  four-year  war  period. 
Obviously  it  is  a  question  of  importance  as  to  whether  this  flow  will 
be  promptly  resumed,  whether  it  will  continue  restricted,  or  whether 
there  will  be  a  great  outward  movement  of  workers  from  this 
country  to  their  native  lands. 

In  the  opinion  of  some  critics  the  enormous  task  of  rehabilita- 
tion in  Europe,  coupled  with  the  serious  reduction  in  man-power, 
will  for  a  long  time  preclude  the  resumption  of  immigration  on  any- 
thing like  the  pre-war  scale.  That  the  war  has  heavily  reduced  the 
labor  supply  of  Europe  is  apparent.  The  dead  alone  are  estimated 
at  7,000,000 ;  those  disabled  at  8,000,000  more.  Should  the  demand 
for  labor  in  Europe  be  normal,  such  reduction  in  man  power  would 
mean  an  acute  labor  shortage.  Against  this  reduction  must  be  con- 
sidered a  possible  reduction  in  purchasing  power,  and  consequently 
in  the  demand  for  commodities.  In  Russia  it  seems  certain  that 
there  will  be  no  great  increase  in  the  demand  for  employment. 
France  seems  able  to  utilize  all  her  labor  supply  and  to  draw  from 
other  countries.  In  Great  Britain  the  problem  depends  not  so  much 
on  home  consumption  as  on  ability  to  maintain  foreign  markets.  It 
is  complicated  because  of  the  great  increase  in  the  number  of  women 
employed  in  industry  during  the  war.  But  on  the  whole  a  large 
demand  for  British  labor  seems  a  reasonable  expectation.  In  Ger- 
many a  large  demand  for  labor  seems  probable  if  a  stable  govern- 
ment is  maintained. 

On  the  whole  no  immediate  resumption  of  immigration  from 
Europe  on  a  large  scale  seems  probable.  Indeed,  some  are  of  the 
opinion  that  an  exodus  of  laborers  from  the  United  States  in  con- 
siderable numbers  is  likely  to  occur.  An  estimate  made  by  the 
Chamber  of  Commerce  of  the  United  States  indicates  that  at  least 
a  million  people  are  disposed  to  leave  the  country.  Despite  high 
wages  here  and  unsettled  economic  and  political  conditions  abroad 
it  is  an  open  question  whether  many  foreigners  may  not,  because 
of  the  high  wages  they  have  earned  and  the  savings  they  have 
made,  seek  to  return  to  their  native  countries  where  their  savings 
are  at  a  premium. 

Immigration  and  emigration  are  also  in  large  measure  dependent 
upon  resumption  of  normal  transatlantic  steamship  service.  This  is 
not  likely  for  some  time.    Of  far  greater  consequence  is  the  attitude 


502  CURRENT  ECONOMIC  PROBLEMS 

of  European  governments  toward  their  emigration  policies;  this  is 
dependent  upon  considerations  of  economic,  fiscal,  and  military 
policy  still  undetermined. 

D.     IMMIGRATION  AND  INDUSTRIAL  DEVELOPMENT 
226.     Our  Industrial  Debt  to  Immigrants^'-' 

BY  PETER  ROBERTS. 

The  new  immigration  in  one  respect  differs  very  markedly  from 
the  old ;  the  percentage  of  farmers  and  farm  laborers  in  this  new 
stream  is  sixfold  what  it  was  in  the  old.  In  the  last  decade,  the 
countries  of  southeasetern  Europe  have  sent  us  two  and  a  half  mil- 
lion men,  who,  in  the  old  country,  were  tillers  of  the  soil ;  but  it  is 
safe  to  say  that  the  number  following  that  occupation  in  the  new 
world  is  insignificant.  They  are  employed  in  industrial  plants,  in 
which  their  labor  brings  quick  returns,  and  if  dissatisfied  with 
wages  and  conditions  they  can,  in  a  day,  pull  up  stakes  and  go 
elsewhere.  The  new  immigration  consequently  contains  more  un- 
skilled workers  than  the  old. 

America,  two  generations  ago,  was  an  agricultural  nation ;  to- 
day it  stands  in  the  van  of  the  industrial  nations  of  the  earth.  This 
marvelous  development,  the  astonishment  of  the  civilized  world, 
could  never  have  taken  place,  if  Europe  and  Asia  had  not  supplied 
the  labor  force.  From  1880  to  1905  the  total  capital  in  manufac- 
turing plants  increased  nearly  fivefold,  the  value  of  the  products 
increased  more  than  two  and  a  half  times,  and  the  labor  force  about 
doubled.  America  could  never  have  finished  its  transcontinental 
railroads,  developed  its  coal  and  ore  deposits,  operated  its  furnaces 
and  factories,  had  it  not  drawn  upon  Europe  for  its  labor  force  ; 
for  it  was  impossible  to  secure  "white  men"  to  do  this  work. 

American  industry  had  a  place  for  the  stolid,  strong,  submis- 
sive and  patient  Slav  and  Finn ;  it  needed  the  mercurial  Italian  and 
Roumanian;  there  was  much  coarse,  rough,  and  heavy  work  to  do 
in  mining  and  construction  camps ;  in  tunnel  and  railroad  building ; 
around  smelters  and  furnaces,  etc.,  and  nowhere  in  the  world  could 
employers  get  laborers  so  well  adapted  to  their  need,  as  in  the  coun- 
tries of  southeastern  Europe. 

Louis  N.  Hammerling,  president  of  the  American  Association 
of  Foreign  Newspapers,  appearing  before  the  Federal  Commission 
on  Immigration,  said:  (i)  Sixty-five  per  cent  of  the  farmers 
owning  farms  and  working  as  farm  laborers  are  people  who  came 

i^Adapted  from  The  New  Immigration,  pp.  49-62.  Copyright  by  the  Mac- 
millan  Co.,  1912. 


PROBLEMS  OF  POPULATION  503 

from  Europe  during  the  last  thirty  years.  (2)  Of  the  890,000 
miners,  mining  the  coal  to  operate  the  great  industries,  630,000 
are  our  people.  (3)  Of  the  580,000  steel  and  iron  workers  em- 
ployed in  the  dififerent  plants  throughout  the  United  States,  69  per 
cent,  according  to  the  latest  statistics  of  the  steel  and  iron  indus- 
tries, are  our  people.  (4)  Ninety  per  cent  of  the  labor  employed 
for  the  last  thirty  years  in  building  the  railways  has  been  furnished 
by  our  immigrant  people,  who  are  now  keeping  the  same  in  repair. 

The  census  of  1900  showed  that  75  per  cent  of  the  tailors  of  the 
country  were  foreign  born.  The  investigation  of  the  Immigration 
Commission  showed  72.2  per  cent  of  the  workers  in  the  clothing 
trades  foreign-born,  and  another  22.4  per  cent  was  made  up  of 
the  children  of  foreign-born  parents ;  thus  94.6  per  cent  of  the  men 
and  women  who  manufacture  ready-made  garments  are  of  foreign 
parentage. 

Wherever  unskilled  work  is  needed,  the  foreigner  is  the  one 
who  does  it.  He  is  the  toiler,  the  drudge,  the  "choreman."  In  the 
slaughtering  and  meat-packing  industry,  the  foreign-born  comprise 
about  60  per  cent  of  the  labor  force,  but  if  you  want  to  locate  the 
sons  of  the  new  immigration  in  a  plant  of  this  character,  you  must 
descend  to  the  pits  where  the  hides  are  cured,  generally  located  in 
dark  and  damp  basements.  Go  to  the  fertilizing  plant  where  the 
refuse  of  the  slaughter  house  is  assembled,  and  amid  the  malodor- 
ous smells  which  combine  into  one  rank  stench  tabooed  by  all  Eng- 
lish-speaking men,  you  find  the  foreigner.  Go  to  the  soap  depart- 
ment, where  the  fats  are  reduced  and  the  alkalis  are  mixed — a  place 
you  smell  from  afar  and  wish  to  escape  from  as  soon  as  possible, 
and  there  the  foreigner  is  found.  These  disagreeable  occupations 
"white  people"  have  forsaken,  and  the  sons  of  the  new  immigration 
do  the  work  uncomplainingly  for  $1.50  a  day. 

Wherever  digging,  excavating,  constructing,  machine  molding, 
and  mining  go  on,  there  we  find  the  foreign-born.  The  patient, 
willing,  and  constant  labor  of  the  Italians  made  possible  the  sub- 
ways of  the  great  metropolis  of  the  nation ;  the  Bronx  Sewer  was 
dug  by  Italians,  Austrians,  and  Russians.  These  are  the  workers 
who  enlarge  the  Barge  Canal  and  build  the  Aqueduct  to  carry  an 
adequate  supply  of  water  to  the  millions  of  New  York  City.  In 
lumber  camps,  in  mine  patches,  in  railroad  construction  work,  the 
foreigner  is  found.  He  displaces  colored  labor  in  construction 
camps  in  the  South ;  and,  in  the  West,  he  does  the  unskilled  labor 
unless  a  legal  barrier  has  been  erected  to  keep  him  out.  The  labor 
force  in  the  woods  of  Michigan  and  Minnesota,  of  Maine  and  Ver- 
mont, is  preponderatingly  made  up  of  foreigners. 


504  CURRENT  ECONOMIC  PROBLEMS 

The  aliens  are  the  backbone  of  the  mining  industry.  Calumet, 
in  the  northern  peninsula  of  Michigan,  is  a  foreign  city  of  45,000 
souls.  There  are  sixteen  different  nationalities  represented  on  the 
public  school  teaching  force,  and  the  pupils  in  the  high  school 
represent  twenty  different  races.  It  is  difficult  to  find  an  Amer- 
ican in  the  place.  If  you  want  to  find  the  native-born,  you  must 
go  to  Houghton,  the  capital  of  the  county,  where  the  doctors  and 
lawyers,  engineers  and  professors,  retired  capitalists  and  the  leisure 
class  live,  and  it  is  the  same  in  the  mining  camps  all  through  this 
upper  peninsula  of  Michigan.  The  men  who  dig  the  ore,'  load  it  and 
clean  it,  who  burn  the  powder  and  remove  the  rock,  who  crawl 
through  dog  holes  and  climb  numberless  ladders,  are  foreigners. 
The  only  crowd  met  with  in  the  territory  not  of  foreign  parent- 
age are  the  young  college  graduates,  incipient  civil  engineers,  who 
put  into  practice  the  theories  they  were  taught  at  college.  The  same 
is  true,  generally  speaking,  of  the  coal-mining  industry. 

The  United  States  owes  much  to  the  man  of  the  new  immigra- 
tion. No  true  American  will  withhold  the  meed  of  praise  due  this 
man.  The  consensus  of  opinion  of  superintendents  and  foremen 
who  have  used  these  men  is  that  they  have  played  their  part  with  a 
devotion,  amiability,  and  steadiness  not  excelled  by  men  of  the  old 
immigration. 

227.     The  Manna  of  Cheap  Labor-'' 

BY  EDWARD  ALSW  ORTH  ROSS 

It  is  not  as  cargo  that  the  immigrant  yields  his  biggest  dividends. 
But  for  him  we  could  not  have  laid  low  the  many  forests,  dug  up  so 
much  mineral,  set  going  so  many  factories,  or  built  up  such  an  export 
trade  as  we  have.  In  most  of  our  basic  industries  the  new  immi- 
grants constitute  at  least  half  the  labor  force.  Although  millions 
have  come  in  there  is  no  sign  of  supersaturation,  no  progressive 
growth  of  lack  of  employment.  Somehow  new  mines  have  been 
opened  and  new  mills  started  fast  enough  to  swallow  them  up.  Vir- 
tually all  of  them  are  at  work  and,  what  is  more,  at  work  in  an  effi- 
cient system,  under  intelligent  direction.  Janko  produces  more  than 
he  did  at  home,  consumes  more,  and,  above  all,  makes  more  profit 
for  his  employer  than  the  American  he  displaces.  Thanks  to  him 
we  have  bigger  outputs,  tonnages,  trade  balances,  fortunes,  tips,  and 
ahmonies ;  also  bigger  slums,  red-light  districts,  breweries,  hospitals, 
and  death  rates. 

To  the  employer  of  unskilled  labor  this  flow  of  aliens,  many  of 
them  used  to  dirt  floors,  a  vegetable  diet,  and  child  labor,  and  ignor- 

^^J^dapted    from    "The    Old    World    in   the    New,"    Century   Magazine, 
LAXXVll,  29.    Copyright,  1913. 


PROBLEMS  OF  POPULATION  505 

ant  of  underclothing,  newspapers,  and  trade  unions,  is  like  a  rain  of 
manna.  For,  as  regards  foreign  competition,  his  own  position  is  a 
Gibrahar.  Our  tariff  has  been  designed  to  protect  him.  Thus  as 
long  as  he  stays  in  his  home  market,  the  American  mill  owner  is 
shielded  from  foreign  competition,  while  the  common  labor  he  re- 
quires is  cheapened  for  him  by  the  endless  inflow  of  the  neediest, 
meekest  laborers  to  be  found  within  the  white  race.  If  in  time  they 
become  ambitious  and  demanding,  there  are  plenty  of  "greenies" 
he  can  use  to  teach  them  a  lesson.  The  "Hunkies"  pay  their  "bit" 
to  the  foreman  for  the  job,  are  driven  through  the  twelve-hour  day, 
and  in  time  are  scrapped  with  as  little  concern  as  one  throws  away 
a  thread-worn  bolt.  A  plate  mill  which  had  experienced  no  tech- 
nical improvement  in  ten  years  doubled  its  production  per  man  by 
driving  the  workers.  No  wonder  then  that  in  the  forty  years  the 
American  capitalist  has  had  Aladdin's  lamp  to  rub,  his  profits  from 
mill  and  steel  works,  from  packing-house  and  glass  factory,  have 
created  a  sensational  "prosperity"  of  which  a  constantly  diminish- 
ing part  leaks  down  to  the  wage-earners.  Nevertheless,  the  system 
which  allows  the  manufacturer  to  buy  at  a  semi-I£uropcan  wage 
much  of  the  labor  that  he  converts  into  goods  to  sell  at  an  American 
price  has  been  maintained  as  "the  protection  of  American  labor!" 

E.     IMMIGRATION  AND  LABOR  CONDITIONS 
228.     The  Elevation  of  the  Native  Laborer-' 

BY   WILLIAM   S.   ROSSITER 

It  must  not  be  overlooked  that  society  in  the  United  States  has 
been  so  constructed  as  to  depend  upon  the  continued  arrival  of 
large  numbers  of  foreigners.  In  consequence,  labor  conditions  pre- 
vailing in  this  nation  differ  radically  from  those  which  prevail  in 
most  of  the  countries  of  Europe,  where  all  ecomonic  requirements 
are  met  by  natives.  In  England,  in  France,  or  in  Germany,  for 
example,  the  man  who  sweeps  the  streets,  the  laborer  upon  public 
works  or  in  mines,  and  the  woman  who  cooks  or  performs  other 
domestic  duties,  are  as  truly  native  as  the  ruler  of  the  nation  or  the 
statesmen  who  guide  its  destinies.  In  the  United  States,  the  man 
who  sweeps  the  streets,  who  labors  ui)on  public  works,  in  mines  or 
on  railroads,  and  the  woman  engaged  in  domestic  service,  if  white, 
are  almost  all  of  foreign  birth.  The  native  cook  has  learned  to 
regard  such  callings  as  menial  and  hence  as  lowering  to  self-respect. 
Having  accepted  the  education  and  oportunity  which  the  Republic 

2iAdapted  from  "A  Common-Sense  View  of  the  Immigration  Problem," 
North  American  Review,  CLXXXVIII,  368-71.    Copyright,  1908. 


5o6  CURRENT  ECONOMIC  PROBLEMS 

offers  them,  native  Americans  appear  to  consider  that  they  are  un- 
true to  themselves  if  they  do  not  avoid  humble  occupations  and 
seek  those  regarded  as  an  advance  in  the  social  scale.  There  is, 
therefore,  a  constant  movement  away  from  the  lower  callings  toward 
the  higher;  and  occupants  for  the  places  thus  vacated  are  recruited 
from  foreigners.  They  in  their  turn  become  imbued  with  the 
American  idea,  acquire  confidence  and  develop  ambition,  and  their 
children  abandon  to  newer  arrivals  the  callings  which  supported 
their  parents.  Evidence  of  this  continued  movement  upward  is  seen 
in  the  unwillingness,  not  only  of  the  native  stock  but  of  the  chil- 
dren of  the  foreign  element,  to  continue  in  the  servant  or  so-called 
menial  classes,  and  in  the  determination  on  the  part  of  young  women 
to  become  shopgirls,  telephone-operators,  typewriters  and  shop  and 
factory  operatives,  oftentimes  at  the  penalty  of  severe  privation, 
rather  than  to  go  out  to  service. 

This  tendency  creates  the  problem  of  a  constant  shortage  of 
workers  in  the  humbler  callings.  These  callings  in  themselves  are 
as  necessary  in  a  republic  as  in  an  empire.  Therefore  workers  in 
such  occupations  must  in  the  future,  as  in  the  past,  continue  to  be 
recruited  from  abroad,  or  else  a  large  number  of  native  Americans, 
and  children  of  foreign  parents,  must  be  contented  to  labor  un- 
complainingly in  the  lower  walks  of  life.  It  is  possible  that  the 
former  condition  may  continue  indefinitely,  but  it  unquestionably 
tends  toward  instability,  for  a  nation  which  permanently  meets  by 
importation  its  demand  for  workers  is,  in  a  sense,  artificially  con- 
structed. 

When  the  young  United  States  started  upon  a  career  of  inde- 
pendence, the  inhabitants  concentrated  their  efforts  upon  the  de- 
velopment of  national  resources.  They  prayed  for  wealth,  and 
Providence  gave  them  the  immigrant  as  the  means  of  securing  it. 
After  the  lapse  of  a  century,  our  success  surpasses  the  wildest 
dreams  of  our  ancestors;  the  United  States  has  grown  marvelously 
in  numbers,  and  has  obtained  a  prosperity  unprecedented  in  the 
history  of  the  world. 

It  is  unlikely  that  our  portals,  thus  far  ever  open  to  the  aliens  of 
all  Europe,  will  be  closed  to  them  until  it  has  been  conclusively 
shown  that  the  existence  of  the  nation  is  imperiled  by  their  coming, 
or  until  large  numbers  of  worthy  and  industrious  American  citizens 
are  obviously  deprived  of  their  means  of  livelihood  by  the  arriving 
throngs  of  foreigners.  At  the  present  time  there  is  nothing  which 
points  to  the  realization  of  these  conditions ;  and,  until  there  is,  dis- 
cussion concerning  the  restriction  is  in  reality  idle.  Therefore  let  us 
be  practical,  nursing  no  delusions,  and  face  conditions  as  they  are. 


PROBLEMS  OF  POPULATION  507 

We  have  always  needed  the  immigrant  to  aid  us  in  amassing 
wealth,  and  we  shall  need  him  in  the  future,  for  the  United  States 
has  now  become  the  great  labor  mart  of  the  world. 

229.     The  Industrial  Menace  of  the  Immigrant" 

BY  EDWARD  ALSWORTH  ROSS 

The  facts  assembled  by  the  Immigration  Commission  shatter 
the  rosy  theory  that  foreign  labor  is  drawn  into  an  industry  only 
when  native  labor  is  not  to  be  bad.  The  Slavs  and  Magyars  were 
introduced  into  Pennsylvania  forty-odd  years  ago  by  mine  operators 
looking  for  more  tractable  miners.  Agents  were  sent  abroad  to 
gather  up  labor,  and  frequently  foreigners  were  brought  in  when  a 
strike  was  on.  The  first  instance  seems  to  have  occurred  at  Drifton 
in  1870  and  resulted  in  the  importation  of  two  shiploads  of  Hun- 
garians. In  1904,  during  a  strike  in  the  coal-fields,  near  Birming- 
ham, Alabama,  many  southern  Europeans  were  brought  in.  In  1908 
"the  large  companies  imported  a  number  of  immigrants,"  so  that 
the  strike  was  broken  and  unionism  destroyed  in  that  region.  Dur- 
ing the  1907  strike  in  the  iron  mines  of  northern  Minnesota,  "one 
of  the  larger  companies  imported  large  numbers  of  Montenegrins 
and  other  Southeastern  races  as  strike-breakers." 

The  hegira  of  the  English-speaking  soft-coal  miners  shows  what 
must  happen  when  low-standard  men  undercut  high-standard  men. 
The  miners  of  Pennsylvania  and  West  Virginia,  finding  their  unions 
wrecked  and  their  lot  growing  worse  under  the  floods  of  men  from 
southern  and  eastern  Europe,  migrated  in  great  numbers  to  the  Mid- 
dle West  and  the  Southwest.  But  of  late  the  coal  fields  of  the  Mid» 
die  West  have  been  invaded  by  multitudes  of  Italians,  Croatians, 
and  Lithuanians,  so  that  even  here  American  and  Americanized 
miners  have  their  backs  to  the  wall.  As  for  the  displaced  trade- 
unionists  who  sought  asylum  in  the  mines  of  Oklahoma  and  Kansas, 
the  pouring  in  of  raw  immigrants  has  weakened  their  bargaining 
power,  and  many  have  gone  on  to  make  a  last  stand  in  the  mines  of 
New  Mexico  and  Colorado. 

Each  exodus  left  behind  an  inert  element  which  accepted  the 
harder  conditions  that  came  in  with  the  immigrants,  and  a  strong 
element  that  rose  to  better  conditions  in  the  mines  and  in  other  occu- 
pations. As  for  the  displaced,  the  Iliad  of  their  woes  has  never  been 
sung — the  loss  of  homes,  the  shattering  of  hopes,  the  untimely  set- 
ting to  work  of  children,  the  struggle  for  a  new  foothold,  and  the 

22Adapted  from  "The  Old  World  in  the  New,"  Century  Magazine, 
LXXXVII,  pp.  29-33.    Copyright,  1913. 


5o8  CURRENT  ECONOMIC  PROBLEMS 

turning  of  thousands  of  self-respecting  men  into  day  laborers,  odd- 
job  men,  down-and-outers,  and  "hobos." 

During  the  last  fifteen  years  the  flood  of  gold  has  brought  in  a 

spring-tide  of  prices.  Since  1896  the  retail  cost  to  Americans  of 
their  fifteen  principal  articles  of  food  has  risen  70  per  cent.  Wages 
should  have  risen  in  like  degree  if  the  workman  is  to  maintain  his 
old  standard,  to  say  nothing  of  keeping  his  place  in  a  social  proces- 
sion which  is  continually  mounting  to  higher  economic  levels.  But 
the  workingman  has  been  falling  behind  in  the  procession.  In  the 
soft-coal  fields  of  Pennsylvania,  where  the  Slav  dominates,  the  coal- 
worker  receives  42  cents  a  day  less  than  the  coal-worker  in  the 
mines  of  the  Middle  West  and  Southwest,  where  he  does  not  domi- 
nate. In  meat-packing,  iron  and  steel,  cotton  manufacture,  and  other 
foreignized  industries  the  inertia  of  wages  has  been  very  marked. 
The  presence  of  the  immigrant  has  prevented  a  wage  advance  which 
otherwise  must  have  occurred. 

What  a  college  man  saw  in  a  copper  mine  in  the  Southwest  gives 
in  a  nutshell  the  logic  of  low  wages.  The  American  miners  getting 
$2.75  a  day  are  abruptly  displaced  without  a  strike  by  a  train  load 
of  five  hundred  raw  Italians  brought  in  by  the  company  and  put  to 
work  at  from  $1.50  to  $2.00  a  day.  For  the  Americans  there  is 
nothing  to  do  but  to  "go  down  the  road."  At  first  the  Italians  live 
on  bread  and  beer,  never  wash,  wear  the  same  filthy  clothes  night 
and  day,  and  are  despised.  After  two  or  three  years  they  want  to 
live  better,  wear  decent  clothes,  and  be  respected.  They  ask  for 
more  wages,  the  bosses  bring  in  another  train  load  from  the  steer- 
age, and  the  partly  Americanized  Italians  follow  the  American 
miners  "down  the  road." 

"The  best  we  get  in  the  mill  now  is  greenhorns,"  said  the  super- 
intendent of  a  tube  mill.  "When  they  first  come,  they  put  their  heart 
into  it  and  give  a  full  day's  work.  But  after  a  while  they  begin  to 
shirk  and  do  as  little  as  they  dare."  It  is  during  this  early  innocence 
that  the  immigrant  accepts  conditions  that  he  ought  to  spurn.  The 
same  mill  had  to  break  up  the  practice  of  selling  jobs  by  foremen. 
On  the  Great  Northern  Railroad  the  bosses  mulcted  each  Greek 
laborer  a  dollar  a  month  for  interpreter.  The  "bird  of  passage" 
who  comes  here  to  get  ahead  rather  than  to  live,  not  only  accepts  his 
seven-day  week  and  the  twelve-hour  day,  but  often  demands  them. 
Big  earnings  blind  him  to  the  cost  of  overwork.  It  is  the  American 
or  the  half- Americanized  foreigner  who  rebels  against  the  eighty- 
four-hour  schedule. 

When  capital  plays  lord  of  the  manor,  the  Old  World  furnishes 
the  serfs.    In  some  coal  districts  of  West  Virginia  the  land,  streets. 


PROBLEMS  OF  POPULATION  509 

paths,  roads,  and  miners'  cabins,  the  store,  the  school,  and  the 
church  are  all  owned  by  the  coal  company.  The  company  pays  the 
teacher,  and  no  priest  or  clergyman  objectionable  to  it  may  remain 
on  its  domain.  One  may  not  step  off  the  railroad's  right  of  way, 
pass  through  the  streets,  visit  mine  or  cabin,  without  permission. 
There  is  no  place  where  miners  meeting  to  discuss  their  grievances 
may  not  be  dispersed  as  trespassers.  Any  miner  who  talks  against 
his  boss  or  complains  is  promptly  dismissed  and  ejected  from  the 
35,000  acres  of  company  land.  Hired  sluggers,  known  as  the 
"wrecking-gang,"  beat  up  or  even  murder  the  organizer  who  tries 
to  reach  the  miners.  It  is  needless  to  say  that  the  miners  are  all 
negroes  or  foreigners. 

After  an  industry  has  been  foreignized,  the  notiqn  becomes  fixed 
in  the  minds  of  the  bosses  that  without  the  immigrants  the  industry 
would  come  to  a  standstill.  "If  it  wasn't  for  the  Slavs,"  say  the 
superintendents  of  Mesaba  mines,  "we  couldn't  get  out  this  ore  at 
all,  and  Pittsburgh  would  be  smokeless.  You  can't  get  on  American 
to  work  here  unless  he  runs  a  locomotive  or  a  steam  shovel.  We've 
tried  it;  brought  'em  in  carloads  at  a  time,  and  they  left." 

"Wouldn't  they  stay  for  $3.00  a  day  ?"  I  suggested. 

"No,  it's  not  a  matter  of  pay.  Somehow  Americans  nowadays 
aren't  any  good  for  hard  or  dirty  work." 

Hard  work !  And  I  think  of  Americans  I  have  seen  in  their  last 
asylum  of  the  native-born,  the  far  West,  slaving  with  ax  and  hook, 
hewing  logs  for  a  cabin,  ripping  out  boulders  for  a  road,  digging 
irrigation  ditches,  drilling  the  granite,  or  timbering  the  drift — 
Americans  shying  at  open-pit,  steam-shovel  mining ! 

The  secret  is  that  with  the  insweep  of  the  unintelligible  bunk- 
house  foreigner  there  grows  up  a  driving  and  cursing  of  labor  that 
no  self-respecting  American  will  endure.  Nor  can  he  bear  to  be 
despised  as  the  foreigner  is.  It  is  not  the  work  or  the  pay  that  he 
minds,  but  the  stigma.  That  is  why,  when  a  labor  force  has  come 
to  be  mostly  Slav,  it  will  be  all  Slav.  But  if  the  supply  of  raw  Slavs 
were  cut  off,  the  standards  and  status  of  the  laborers  would  rise,  and 
the  Americans  would  come  into  the  industry. 

Does  the  man  the  immigrant  displaces  rise  or  sink?  The  theory 
that  the  immigrant  pushes  him  up  is  not  without  some  color  of  truth. 
In  Cleveland  the  American  and  German  displaced  iron-mill  workers 
seem  to  have  been  absorbed  in  other  growing  industries.  They  are 
engineers  and  firemen,  bricklayers,  carpenters,  structural  iron  work- 
ers, steamfitters,  plumbers,  and  printers.  Leaving  pick  and  wheel- 
barrow to  Italian  and  Slav,  the  Irish  are  now  meter-readers,  wire- 
stringers,  conductors,  motormen,  porters,  caretakers,  night  watch- 


510  CURRENT  ECONOMIC  PROBLEMS 

men,  and  elevator  men.  I  find  no  sign  that  either  the  displaced  work- 
men or  his  sons  have  suffered  from  the  advent  of  Pole  and  Magyar. 
On  the  other  hand,  in  Pittsburgh  and  vicinity,  the  new  imnn'gration 
has  been  like  a  flood  sweeping  away  the  jobs,  homes,  and  standards 
of  great  numbers,  and  obliging  them  to  save  themselves  by  accepting 
poorer  employment  or  fleeing  to  the  West.  The  cause  of  the  differ- 
ence is  that  Pittsburgh  held  to  the  basic  industries,  while  in  Cleveland 
numerous  high-grade  manufacturers  started  up  which  absorbed  the 
displaced  workmen  into  the  upper  part  of  the  laboring  force. 

Unless  there  is  some  collateral  growth  of  skill-demanding  indus- 
tries, the  new  immigrants  bring  disaster  to  many  of  the  workingmen 
they  undercut.  The  expansion  of  the  industry  will  create  some  new 
jobs,  but  not  enough  to  reabsorb  the  Americans  displaced.  Thus 
in  the  iron  mines  of  Minnesota,  out  of  the  seventy-five  men  kept 
busy  by  one  steam  shovel,  only  thirteen  get  $2.50  a  day  or  more,  and 
$2.50  is  the  least  that  will  maintain  a  family  on  the  American  stand- 
ard. It  is  plain  that  the  advent  of  sixty-two  cheap  emigrants  might 
displace  sixty-two  Americans,  while  it  would  create  only  thirteen 
decent- wage  jobs  for  them.  Scarcely  any  industry  can  grow  fast 
enough  to  reabsorb  into  skilled  or  semi-skilled  positions  the  displaced 
workmen. 

Employers  observe  a  tendency  for  employment  to  become  more 
fluctuating  and  seasonal  because  of  access  to  an  elastic  supply  of 
aliens,  without  family  or  local  attachments,  ready  to  go  anywhere 
or  to  do  anything.  In  certain  centers  immigrant  laborers  form,  as 
it  were,  visible  living  pools  from  which  the  employer  can  dip  as  he 
needs.  Why  should  he  smooth  out  his  work  evenly  throughout  the 
year  in  order  to  keep  a  labor  force  composed  of  family  men  when 
he  can  always  take  "ginnies"  without  trouble  and  drop  them  with- 
out compunction?  Railroad  shops  are  coming  to  hire  and  to  "fire" 
men  as  they  need  them  instead  of  relying  upon  the  experienced 
regular  employees.  In  a  concern  that  employs  30,000  men  the  rate 
of  change  is  100  per  cent  a  year  and  is  increasing.  Labor  leaders 
notic^e  that  employment  is  becoming  more  fluctuating,  that  there  are 
fewer  steady  jobs,  and  the  proportion  of  men  who  are  justified  in 
founding  a  home  diminishes. 

230.     Immigration  and  Unionism^^ 

BY   W.  JETT  LAUCK 

A  significant  result  of  the  extensive  employment  of  southern  and 
eastern   Europeans  in  mining  and  manufacturing  is   seen   in   the 

23Adapted  from  "The  Real  Significance  of  Recent  Immigration,"  North 
American  Review,  CXCV,  2008-9.    Copyright,  1912. 


PROBLEMS  OF  POPULATION  511 

general  weakening  and,  in  some  instances,  in  the  entire  demoraliza- 
tion of  the  labor  organizations  which  were  in  existence  before  the 
arrival  of  the  races  of  recent  immigration.  This  condition  of 
afifairs  has  been  due  to  the  inability  of  the  labor-unions  to  absorb 
within  a  short  time  the  constantly  increasing  number  of  new  arrivals.^ 
The  southern  and  eastern  Europeans,  as  already  pointed  out,  be- 
cause of  their  tractability,  their  lack  of  industrial  experience  and 
training,  and  their  necessitous  condition  on  applying  for  work,  have 
been  willing  to  accept,  without  protest,  existing  conditions  of  em- 
ployment. Their  desire  to  earn  as  large  an  amount  as  possible 
within  a  limited  time  has  also  rendered  the  recent  immigrant  averse 
to  entering  into  strikes  which  involved  a  loss  of  time  and  a  decrease 
in  earnings.  The  same  kind  of  thriftiness  has  led  the  immigrant 
wage-earner  to  refuse  to  maintain  his  membership  in  the  labor- 
unions  for  an  extended  period  and  has  consequently  prevented  the 
complete  unionization  of  certain  occupations  in  some  cases,  and,  in 
others,  the  accumulation  of  a  defense  fund  by  the  labor  organiza- 
tions. The  high  degree  of  illiteracy  among  recent  immigrants  and 
the  inability  of  the  greater  number  of  them  to  speak  English  have 
also  caused  their  organization  into  unions  by  the  native  Americans 
and  older  immigrants  to  be  a  matter  of  large  expense.  The  diffi- 
culty of  the  situation,  from  the  standpoint  of  the  labor  organizations, 
is  further  increased  by  the  conscious  policy  of  the  employers  of 
mixing  races  in  certain  departments  or  divisions  of  industries  and 
thus  decreasing  the  opportunities  for  any  concerted  action  because 
of  a  diversity  of  language  in  the  operating  forces.  In  mining  oper- 
ations, by  way  of  illustration,  in  many  sections,  no  one  race  is  per- 
mitted to  secure  a  controlling  number  in  the  operating  forces  of  a 
single  mine  or  mining  occupation  because  of  the  fear  that  a  common 
language  would  enable  them  to  be  readily  organized  for  the  purpose 
of  seeking  redress  for  real  or  fancied  grievances. 

F.     RESTRICTION  OF  IMMIGRATION 
231.     A  Protest  against  Immigration-* 

Resolved,  That  the  unprecedented  movement  of  the  very  poor 
to  America  from  Europe  in  the  last  three  years  has  resulted  in 
wholly  changing  the  previous  social,  political,  and  economic  aspects 
of  the  immigration  question.  The  enormous  accessions  to  the  ranks 
of  our  competing  wage-workers,  being  to  a  great  extent  unemployed, 

2*  These  resolutions  were  adopted  by  the  Executive  Board  of  the  United 
Garment  Workers  in  America  after  an  unsuccessful  strike  in  New  York  in 
1905.    The  members  of  this  trade  are  very  largely  Russian  Jews. 


512  CURRENT  ECONOMIC  PROBLEMS 

or  only  partly  employed  at  uncertain  wages,  are  lowering  the  stand- 
ard of  living  among  the  masses  of  the  working  people  of  this  coun- 
try, without  giving  promise  to  uplift  the  great  body  of  immigrants 
themselves.  The  overstocking  of  the  labor  market  has  become  a 
menace  to  many  trade-unions,  especially  those  of  the  less  skilled 
workers.  Little  or  no  benefit  can  possibly  accrue  to  an  increasing 
proportion  of  the  great  numbers  yet  coming;  they  are  unfitted  to 
battle  intelligently  for  their  rights  in  this  republic,  to  whose  present 
burdens  they  but  add  others  still  greater.  The  fate  of  the  majority 
of  the  foreign  wage- workers  now  here  has  served  to  demonstrate  on 
the  largest  possible  scale  that  immigration  is  no  solution  of  the  world- 
wide problem  of  poverty. 

Resolved,  That  we  warn  the  poor  of  the  earth  against  coming  to 
America  with  false  hopes ;  it  is  our  duty  to  inform  them  that  the 
economic  situation  in  this  country  is  changing  with  the  same  rapidity 
as  the  methods  of  industry  and  commerce. 

232.     An  Immigration  Program-'^ 

As  a  result  of  the  investigation  the  Commission  is  of  the  opin- 
ion that  in  legislation  emphasis  should  be  laid  on  the  following  prin- 
ciples : 

1.  While  the  American  people  welcome  the  oppressed  of  other 
lands,  care  should  be  taken  that  immigration  be  such  in  quantity 
and  quality  as  not  to  make  too  difficult  the  process  of  assimilation. 

2.  Further  general  legislation  concerning  the  admission  of  im- 
migrants should  be  based  primarily  upon  economic  or  business  con- 
siderations touching  the  prosperity  and  economic  well-being  of  our 
people. 

3.  The  measure  of  the  healthy  development  of  a  country  is  not 
the  extent  of  its  investment  of  capital,  its  output  of  products,  or  its 
imports  and  exports,  unless  there  is  a  corresponding  economic  oppor- 
tunity afforded  to  the  citizen  dependent  upon  employment  for  his 
material,  mental,  and  moral  development. 

4.  A  slow  expansion  of  industry  which  permits  the  adaptation 
and  assimilation  of  the  incoming  labor  supply  is  preferable  to  a  very 
rapid  industrial  expansion  which  results  in  the  immigration  of  labor- 
ers of  low  standards  and  efficiency,  who  imperil  the  American  stand- 
ard of  wages  and  conditions  of  employment. 

The  investigations  of  the  Commission  show  an  oversupply  of 
unskilled  labor  in  the  basic  industries  of  the  country  as  a  whole, 

25A(japj-g(j  from  A  Brief  Statement  of  the  Conclusions  and  Recommenda- 
tions of  the  Immigration  Commission  (1910),  pp.  37-40. 


PROBLEMS  OF  POPULATION  513 

and  therefore  demand  legislation  which  will  at  the  present  time  re- 
strict the  further  admission  of  such  unskilled  labor.  It  is  desirable 
in  making  these  restrictions  that : 

a)  A  sufficient  number  be  debarred  to  produce  a  marked  effect 
upon  the  present  supply  of  unskilled  labor. 

b)  That  aliens  excluded  should  be  those  who  come  to  this  coun- 
try with  no  intention  to  become  American  citizens,  but  merely  to 
save  and  return  to  their  own  country. 

c)  The  aliens  excluded  should  be  those  who  would  least  readily 
be  assimilated. 

The  following  methods  of  restricting  immigration  have  been 
suggested : 

a)  The  exclusion  of  those  unable  to  read  or  write  in  some  lan- 
guage. 

b)  The  limitation  of  the  number  of  each  race  arriving  each  year 
to  a  certain  percentage  of  the  average  of  that  race  arriving  during 
a  given  period  of  years. 

c)  The  exclusion  of  unskilled  laborers  unaccompanied  by  wives 
or  families. 

d)  The  limitation  of  the  number  of  immigrants  arriving  an- 
nually at  any  port. 

e)  The  material  increase  in  the  amount  of  money  required  to 
be  in  the  possession  of  the  immigrant  at  the  port  of  arrival. 

f)  The  material  increase  in  the  head  tax. 

g)  The  levy  of  the  head  tax  so  as  to  make  a  marked  discrim- 
ination in  favor  of  men  with  families. 

A  majority  of  the  Commission  favor  the  reading  and  writing 
test  as  the  most  feasible  single  method  of  restricting  undesirable 
immigration. 

233.     The  Pro  and  Con  of  the  Literacy  Test 
a)     The  Necessity  for  the  Educational  Test^^ 

BY  p.  F.  HALL 

If  we  are  to  apply  some  further  method  of  selection  to  immi- 
grants what  shall  it  be  ?  It  must  be  a  definite  test.  For  one  trouble 
with  the  present  law  is  that  it  is  so  vague  and  elastic  that  it  can  be 
interpreted  to  suit  the  temper  of  any  of  the  higher  officials  who 
may  happen  to  be  charged  with  its  execution.  While  there  are 
many  exceptions,  those  persons  who  can  not  read  in  their  own  lan- 
guage are,  in  general,  those  who  are  also  ignorant  of  a  trade,  who 

2GAdapted  from  an  article  in  the  Annals  of  the  American  Academy  of 
Political  and  Social  Science,  XXIV,  183.    Copyright,  1904. 


514  CURRENT  ECONOMIC  PROBLEMS 

bring  little  money  with  them,  who  settle  in  the  city  slums,  who 
have  a  low  standard  of  living  and  little  ambition  to  seek  a  better, 
and  who  do  not  assimilate  rapidly  or  appreciate  our  institutions.  It 
is  not  claimed  that  an  illiteracy  test  is  a  test  of  moral  character, 
but  it  would  undoubtedly  exclude  a  good  many  persons  who  now 
fill  our  prisons  and  almshouses,  and  would  lessen  the  burden  on 
our  schools  and  machinery  of  justice.  In  a  country  having  uni- 
versal suffrage,  it  is  also  an  indispensable  requirement  for  citizen- 
ship, and  citizenship  in  its  broadest  sense  means  much  more  than 
the  right  of  the  ballot.  The  illiteracy  test  has  passed  the  Senate 
three  times  and  the  House  four  times  in  the  last  eight  years.  The 
test  has  already  been  adopted  by  the  Commonwealth  of  Australia 
and  by  British  Columbia,  and  would  certainly  have  been  adopted 
here  long  since  but  for  the  opposition  of  the  transportation  com- 
panies. 

b)     Pauperism  and  Illiteracy" 

BY   KATE   H.    CLAGHORN 

The  general  conclusions  to  be  drawn  with  regard  to  the  newer 
element  in  immigration  seem  to  be,  first,  that  among  them  the  un- 
skilled worker  gets  along  better  than  the  skilled,  and  the  illiterate 
than  the  literate.  This  is  not  to  say  that  skill  and  education  in  them- 
selves are  a  handicap  in  the  industrial  contest,  or  that  all  racial 
groups  with  a  large  proportion  of  illiterate,  unskilled  labor  get  along 
better  than  those  having  a  high  degree  of  literacy  and  a  larger  pro- 
portion of  skill. 

Industrial  success  in  this  country  depends  upon  adjustment  to 
conditions  here.  Some  groups  seem  to  find  suitable  openings  for 
skill  and  education.  But  on  the  whole  there  is  more  chance  for  the 
newcomer  into  any  social  aggregation  if  he  is  willing  to  begin  at 
the  bottom,  and  in  this  country,  in  particular,  there  is  less  demand 
for  skilled  labor  from  outside,  owing  to  the  fact  that  the  present 
inhabitants  are  willing  to  follow  these  lines  of  work  themselves,  but 
are  unwilling  to  occupy  themselves  in  unskilled  labor.  On  the  other 
hand  the  skill,  and  especially  the  education,  of  the  newer  European 
mmigrant  has.  been  directed  along  lines  that  do  not  suit  American 
conditions.  In  the  evolutionary  phrasing,  undifferentiated  social 
elements  can  more  easily  adapt  themselves,  by  specializing,  to  fit  a 
new  environment,  than  can  the  elements  which  have  been  already 
differentiated  to  fit  a  former  environment. 

27Adapted  from  an  article  in  the  Annals  of  the  American  Academy  of 
Political  and  Social  Science,  XXIV,  197-98.     Copyright,  1904. 


PROBLEMS  OF  POPULATION  515 

Any  restriction  of  immigration,  then,  that  is  based  on  an  edu- 
cational qualification,  would  be  meaningless  with  respect  to  the 
growth  of  pauperism.  Such  a  qualification  would,  among  the  newer 
immigrants  at  least,  let  in  the  class  which  though  small  is  the  most 
difficult  to  provide  for,  and  would  keep  out  the  class  that  can  best 
provide  for  itself. 

c)  From  the  Men  at  the  Gate^^ 

BY  LOUIS  S.  AMONDSON 

We've  dug  your  million  ditches,  We've  given  honest  labor, 

We've  built  your  endless  roads,  And  liked  our  humble  lot ; 
We've  fetched  your  wood  and  water,       Our  children  learn  the  letters 

And  bent  beneath  the  loads.  Their  fathers  haven't  got. 

We've  done  the  lowly  labor  We've  fled  from  persecution 

Despised  by  your  own  breed;  And  served  you  in  your  need. 

And  now  you  won't  admit  us  But  now  you  would  debar  us 

Because  we  cannot  read.  Because  we  can  not  read. 

Most  crooks  are  educated,  Good  friends,  if  we  are  brothers, 

And  to  the  manner  born;  Why  do  you  raise  this  test? 

Their  white  hands  show  no  callous,       Will  talk,  then,  till  your  acres 

They  look  on  us  with  scorn.  And  feed  your  people  best? 

Mere  learning  is  not  virtue,  Your  children  trained  as  idlers, 

The  word  is  not  the  deed.  Some  workers  you  must  need 

Disdain,  then,  not  your  toilers  Don't  bar  our  only  refuge 

Because  they  can  not  read.  Because  we  can  not  read. 

Your  farms  are  half  deserted. 

Up  goes  the  price  of  bread; 
Your  boasted  education 

Turns  men  to  clerks  instead. 
We  bring  our  picks  and  shovels 

To  meet  your  greatest  need ; 
Don't  shut  the  gate  upon  us 

Because  we  can  not  read. 

d)  Our  Immigration  PoHcy^^ 

BY  WOODROW  WILSON 

In  two  particulars  of  vital  consequence  this  bill  embodies  a 
radical  departure  from  the  traditional  and  long-established  policy 
of  this  country,  a  policy  in  which  our  people  have  conceived  the  very 
character  of  their  government  to  be  expressed,  the  very  mission 
and  spirit  of  the  nation  in  respect  of  its  relations  to  the  peoples 
of  the  world  outside  their  borders.    It  seeks  to  all  but  close  entirely 

28From  The  Square  Deal,  XII  (1913),  165-66. 

29Adapted  from  the  Message  of  the  President  of  the  United  States  Veto- 
ing H.  R.  6060,  63d  Cong.,  3d  sess.,  Document  1527,  3-4  (1915).  This  bill  pro- 
vided for  the  so-called  "literary  test"  for  admission  of  aliens  into  this  country. 
The  "Burnett-Smith  Immigration  Act"  was  passed  by  Congress,  over  the  veto 
of  the  President,  on  February  5,  1917.     It  became  operative  on  May  5,  1917. 


5i6  CURRENT  ECONOMIC  PROBLEMS 

the  gates  of  asylum  which  have  always  been  open  to  those  who 
could  find  nowhere  else  the  right  and  opportunity  of  constitutional 
agitation  for  what  they  conceived  to  be  the  natural  and  inalienable 
rights  of  men;  and  to  exclude  those  to  whom  the  opportunities  of 
elementary  education  have  been  denied,  without  regard  to  their 
character,  their  purposes,  or  their  natural  capacity. 

Restrictions  like  these  adopted  earlier  in  our  history  as  a  nation, 
would  very  materially  have  altered  the  course  and  cooled  the  human 
ardor  of  our  politics.  The  right  of  political  asylum  has  brought 
to  this  country  many  a  man  of  noble  character  and  elevated  purpose 
who  was  marked  as  an  outlaw  in  his  own  less  fortunate  land,  and 
who  has  yet  become  an  ornament  to  our  citizenship  and  to  our  public 
councils.  The  children  and  the  compatriots  of  these  illustrious 
Americans  must  stand  amazed  to  see  the  representatives  of  their 
nation  now  resolved,  in  the  fulness  of  our  national  strength  and  at 
the  maturity  of  our  great  institutions,  to  risk  turning  men  back  from 
our  shores  without  test  of  quality  or  purpose.  It  is  difficult  for  me 
to  believe  that  the  full  effect  of  this  feature  of  the  bill  was  realized 
when  it  was  framed  and  adopted,  and  it  is  impossible  for  me  to 
assent  to  it  in  the  form  in  which  it  is  here  cast. 

The  literacy  test  and  the  tests  and  restrictions  which  accompany 
it  constitutes  an  even  more  radical  change  in  the  policy  of  the  nation. 
Hitherto  we  have  generously  kept  our  doors  open  to  all  who  were 
not  unfitted  by  disease  or  incapacity  for  self-support  or  such  per- 
sonal records  or  antecedents  as  were  likely  to  make  them  a  menace 
to  our  peace  and  order  or  to  the  wholesome  and  essential  relation- 
ships of  life.  In  this  bill  it  is  proposed  to  turn  away  from  tests  of 
character  and  of  quality  and  impose  tests  which  exclude  and  re- 
strict; for  the  new  tests  here  embodied  are  not  tests  of  quality  or  of 
character  or  personal  fitness,  but  tests  of  opportunity.  Those  who 
come  seeking  opportunity  are  not  to  be  admitted  unless  they  have 
already  had  one  of  the  chief  opportunities  they  seek,  the  opportunity 
of  education. 

G.     THE  FUTURE  OF  THE  IMMIGRANT 

234.     The  Immigrant  an  Industrial  Peasant^" 

BY  H.   G.   WELLS 

Will  the  reader  please  remember  that  I've  been  just  a  few  weeks 
in  the  states  altogether,  and  value  my  impressions  at  that!  And 
will  he,  nevertheless,  read  of  doubts  that  won't  diminish.    I  doubt 

'"Adapted  frora  The  Future  in  America,  142-47.  Copyright  by  Harper  & 
Bros,  1906. 


PROBLEMS  OF  POPULATION  517 

very  much  if  America  is  going  to  assimilate  all  that  she  is  taking 
in  now ;  much  more  do  I  doubt  that  she  will  assimilate  the  still 
greater  inflow  of  the  coming  years.  I  believe  she  is  going  to  find 
infinite  difficulties  in  that  task.  By  "assimilate"  I  mean  make  intel- 
ligently co-operative  citizens  of  these  people.  She  will,  I  have  no 
doubt  whatever,  impose  upon  them  a  bare  use  of  the  English  lan- 
guage, and  give  them  votes  and  certain  patriotic  persuasions,  but 
I  believe  that  if  things  go  on  as  they  are  going  the  great  mass  of 
them  will  remain  a  very  low  class — will  remain  largely  illiterate 
industrialized  peasants.  They  are  decent-minded  peasant  people, 
orderly,  industrious  people,  rather  dirty  in  their  habits,  and  with  a 
low  standard  of  life.  Wherever  they  accumulate  in  numbers  they 
present  to  my  eye  a  social  phase  far  below  the  level  of  either  Eng- 
land, France,  north  Italy,  or  Switzerland.  And,  frankly,  I  do  not 
find  the  American  nation  has  either  in  its  schools — which  are  as 
backward  in  some  States  as  they  are  forward  in  others — in  its  press, 
in  its  religious  bodies  or  its  general  tone,  any  organized  means  or 
effectual  influences  for  raising  these  huge  masses  of  humanity  to 
the  requirements  of  an  ideal  modern  civilization.  They  are,  to  my 
mind,  "biting  off  more  than  they  can  chew"  in  this  matter. 

Bear  in  mind  always  that  this  is  just  one  questioning  individual's 
impression.  It  seems  to  me  that  the  immigrant  arrives  an  artless, 
rather  uncivilized,  pious,  goodhearted  peasant,  with  a  disposition 
towards  submissive  industry  and  rude  effectual  moral  habits.  Amer- 
ica, it  is  alleged,  makes  a  man  of  him.  It  seems  to  me  that  all  too 
often  she  makes  an  infuriated  toiler  of  him,  tempts  him  with  dol- 
lars and  speeds  him  up  with  competition,  hardens  him,  coarsens  his 
manners,  and,  worst  crime  of  all,  lures  and  forces  him  to  sell  his 
children  into  toil.  The  home  of  the  immigrant  in  America  looks 
to  me  worse  than  the  home  he  came  from  in  Italy.  It  is  just  as 
dirty,  it  is  far  less  simple  and  beautiful,  the  food  is  no  more  whole- 
some, the  moral  atmosphere  far  less  wholesome;  and  as  a  conse- 
quence, the  child  of  the  immigrant  is  a  worse  man  than  his  father. 

I  am  fully  aware  of  the  generosity,  the  nobility  of  sentiment, 
which  underlies  the  American  objection  to  any  hindrance  to  immi- 
gration. But  either  that  general  sentiment  should  be  carried  out 
to  a  logical  completeness  and  gigantic  and  costly  machinery  organ- 
ized to  educate  and  civilize  these  people  as  they  come  in,  or  it  should 
be  chastened  to  resist  the  inflow  to  numbers  assimilable  under 
existing  conditions.  At  present,  if  we  disregard  sentiment,  if  we 
deny  the  alleged  need  of  gross  flattery  whenever  one  writes  of 
America  for  Americans,  and  state  the  bare  facts  of  the  case,  they 


5i8  CURRENT  ECONOMIC  PROBLEMS 

amount  to  this:  that  America,  in  the  urgent  process  of  individual- 
istic industrial  development,  in  its  feverish  haste  to  get  through 
with  its  material  possibilities,  is  importing  a  large  portion  of  the 
peasantry  of  central  and  eastern  Europe,  and  converting  it  into  a 
practically  illiterate  industrial  proletariat.  In  doing  this  it  is  doing 
a  something  that,  however  different  in  spirit,  differs  from  the  slave 
trade  of  its  early  history  only  in  the  narrower  gap  between  em- 
ployer and  laborer.  In  the  "colored"  population  America  has  al- 
ready ten  million  descendants  of  unassimilated  and  perhaps  unas- 
similable  labor  immigrants.  These  people  are  not  only  half  civilized 
and  ignorant,  but  they  have  infected  the  white  population  about 
them  with  a  kindred  ignprance.  For  there  can  be  no  doubt  that  if 
an  Englishman  or  Scotchman  of  the  year  1500  were  to  return  to 
earth  and  seek  his  most  retrograde  and  decivilized  descendants,  he 
would  find  them  at  last  among  the  white  and  colored  population 
south  of  Washington.  I  have  a  foreboding  that  in  this  mixed  flood 
of  workers  that  pours  into  America  by  the  million  today,  in  this 
torrent  of  ignorance,  against  which  that  heroic  being,  the  schoolmarm, 
battles  at  present  all  unaided  by  men,  there  is  to  be  found  the  pos- 
sibility of  another  dreadful  separation  of  class  and  kind,  a  separation 
perhaps  not  so  profound  but  far  more  universal.  One  sees  the  pos- 
sibility of  a  rich  industrial  and  mercantile  aristocracy  of  western 
European  origin,  dominating  a  darker-haired,  darker-eyed,  unedu- 
cated proletariat  from  central  and  eastern  Europe.  The  immigrants 
are  being  given  votes,  I  know,  but  that  does  not  free  them,  it  only 
enslaves  the  country.    The  negroes  were  given  votes. 

These  are  all  mitigations  of  the  outlook,  but  still  the  dark  shadow 
of  disastrous  possibility  remains.  The  immigrant  comes  in  to  weaken 
and  confuse  the  counsels  of  labor,  to  serve  the  purposes  of  corrup- 
tion, to  complicate  any  economic  and  social  development,  above  all  to 
retard  enormously  the  development  of  that  national  consciousness 
and  will  on  which  the  hope  of  the  future  depends. 

235.     The  Problem  of  Americanization^^ 

BY  HENRY  W.  FARNAM 

We  must  Americanize  our  population.  The  Civil  War  abolished 
slavery  but  left  us  as  its  legacy  a  block  of  10,000,000  black  freedmen, 
mostly  illiterate.  These  people  had  to  be  educated  and  made  worthy 
of  citizenship.  At  the  same  time  the  demand  for  labor  in  the  North 
led  to  great  and  increasing  immigration.     As  a  result,  our  conti- 

siprom  "The  Balance  Wheels  of  America,"  Yale  Review,  VIII,  261-62. 
Copyright,  1919. 


PROBLEMS  OF  POPULATION  519 

nental  population  grew  in  forty  years  from  about  38,000,000  with  a 
density  of  13  per  square  mile,  to  over  93,000,000  with  a  density  of 
30.9  per  square  mile  in  1910,  while  it  exceeds  100,000,000  at  the 
present  time.  At  the  outbreak  of  the  world-war  our  numbers  were 
nearly  half  as  large  again  as  those  of  the  German  Empire,  and  were 
equal  to  the  combined  numbers  of  the  United  Kingdom,  France, 
Belgium,  and  the  Netherlands. 

But  if  we  analyze  the  population  we  find  that  it  has  been  recruited 
to  a  large  extent  by  immigration.  From  1870  to  1910,  over  20,000,000 
immigrants  entered  the  country.  Thirty-five  per  cent  of  our  popula- 
tion in  1910  were  either  of  foreign  birth  or  foreign  parentage.  A 
large  percentage  of  foreign  born  is  nothing  new  in  our  history,  but 
the  source  of  supply  has  undergone  a  marked  change  during  recent 
decades.  In  the  decade  ending  in  1880,  73.7  per  cent  of  the  immi- 
grants came  from  Northwestern  Europe,  and  7.1  from  Southern 
and  Eastern  Europe.  In  the  last  decade  these  figures  were  almost 
reversed,  and  only  21.8  came  from  Northeastern,  while  71.9  came 
from  Southeastern  Europe. 

Whether  the  people  of  these  regions  as  individuals  are  better  or 
worse  than  the  immigrants  of  forty  years  ago  need  not  be  discussed. 
The  outstanding  fact  is  that,  whatever  may  be  the  physical,  moral, 
and  intellectual  qualities  of  the  newcomers,  an  increasing  percentage 
of  them  are  unfamiliar  with  the  English  language  and  with  the  institu- 
tions of  self-government  which  have  developed  in  Western  European 
states.  They  are  on  the  whole  less  well  educated.  Some  light  is 
thrown  on  this  phase  of  the  matter  by  the  statistics  of  illiteracy.  In 
1895,  42,302  immigrants  over  fourteen  years  of  age  out  of  a  total 
of  279,948,  or  about  15  per  cent,  were  unable  to  read  or  write.  This 
number  had  increased  by  1914  to  260,152  illiterates  out  of  a  total  of 
1,218,480,  or  about  21  per  cent.  The  illiterates  who  entered  our 
country  in  1914  were  nearly  as  numerous  as  the  total  number  of  immi- 
grants nineteen  years  earlier.  In  the  course  of  the  ten  years  preced- 
ing the  European  war  we  took  in  2,339,400  immigrants  over  fourteen 
years  of  age  who  were  unable  to  read  or  write,  after  debarring  from 
entrance  for  one  reason  or  another  173,900,  In  the  very  nature  of 
things,  therefore,  these  late  arrivals  are  an  element  more  difiicult  to 
assimilate  than  those  who  furnished  the  bulk  of  the  immigration 
before  the  Civil  War. 

We  have  in  the  Americanization  of  these  newcomers  a  vast  prob- 
lem which  we  have  thus  far  imperfectly  solved.  We  have  an  equally 
important  problem  in  the  education  of  the  native-born.  Our  expendi- 
ture on  the  common  schools  has  increased  from  about  $9  per  pupil 
in  1 87 1  to  $30  in  191 5 ;  but  the  large  number  of  illiterates  still  found 


520  CURRENT  ECONOMIC  PROBLEMS 

in  parts  of  our  country  shows  either  that  we  have  not  spent  enough 
or  that  we  have  not  spent  our  money  wisely.  This  is  no  place  to  say 
in  detail  what  should  be  done.  Indeed,  it  would  be  presumptous  to 
assume  that  we  can  pronounce  upon  ways  and  means  now.  Every 
step  must  be  taken  carefully  and  experimentally.  The  leading  things 
to  aim  at  are  to  give  the  children  a  more  adequate  conception  of  the 
Americal  ideals  of  American  institutions,  and  to  inculcate  habits  of 
uprightness,  industry,  thrift,  and  thoroughness  as  elements  of  na- 
tional power. 

236.     Industry  and  Americanization^^ 

BY  ESTHER  EVERETT  LAPE 

We  can  never  forget  that  the  initiative  in  the  status  of  the  im- 
migrant in  this  country  is  economic.  We  admitted  men  and  women 
not  only  with  no  question  as  to  their  citizenship  but  with  no  reference 
to  it.  We  neither  knew  nor  cared  whether  they  ever  intended  to  be- 
come citizens  or  to  adopt  our  language.  We  needed  them  in  our 
mines  and  factories ;  big  employers  wanted  them  and  sent  for  them ; 
and  we  let  them  in,  taking  some  pride  in  the  haste  with  which  we  ex- 
amined them  mentally,  proved  their  fitness  or  unfitness,  and  hurried 
them  through  the  line  at  Ellis  Island  to  the  waiting  employer. 

The  obvious  result  is  that  Americanization  is  and  must  for  years 
continue  to  be  a  main  charge  upon  American  business.  Some  form 
of  industry  reaches  every  immigrant  that  comes  here,  and  it  is  often 
the  only  American  thing  that  does  reach  him.  Whatever  else  the  im- 
migrant has  or  has  not  in  the  country,  he  has  an  American  job.  The 
employer  has  a  continuous  day-in-and-day-out  chance  at  him  which 
no  other  American  institution  has.  Besides  this,  the  Americaniza- 
tion opportunities  of  the  night  school,  the  library,  the  church,  the 
settlement  are  limited  indeed. 

Collectively  speaking,  however — for  there  is,  of  course,  no  direct 
moral  charge  upon  the  individual  in  this  respect — American  employ- 
ers have  the  responsibility  as  well  as  the  opportunity.  A  few  years 
ago  this  peculiar  situation  was  revealed  by  an  attempt  to  get  adult 
immigrants  into  night  schools  for  the  study  of  English  and  prepara- 
tion of  citizenship.  Year  after  year  the  great  automobile  factories 
and  construction  plants  had  been  importing  the  labor  they  needed, 
importing  it  much  faster  than  the  conservative  city  of  Detroit  could 
assimilate  it.  Every  institution  of  the  city  was  thoroughly  provin- 
cial, developed  along  the  most  conservative  lines,  for  Americans  only. 
As  a  result  the  most  progressive  industrial  city  of  America  was  75  per 

32Adapted  from  "Americanization,"  Columbia  University  Quarterly,  XX 
(1918),  65-70. 


PROBLEMS  OF  POPULATION  521 

cent  immigrant  with  civic  institutions  used  by  about  30  per  cent  of 
the  city's  population.  No  wonder  an  editor  saw  in  the  attempt  to  get 
immigrants  into  night  schools  and  the  employers'  support  of  the  cam- 
paign the  dumping  of  a  large  and  unjustifiable  burden  upon  the  self- 
respecting  tax-paying  citizen,  who  was  not  profiting  by  immigrant 
labor.  After  all  they  had  been  brought  there  frankly  as  an  economic 
asset.  It  really  made  very  little  difference  whether  they,  as  indivi- 
duals, stayed  on  the  job,  or  whether  their  places  were  taken  by  others 
— except  that  here  and  there  an  enlightened  industrial  captain  was 
beginning  to  see  that  men  who  did  not  speak  English  and  were  not 
citizens  were  a  potential  cause  of  labor  troubles,  that  "migratory  im- 
migrants" were  making  the  labor  supply  unstable,  and  that  stability 
of  the  labor  supply  is  an  essential  factor  in  production. 

As  in  any  movement  where  bulk  and  quantity  are  the  desiderata, 
a  huge  percentage  of  waste  was  admitted  by  employers  as  quite 
normal.  The  country  had  a  fixed  idea  that  the  immigrant  was  here 
to  do  the  rough  work,  and  that  the  millions  of  them  so  engaged  con- 
stituted an  industrial  reserve  not  subject  to  the  same  circumstances 
as  the  great  mass  of  American  laborers.  A  few  years  ago  an  officer 
of  an  important  coal  and  iron  company  in  Colorado  deprecated  a  sug- 
gestion to  treat  with  the  "hunkies"  as  futile  and  absurd.  What  he 
said  in  effect  was  this :  We  are  not  dealing  with  American  workmen  ; 
we  are  dealing  with  muscle  and  brawn  to  which  American  jobs  have 
been  given.  They  were  brought  here  for  that.  If  there  is  any  diffi- 
culty, the  answer  is  a  new  set  of  laborers. 

The  attitude,  represented  by  the  Detroit  editor  and  the  Colorado 
mine  operator,  is  passing.  The  war  situation  has  made  us  conscious 
of  the  need  for  Americanization.  As  a  result  of  the  general  interest 
stimulated  during  the  last  few  years,  particularly  by  the  Immigration 
Committee  of  the  United  States  Chamber  of  Commerce,  thousands 
of  employers  throughout  the  country  have  undertaken  to  find  out  the 
social  and  citizenship  condition  of  their  workmen,  their  ability  to 
speak  English,  the  industrial  intention,  what  they  do  with  their  sav- 
ings, and,  in  short,  their  whole  intention  in  America.  Many  of  these 
firms  realize  and  frankly  state  that  the  Americanization  of  their 
workmen  has  ceased  to  be  an  interesting  and  humanitarian  avocation 
and  has  become  not  only  good  business  but  necessary  business.  It  is 
no  longer  a  secret  that  both  our  railroads  and  our  strategic  industries 
are  largely  manned  by  aliens,  many  of  whom  indeed  are  friendly, 
many  others  men  of  whose  loyalty  or  disposition  we  know  nothing. 

Out  of  all  this  confusion,  out  of  the  possibiHty  of  disaster,  there 
is  coming  to  the  American  employer  a  very  healthy  recognition  that 
Americanization  is,  even  industrially  speaking,  a  prime  essential. 


522  CURRENT  ECONOMIC  PROBLEMS 

Industry  cannot  do  the  whole  task.  But  for  a  long  time  to  come  it 
will  have  to  do  more  than  its  share.  Its  share  is  the  instruction  of 
immigrant  men  and  women  in  American  industrial  standards,  in- 
dustrial relations,  and  industrial  ideals.  The  industry  that  employs 
immigrants  owes  America  the  task  of  making  them  thorough-going 
American  workmen ;  and  until  employers  and  American  trade-unions, 
with  their  native  membership,  alike  accept  that  bond,  immigrant 
workmen,  whether  in  war  or  in  peace,  are  an  industrial  menace  to 
America. 

Aside  from  this  industrial  responsibility,  the  American  industry 
employing  immigrants  must  always  be,  both  for  the  community  and 
the  national  government,  the  chief  executive  agent  outside  the  public 
schools  and  perhaps  above  it.  It  possesses  most  of  a  man's  working 
hours.  It  determines  his  place  of  residence,  his  manner  of  life,  his 
savings.  It  has  a  dozen  opportunities  in  the  mere  routine  of  the  day 
to  get  an  American  message  through  to  him.  When  the  industrial 
Americanization  has  been  made  a  part  of  the  firm's  accounting,  when 
it  is  reckoned  as  a  part  of  the  cost  of  production,  the  routine  of 
American  industry  will  produce  Americanized  workmen. 

237.     The  Economics  of  Immigration^^ 

BY  FRANK  A.  FETTER 

The  current  objections  to  immigration  are  mainly  based  on  the 
alleged  evil  effects  to  the  political,  social,  and  moral  standards  of 
the  community.  It  is  often  asserted  that  present  immigration  is 
inferior  in  racial  quality  to  that  of  the  past.  Whatever  be  the  truth 
and  error  mingled  in  these  views,  we  are  not  now  discussing  them. 
Our  view  is  wholly  impersonal  and  without  race  prejudice.  If  the 
present  immigration  were  all  of  the  Anglo-Saxon  race,  were  able 
to  speak,  read,  and  write  English,  and  had  the  same  political  senti- 
ments and  capacities  as  the  earlier  population,  the  validity  of  our 
present  conclusions  would  be  unaffected. 

When  our  policy  of  unrestricted  immigration  is  thus  opposed  to 
the  interests  of  the  mass  of  the  people,  its  continuation  in  a  democracy 
where  universal  manhood  suffrage  prevails  is  possible  only  because 
of  a  remarkable  complexity  of  ideas,  sentiments,  and  interests, 
neutralizing  each  other  and  paralyzing  action.  The  American  sen- 
timent in  favor  of  the  open  door  to  the  oppressed  of  all  lands  is  a 
part  of  our  national  heritage.  The  wish  to  share  with  others  the 
blessings  of  freedom  and  of  economic  plenty  is  the  product  of  many 

^^Adapted  from  "Population  or  Prosperity,"  American  Economic  Review, 
III  (No.  I,  Supplement),  13-16.    Copyright,  1912. 


PROBLEMS  OF  POPULATION 


523 


generations  of  American  experience.  The  policy  had  mainly  an^ 
economic  basis ;  land  was  here  a  free  good  on  the  margin  of  a  vast 
frontier.  Most  citizens  benefited  by  a  growing  population.  But  the 
open  door  policy  is  vain  to  relieve  the  condition  of  the  masses  of' 
other  lands.  Emigration  from  overcrowded  countries,  with  the  rarest 
exceptions,  leaves  no  permanent  gaps.  Natural  increase  quickly  fills 
the  ranks  of  an  impoverished  peasantry.  Lands  whose  people  are  in 
economic  misery  must  improve  their  own  industrial  organization,  ele- 
vate their  standards  of  living,  and  limit  their  numbers.  If  they  go 
on  breeding  multitudes  which  find  an  unhindered  outlet  in  continuous 
migration  to  more  fortunate  lands,  they  can  at  last  but  drag  others 
down  to  their  own  unhappy  economic  level. 

The  pride  of  immigrants  and  of  their  children,  sometimes  to  the 
second  and  third  generations,  is  another  strong  force  opposing  re- 
striction. Immigrants,  having  become  citizens,  are  proud  of  the  race 
of  their  origin,  and  resent  restriction  as  a  reflection  upon  themselves 
and  their  people. 

A  strong  commercial  motive  operates  in  the  most  influential  class    ) 
of  employers  in  favor  of  the  continuance  of  immigration.    From  the  / 
beginning  of  our  history,  proprietors  and  employers  have  looked/ 
with  friendly  eyes  upon  the  supplies  of  comparatively  cheap  labor  I 
coming  from  abroad.     Large  numbers  of  immigrants  or  of  their  \ 
children  have  been  able  soon,  in  the  conditions  of  the  times,  to  become    \ 
proprietors  and  employers.    Thus  was  hastened  the  peopling  of  the  j 
wilderness.     The  interest  of  these  classes  harmonized  to  a  certain  | 
point  with  the  public  interest ;  but  likewise  it  was  in  some  respects  in  I 
conflict  with  the  abiding  welfare  of  the  whole  nation.    It  encouraged/ 
much  defective  immigration  from  Europe. 

The  immigration  from  Europe  has  furnished  an  ever-changii 
group  of  workers  moderating  the  rate  of  wages  which  employer^ 
otherwise  would  have  had  to  pay.     The  continual  influx  of  cheaj 
labor  has  aided  in  imparting  values  to  all  industrial  opportunities.! 
A  large  part  of  these  gains  have  been  in  the  trade,  manufactures,! 
and  real  estate  of  cities,  as  these  have  taken  and  retained  an  ever] 
growing  share  of  the  immigrants.    Successive  waves  of  immigration, 
composed  of  diff'erent  races,  have  been  ready  to  fill  the  ranks  of  the 
unskilled  workers  at  meager  wages.    This  continuous  inflow  has  in 
many  industries  come  to  be  looked  upon  as  an  indispensable  part  of 
the  labor  supply.     Conditions  of  trade,  methods  of  manufacturing, 
prices,  profits,  and  the  capital  value  of  the  enterprises  have  become 
adjusted  to  the  fact.    Hence  results  one  of  those  illusions  cherished 
by  the  practical  world  when  it  identifiesits-  owiiprofits  with  the 
public  welfare.    Without  immigrsLtj^jififCis  said,  thesupply  of  labor 


524  CURRENT  ECONOMIC  PROBLEMS 

would  not  be  equal  to  the  demand.  It  would  not  at  the  present  wages. 
Supply  and  demancTHave  reference  to  a  certain  price.  At  a  higher 
wage  the  amount  of  labor  offered  and  the  amount  demanded  will 
come  to  an  equality.  This  would  temporarily  curtail  profits,  and 
other  prices  would,  after  readjustment,  be  in  a  different  ratio  to 
wages.  Such  a  prospect  is  most  displeasing  to  the  commercial  world, 
quick  to  see  disaster  in  a  disturbance  of  profits,  slow  to  see  popular 
•prosperity  in  rising  wages. 

The  labor  supply  coming  from  countries  of  denser  population  and 
with  low  standards  of  living  creates,  in  some  occupations,  an  ab- 
normally low  level  of  wages  and  prices.  Children  cannot  be  born  in 
American  homes  and  raised  on  the  American  standard  of  living 
cheaply  enough  to  maintain  at  such  low  wages  a  continuous  supply 
of  laborers.  Many  industries  and  branches  of  industry  in  America 
are  thus  parasitical.  A  condition  essentially  pathological  has  come 
to  be  looked  upon  as  normal.  It  is  the  commercial  ideal  which  im- 
poses itself  upon  the  minds  of  men  in  other  circles. 

What  tremendous  forces  are  combined  in  favor  of  a  policy  of 
unrestricted  immigration :  sentiment  and  business,  generosity,  self- 
ishness, laborers,  employers.  All  men  are  prone  to  view  immigra- 
tion in  its  details,  not  in  its  entirety.  They  see  this  or  that  indi- 
vidual or  class  advantage,  not  the  larger  national  welfare.  The  inter- 
ests of  capitalists  and  of  the  newly  arriving  immigrants  are  abundantly 
considered ;  the  interests  of  the  mass  of  the  people  now  here  are  over- 
looked. 

238.     The  Influence  of  the  Immigrant  on  America^* 

BY  WALTER  E.   WEYL 

When  we  seek  to  discover  what,  is  the  exact  influence  of  the 
immigrant  upon  his  new  environment,  we  are  met  with  difficulties 
almost  insurmountable.  Social  phenomena  are  difficult  to  isolate. 
The  immigrant  is  not  merely  an  immigrant.  He  is  also  a  wage-earner, 
a  city-dweller,  perhaps,  also  an  illiterate.  Wage-earning,  city-dwell- 
ing, and  illiteracy  are  all  contributing  influences.  Your  immigrant 
is  a  citizen  of  a  new  factory,  of  the  great  industrial  state,  within,  yet 
almost  overshadowing  the  political  state.  Into  each  of  our  problems 
— wages  and  labor,  illiteracy,  crime,  vice,  insanity,  pauperism,  democ- 
racy— the  immigrant  enters. 

There  is  in  all  the  world  no  more  difficult,  no  more  utterly  be- 
wildering problem  than  this  of  the  intermingling  of  races.    Already 

3*Adapted  from  "New  Americans,"  Harper's  Monthly  Magazine,  CXXIX, 
616-17,  620-22.     Copyright,  1914. 


PROBLEMS  OF  POPULATION  525 

twenty  million  immigrants  have  come  to  stay.  To  interpret  this 
pouring  of  new,  strange  millions  into  the  old,  to  trace  its  results 
upon  the  manners,  the  morals,  the  emotional  and  intellectual  reac- 
tions of  the  Americans,  is  like  searching  out  the  yellow  waters  of 
the  Missouri  in  the  vast  floods  of  the  lower  Mississippi.  Our  immi- 
grating races  are  many,  and  they  meet  diverse  kinds  of  native  Ameri- 
cans on  varying  planes  and  at  innumerable  contact  points.  So  com- 
plex is  the  resulting  pattern,  so  multifarious  are  the  threads  inter- 
woven into  so  many  perplexing  combinations,  that  we  struggle  in 
vain  to  unweave  the  weaving. 

When  we  compare  the  America  of  today  with  the  America  of 
half  a  century  ago,  certain  differences  stand  out  sharply.  America 
today  is  far  richer.  It  is  also  more  stratified.  Our  social  gamut 
has  been  widened.  There  are  more  vivid  contrasts,  more  startling 
differences,  in  education  and  in  the  general  chances  of  life.  We  are 
less  rural  and  more  urban,  losing  the  virtues  and  the  vices,  the  excel- 
lences and  the  stupidities  of  country  life,  and  gaining  those  of  the 
city.  We  are  massing  in  our  cities  armies  of  the  poor  to  take  the 
places  of  country  ne'er-do-wells.  We  are  more  sophisticated.  We 
are  more  lax  and  less  narrow.  We  have  lost  our  early  frugal  sim- 
plicity, and  have  become  extravagant.  We  have,  in  short,  created 
a  new  type  of  the  American,  who  lives  in  the  city,  who  reads  news- 
papers and  even  books,  bathes  frequently,  travels  occasionally ;  a 
man  fluent  intellectually  and  physically  restless,  ready  but  not  pro- 
found, intent  upon  success,  not  without  idealism,  but  somewhat  dis- 
illusioned, pleasure-loving,  hard-working,  humorous.  At  the  same 
time  there  grows  a  sense  of  a  social  maladjustment,  a  sense  of  fail- 
ure in  America  to  live  up  to  expectations,  and  an  intensifying  desire 
to  right  a  not  clearly  perceived  wrong.  There  develops  a  vigorous, 
if  somewhat  vague  and  untrained,  moral  impulse  based  on  social 
rather  than  individual  ethics,  unaesthetic,  democratic,  headlong. 

Although  this  development  might  have  come  about  in  part  at 
least  without  immigration,  the  process  has  been  enormously  accel- 
erated by  the  arrival  on  our  shores  of  millions  of  Europeans.  These 
men  came  to  make  a  living,  and  they  made  not  only  their  own  but 
other  men's  fortunes.  They  hastened  the  dissolution  of  old  condi- 
tions ;  they  undermined  old  standards  by  introducing  new  ;  their  very 
traditions  facilitated  the  growth  of  that  traditionless  quality  of  the 
American  mind  which  hastened  our  material  transformation. 

Because  of  his  position  at  the  bottom  of  a  stratified  society  the 
immigrant  does  not  exert  any  large  direct  influence.  His  indirect 
influence,  on  the  other  hand,  is  increased  rather  than  diminished  by 
his  position  at  the  bottom  of  the  structure.     When  he  moves,  all 


526         CURRENT  ECONOMIC  PROBLEMS 

superincumbent  groups  must  of  necessity  shift  their  positions.  This 
indirect  influence  is  manifold.  The  immigration  of  enormous  num- 
bers of  unskilled  "interchangeable"  laborers,  who  can  be  moved 
about  like  pawns,  standardizes  our  industries,  facilitates  the  growth 
of  stupendous  business  units,  and  generally  promotes  plasticity.  The 
immigrant  by  his  very  readiness  to  be  used  speeds  us  up ;  he  accel- 
erates the  whole  tempo  of  our  idustrial  life.  He  changes  completely 
the  "balance  of  power"  in  industry,  politics,  and  social  life  generally. 
The  feverish  speed  of  our  labor,  which  is  so  largely  pathological,  is 
an  index  of  this.  The  arrival  of  ever  fresh  multitudes  adds  to  the 
difficulties  of  securing  a  democratic  control  of  either  industry  or 
politics.  The  presence  of  the  unskilled,  unlettered  immigrant  ex- 
cites the  cupidity  of  men  who  wish  to  make  money  quickly  and  do 
not  care  how.  It  makes  an  essentially  kind-hearted  people  callous. 
Why  save  the  lives  of  "wops"  ?  What  does  it  matter  if  our  industry 
kills  a  few  thousands  more  or  less,  when,  if  we  wish,  we  can  get  mil- 
Hons  a  year  from  inexhaustible  Europe  ?  Immigration  acts  to  destroy 
our  brakes.    It  keeps  us,  as  a  nation,  transitional. 

Of  course  this  transitional  quality  was  due  partly  to  our  virgin 
continent.  There  was  always  room  in  the  West.  Immigration,  how- 
ever, intensified  and  protracted  the  development.  Each  race  had  to 
fight  for  its  place.  Natives  were  displaced  by  Irish,  who  were  dis- 
placed in  turn  by  Germans,  Russians,  Italians,  Portuguese,  Greeks, 
Syrians.  Whole  trades  were  destroyed  by  one  nation  and  conquered 
by  another.  The  old  homes  of  displaced  nations  were  inhabited  by 
new  peoples ;  the  old  peoples  were  shoved  up  or  down,  but,  in  any 
case,  out.  Cities,  factories,  neighborhoods  changed  with  startling 
rapidity.  Connecticut  schools,  once  attended  by  descendants  of  the 
Pilgrims,  became  overfilled  with  dark-eyed  Italian  lads  and  tow- 
headed  Slavs.  Protestant  churches  were  stranded  in  Catholic  or  Jew- 
ish neighborhoods.  America  changed  rapidly,  feverishly.  The  rush 
and  recklessness  of  our  lives  were  increased  by  the  mild,  law-abiding 
people  who  came  to  us  from  abroad. 

There  was  a  time  when  all  these  qualities  had  their  good  features. 
So  long  as  we  had  elbow  room  in  the  West,  so  long  as  we  were  young 
and  growing,  with  a  big  continent  to  make  our  mistakes  in,  even 
recklessness  was  a  virtue.  But  today  America  is  no  longer  elastic; 
the  road  from  bottom  to  top  is  not  so  short  and  not  so  unimpeded 
as  it  once  was.  We  cannot  any  longer  be  sure  that  the  immigrant 
will  find  his  proper  place  in  eastern  mills  or  on  western  farms  with- 
out injury  to  others — or  to  himself. 

The  time  has  passed  when  we  believed  that  mere  numbers  was 
all.    Today,  despite  the  whole  network  of  Americanizing  agencies, 


PROBLEMS  OF  POPULATION 


527 


we  have  teeming,  polyglot  slums,  and  the  clash  of  race  with  race  in 
sweatshop  and  factory,  mine  and  lumber  camp.  We  have  a  mixture 
of  ideals,  a  confusion  of  standards,  a  conglomeration  of  clashing 
views  on  life.  We,  the  many-nationed  nation  of  America,  bring  the 
Puritan  tradition,  a  trifle  anaemic  and  thin,  a  little  the  worse  for 
disuse.  The  immigrant  brings  a  Babel  of  traditions,  an  all  too  plastic 
mind,  a  willingness  to  copy  our  virtues  and  our  vices,  to  imitate  us 
for  better  or  for  worse.  All  of  which  hampers  and  delays  the  forma- 
tion of  national  consciousness. 

From  whatever  point  we  view  the  new  America,  we  cannot  help 
seeing  how  intimately  the  changes  have  been  bound  up  with  our 
immigration,  especially  that  of  recent  years.  The  widening  of  the 
social  gamut  becomes  more  significant  when  we  recall  that  with  un- 
restricted immigration  our  poorest  citizens  are  periodically  recruited 
from  the  poor  of  the  poorest  countries  of  Europe.  Our  differences 
in  education  are  sharply  accentuated  by  our  enormous  development 
of  university  and  high  schools  at  one  end,  and  by  the  increasing 
illiteracy  of  our  immigrants  at  the  other. 

America  today  is  in  transition.  We  have  moved  rapidly  from 
one  industrial  world  to  another,  and  this  progress  has  been  aided  and 
stimulated  by  immigration.  The  psychological  change,  however, 
which  should  have  kept  pace  with  this  industrial  transformation,  has 
been  slower  and  less  complete.  It  has  been  retarded  by  the  very 
rapidity  of  our  immigration.  The  immigrant  is  a  challenge  to  our 
highest  idealism,  but  the  task  of  Americanizing  the  extra  millions  of 
newcomers  has  hindered  progress  in  the  task  of  democratizing 
America. 

H.     THE  QUALITY  OF  POPULATION 

239.     The  Breeding  of  Men^^ 

BY  PLATO 

"Then  tell  me,  Glaucon,  how  is  this  result  to  be  attained?  For  I 
know  that  you  keep  in  your  house  both  sporting  dogs  and  a  great 
number  of  game  birds.  I  conjure  you,  therefore,  to  inform  me 
whether  you  have  paid  any  attention  to  the  breeding  of  these  animals." 

"In  what  respect?" 

"In  the  first  place,  though  all  are  well  bred,  are  there  not  some 
which  are,  or  grow  to  be,  superior  to  the  rest?" 

"There  are." 

"Do  you  then  breed  from  all  alike,  or  are  you  anxious  to  breed 
as  far  as  possible  from  the  best  ?" 

s^Adapted  from  The  Republic,  v.  459-60  (385  b.c.)- 


528  CURRENT  ECONOMIC  PROBLEMS 

"From  the  best."  -^ 

"And  if  you  were  to  pursue  a  different  course,  do  you  think  that 
your  breed  of  birds  and  dogs  would  degenerate  very  much?" 

"I  do." 

"Good  heavens !  my  dear  friend,"  I  exclaimed,  "what  very  first- 
rate  men  our  rulers  ought  to  be,  if  the  analogy  holds  with  respect  to 
the  human  race." 

"Well,  it  certainly  does." 

"The  best  of  both  sexes  ought  to  be  brought  together  as  often  as 
possible,  and  the  worst  as  seldom  as  possible,  and  the  issue  of  the 
former  unions  ought  to  be  reared,  and  that  of  the  latter  abandoned, 
if  the  flock  is  to  attain  first-rate  excellence." 

"You  are  perfectly  right." 

"Then  we  shall  have  to  ordain  certain  festivals  at  which  we  shall 
bring  together  the  brides  and  bridegrooms,  and  we  must  have  sacri- 
fices performed,  and  hymns  composed  by  our  poets  in  strains  appro- 
priate to  the  occasion ;  but  the  number  of  marriages  we  shall  place 
under  the  control  of  the  magistrates,  in  order  that  they  may,  as  far 
as  they  can,  keep  the  population  at  the  same  point,  taking  into  con- 
sideration the  effects  of  war  and  disease,  and  all  such  agents,  that 
our  city  may,  to  the  best  of  our  power,  be  prevented  from  becoming 
either  too  great  or  too  small." 

240.     Derby  Day  and  Social  Reform^^ 

BY  MARTIN  CONWAY 

Sir  :  Which  is  wrong — the  breeder  of  race  horses  or  Mr.  Lloyd- 
George?  Would  racing  men  do  better  with  their  animals  if  they 
adopted  all  the  methods  which  Parliament  has  imposed  upon  us  in 
recent  years  as  the  right  way  to  improve  the  efficiency  of  the  human 
race?  How  would  it  be  if  they  swept  up  the  whole  equine  progeny 
of  the  country,  each  generation  as  it  came,  and  applied  social  reform 
to  it — if  they  provided  it  with  stables  sanitarily  inspected,  if  they 
caused  all  its  units  pass  under  the  hands  of  certified  trainers,  if 
they  pensioned  off  the  old  hacks,  and  provided  bank  holidays  for  the 
young,  and,  finally,  if  they  left  the  whole  question  of  the  breeding 
of  the  beasts  to  chance?  If  English  racing-men  adopted  our  govern- 
mental system,  is  it  not  certain  that  English  race  horses  would  be 
beaten  everywhere  by  horses  bred  by  selection  ?  Yet  no  one  suggests 
any  interference  with  the  breeding  of  the  human  race.  It  is  only 
royal  marriages  that  have  to  be  publicly  approved.  My  suggestion 
that  the  same  kind  of  interference  should  be  applied  to  the  mar- 

36A  letter  published  in  the  London  Times,  May  26,  1909. 


PROBLEMS  OF  POPULATION  529 

riages  of  peers  has  not  exactly  "caught  on."    In  their  case  the  hered- 
itary principle  is  accepted  but  not  scientifically  applied. 

Not  only  does  Parliament  in  its  so-called  wisdom  fail  to  apply 
science  to  the  production  of  hereditary  legislators,  but  in  all  recent 
social  legislation  it  has  actually  penalized  the  fitter  classes  in  society 
in  the  interests  of  the  less  fit.  The  least  fit  in  the  country  are  the 
old  people  who  have  failed  to  provide  any  savings  against  their  old 
age,  and  that  large  class  of  cheats  who  manage  to  pretend  that  they 
are  in  that  case.  An  as  yet  uncounted  number  of  millions  sterling 
is  now  to  be  taken  year  after  year  from  the  fitter  classes  and  doled 
out  to  these  unfittest.  No  one  can  tell  how  many  children  that  would 
have  been  born  to  these  fitter  parents  will  now  have  to  go  unborn. 
The  old  people  used  to  be  supported  by  their  relations,  who  presum- 
ably inherited  a  like  unfitness ;  those  relatives,  now  indirectly  en- 
dowed, can  now  produce  more  children  in  place  of  the  fitter  children 
whose  entry  into  the  world  has  been  blocked.  All  so-called  social 
legislation  tends  to  act  in  the  same  way.  The  birth  rate  of  the  fitter 
is  diminishing  year  by  year  and  we  calmly  sit  by  and  watch  the  con- 
sequent degeneration  of  our  race  with  idle  hands.  We  take  the 
human  rubbish  that  emerges  and  give  it  compulsory  education,  hous- 
ing acts,  inspection  of  all  sorts  and  at  all  seasons,  at  the  expense  of 
the  fitter  class,  and  imagine  that  better  results  will  ensue  than  if  we 
left  the  whole  business  alone.  Are  we  right?  Or  are  the  horse 
breeders  right?  They  have  demonstrably  improved  the  race  of 
horses,  and  with  great  rapidity.  The  old  system  of  "let  alone"  also 
improved,  though  more  slowly,  the  race  of  men.  It  is  only  the  mod- 
ern system  of  penalizing  the  fit  for  the  sake  of  the  unfit  that  seems 
to  be  put  in  action  simultaneously  with,  if  it  does  not  cause,  and  ob- 
served race-degeneration. 

241.     Eugenics  and  the  Social  Utopia^^ 

BY    GEORGE  P.  MUDGE 

With  regard  to  man,  it  is  now  clear  that  what  medicine,  social 
reform,  legislation,  and  philanthropy  have  failed  to  accomplish  can 
be  achieved  by  biology.  Tell  the  student  of  genetics  what  type  of 
nation  we  desire,  within  the  limits  of  the  characters  which  the  nation 
already  possesses,  and  confer  upon  him  adequate  powers,  and  he 
will  evolve  it.  It  is  not  too  much  to  say  that  if  he  were  instructed 
to  evolve  a  "fit"  nation — that  is,  one  of  self-restrained  and  self-sup- 
porting individuals — in  the  course  of  a  few  generations  there  would 

^''^Adapted  from  a  review  of  Bateson's  Mendel's  Principles  of  Heredity, 
in  The  Eugenics  Review,  I  (1909),  137. 


530  CURRENT  ECONOMIC  PROBLEMS 

be  neither  workhouses,  hospitals,  unemployables,  congenital  crimi- 
nals, or  drunkards. 

Students  of  eugenics  will  turn  with  interest  to  the  concluding 
pages  of  Professor  Bateson's  book ;  there  he  deals  with  the  sociolog- 
ical application  of  the  science  of  genetics.  We  commend  every  ad- 
vocate of  social  panaceas  and  of  legislative  interference  with  natural 
processes  to  read  this  part  of  the  book.  In  a  few  well-chosen  sen- 
tences he  gives  expression  to  the  judgment  of  every  biologist,  alike 
of  the  present  and  the  past,  who  has  given  to  social  problems  ade- 
quate and  unbiased  thought.  For  nothing  is  more  evident  to  the 
naturalist  than  that  we  cannot  convert  inherent  vice  mto  innate  vir- 
tue, nor  change  leaden  instincts  into  golden  conduct,  nor  transform 
a  "sow's  ear  into  a  silken  purse,"  by  any  known  social  process.  Our 
vast  and  costly  schemes  of  free  compulsory  education,  of  county 
council  scholarships  and.  evening  classes,  which  are  among  these 
social  processes  supposed  to  possess  the  magic  virtue  of  trans- 
forming the  world  into  a  fairyland,  may  be  a  delusion  and  a  danger. 
So,  too,  may  be  all  the  other  well-intentioned  but  costly  panaceas 
that  harass,  and  tax,  and  eventually  destroy  the  fit  in  order  to  at- 
tempt— for  they  can  never  achieve — the  salvation  of  the  unfit. 


242.     Immigration  and  Eugenics^^ 

BY  WALTER  E.  WEYL 

We  must  not  forget  that  these  men  and  women  who  file  through 
the  narrow  gates  at  Ellis  Island,  hopeful,  confused,  with  bundles 
of  misconceptions  as  heavy  as  the  great  sacks  upon  their  backs — we 
must  not  forget  that  these  simple,  rough-handed  people  are  the  an- 
cestors of  our  descendants,  the  fathers  and  mothers  of  our  children. 

So  it  has  been  from  the  beginning.  For  a  century  a  swelling 
human  stream  has  poured  across  the  ocean,  fleeing  from  poverty  in 
Europe  to  a  chance  in  America.  One  race  after  another  has  knocked 
at  our  doors,  been  given  admittance,  has  married  us  and  begot  our 
children.  We  could  not  have  told  by  looking  at  them  whether  they 
were  to  be  good  or  bad  progenitors,  for  racially  the  cabin  is  not 
above  the  steerage,  and  dirt,  like  poverty  and  ignorance,  is  but  skin 
deep.  A  few  hours  and  the  stain  of  travel  has  left  the  immigrant's 
cheek ;  a  few  years  and  he  loses  the  odor  of  alien  soils ;  a  genera- 
tion or  two,  and  those  outlanders  are  irrevocably  our  race,  our 
nation,  our  stock. 

88Adapted  from  "New  Americans,"  Harper's  Monthly  Magazine,  CXXIX, 
615-16.    Copyright,  1914. 


PROBLEMS  OF  POPULATION  531 

That  stock  a  little  over  a  century  ago  was  almost  pure  British. 
Despite  the  presence  of  Germans,  Dutch,  French,  and  Negroes,  the 
American  was  essentially  an  Englishman  once  removed,  an  Eng- 
lishman stuffed  with  English  traditions,  prejudices,  and  stubborn- 
nesses, reading  English  books,  speaking  English  dialects,  practicing 
English  law  and  English  evasions  of  law,  and  hating  England  with  a 
truly  English  hatred.  Even  after  immigration  poured  in  upon  us, 
the  English  stock  was  strong  enough  to  impress  upon  the  immi- 
grating races  its  language,  laws,  and  customs.  Nevertheless,  the  in- 
coming millions  profoundly  altered  our  racial  structure.  Today  over 
thirty-two  million  Americans  are  either  foreign-born  or  of  foreign 
parentage.    America  has  become  the  most  composite  of  nations. 

We  cannot  help  seeing  that  such  a  vast  transfusion  of  blood 
must  powerfully  affect  the  character  of  the  American.  What  the 
influence  is  to  be,  however,  whether  for  better  or  for  worse,  is  a 
question  most  baffling.  Our  optimists  conceive  the  future  American 
the  child  of  this  infinite  intermarrying,  as  a  glorified,  synthetic  per- 
son, replete  with  the  best  qualities  of  all  the  component  races.  He 
is  to  combine  the  sturdiness  of  the  Bulgarian  peasant,  the  poetry  of 
the  Pole,  the  vivid  artistic  perception  of  the  Italian,  the  Jew's  in- 
tensity, the  German's  thoroughness,  the  Irishman's  verve,  the  ten- 
acity of  the  Englishman,  with  the  initiative  and  versatility  of  the 
American.  The  pessimist,  on  the  other  hand,  fears  the  worst. 
America,  he  believes,  is  committing  the  unpardonable  sin ;  is  con- 
tracting a  mesalliance,  grotesque  and  gigantic.  We  are  diluting  our 
blood  with  the  blood  of  lesser  breeds.  We  are  suffering  adultera- 
tion. The  stamp  upon  the  coin — the  flag,  the  language,  the  national 
sense — remains,  but  the  silver  is  replaced  by  lead. 

All  of  which  is  singularly  unconvincing.  In  our  own  families, 
the  children  do  not  always  inherit  the  best  qualities  of  father  and 
mother,  and  we  have  no  assurance  that  the  children  of  mixed 
races  have  this  selective  gift  and  rise  superior  to  their  parent  stocks. 
Nor  do  we  know  that  they  fall  below.  We  hear  much  about  "pure" 
races  and  "mongrel"  races.  But  is  there  in  all  the  world  a  pure  race? 
The  Jew,  once  supposed  to  be  of  Levitical  pureness,  is  now  known  to 
be  racially  unorthodox.  The  Englishman  is  not  pure  Anglo-Saxon, 
the  German  is  not  Teutonic,  the  Russian  is  not  Slav.  To  be  mongrel 
may  be  a  virtue  or  a  vice.  We  do  not  know.  The  problem  is  too 
subtle,  too  elusive,  and  we  have  no  approved  receipts  in  this  vast 
eugenic  Kitchen.  Intermarrying  will  go  on  whether  we  like  it  or 
loathe  it,  for  love  laughs  at  racial  barriers  and  the  maidens  of  one 
nation  look  fair  to  the  youth  of  another.  Let  the  kettle  boil,  and  let 
us  hope  for  the  best. 


532  CURRENT  ECONOMIC  PROBLEMS 

243.     The  Rationale  of  Eugenics^^ 

BY  JAMES  A.   FIELD 

A  review  of  what  has  been  accomplished  in  the  field  of  eugenics 
during  the  last  decade  clearly  reveals  that  most  of  the  solid  writing 
and  of  the  really  scientific  and  useful  work  has  come  from  the 
biologists.  The  competent  student  of  economic  and  social  questions 
has  rendered  little  aid.  Perhaps  until  now  his  abstention  from  the 
discussion  has  been  wise.  Experts  were  not  needed  to  repeat  the 
memorable  suggestion  that  a  civilization  which  should  acquire  con- 
trol over  the  qualities  of  the  human  breed  might  thereby  control 
human  welfare  also.  That  suggestion,  vital  in  itself,  has  been 
readily  enough  kept  alive  by  the  conviction  of  the  inexpert  that  any- 
thing is  the  better  for  tinkering;  meanwhile,  the  biologists  have  been 
coming  more  and  more  to  the  conclusion  that  whoever  can  deter- 
mine marriage  selection  in  the  present  will  determine,  within  large 
limits,  the  physique  and  intellect  of  the  future,  and  will  become  in  a 
new  sense  the  maker  of  history.  But  in  proportion  as  the  biologist 
foreshadows  the  physical  possibilities  of  heredity  and  selection,  the 
want  grows  for  wisdom  with  which  to  utilize  them.  What  sort  of 
history,  then,  is  best  worth  the  making?  What  sort  of  history  does 
it  lie  within  our  power  to  bring  to  pass?  Is  this  momentous  mar- 
riage selection,  from  motives  half  rationtal,  half  mystical,  in  their 
veneration  of  the  continuance  of  life,  to  prevail  in  spite  of  popular 
ignorance  and  passion?  Or,  leaving  this  question  of  practicability 
for  experience  to  decide,  is  it  after  all  sensible  to  burden  the  present 
generation  with  concern  for  generations  of  the  future  whose  needs 
we  can  hardly  foretell ;  and,  in  subservience  to  the  science  of  the  day, 
to  repudiate  instinct  older  than  all  human  experience  by  "falling  in 
love  intelligently"?  We  have  need  of  a  social  philosophy  to  tell  us 
how  far  eugenic  reforms  are  reasonable  and  worth  while. 

Even  in  its  broadly  biological  aspects  eugenics  is  involved  in  the 
long-standing  demarkation  dispute  over  the  respective  jurisdictions 
of  man's  artificial  control  and  the  unmodified  course  of  natural  evo- 
lution. Less  than  twenty  years  ago  one  of  the  greatest  of  biologists, 
writing  on  this  very  subject,  declared  in  no  uncertain  terms  his  dis- 
belief in  the  practice  of  artificial  selection  as  a  means  of  human  bet- 
terment. Knowledge  has  grown,  no  doubt,  since  Evolution  and 
Ethics  was  written,  and  new  discoveries  have  gone  far  to  discredit 
Huxley's  belittlement  of  the  potency  of  human  selective  agencies. 
The  details  of  the  biological  mechanism  by  which  changes  are  ef- 
fected have  become  far  better  known.    More  dubious  is  the  question 

s^Adapted  from  "The  Progress  of  Eugenics,"  Quarterly  Journal  of 
Economics,  XXVI,  61-67.     Copyright,  191 1. 


PROBLEMS  OF  POPULATION  533 

how  much  advance  has  been  made  toward  a  wise  guidance  of  such 
agencies.  For  Huxley,  there  was  "no  hope  that  mere  human  beings 
will  ever  possess  enough  intelligence  to  select  the  fittest."  Possibly 
the  social  consciousness  of  a  people  is  an  abler  guide  than  he  recog- 
nized. Perhaps,  although  the  fittest  state  of  society  is  beyond  our 
perception,  we  may  achieve  by  means  of  eugenic  selection  a  succes- 
sion of  experimental  changes  which  seem  to  us  for  the  better.  But 
still  the  order  of  nature  decrees  that  eugenic  experiments  made  in 
haste  are  repented  at  leisure.  The  eugenist  who  modifies  the  race 
type  in  the  present  predetermines  for  better  or  worse  the  mental  and 
physical  endowment  of  distant  posterity.  In  the  final  analysis,  eu- 
genics, like  other  attempts  at  lasting  reform,  must  m.ove  with  the 
stream  of  processes  which  preceded  human  intervention  and  limit  it 
still.  While  in  such  a  stream  a  steered  course  may  well  be  better 
than  mere  drifting,  the  eugenist  in  action  must  always  proceed  with 
the  caution  of  one  who  reckons  with  the  inscrutable. 

If  the  task  of  eugenics  were  to  establish  a  new  aristocracy  of 
inborn  ability,  the  prospect  of  success  would  be  less  obscure.  The 
historical  institutions  of  ruling  castes  and  hereditary  nobilities  have 
shown  that  the  special  capacity  which  in  one  generation  after  an- 
other can  seize  upon  and  retain  for  itself  special  opportunity  has 
long  been  competent  to  raise  the  family  line  of  its  possessors  above 
their  less  favored  fellowmen.  Now  modern  biology,  from  a  new 
standpoint  and  with  new  significance,  reasserts  the  privilege  of  birth. 
It  is  not  surprising,  therefore,  that  writers  arguing  for  the  eugenic 
selection  which  shall  perpetuate  and  intensify  exceptional  ability, 
have  virtualy  proposed  an  aristocratic  social  order  of  a  novel  kind. 
But  every  preferment  of  the  abler  members  of  a  community  is  tanta- 
mount to  a  degradation  of  the  less  gifted.  To  create  an  exclusive 
caste  founded  on  eugenic  superiority  would  be  to  intensify  the  un- 
happiness  of  such  persons  as  are  already  inferior.  The  principle  of 
the  survival  of  the  fittest  normally  involves  wholesale  sacrifices  of 
the  unfit ;  but  such  unmitigated  rigor  of  selection  does  not  commend 
itself  as  a  humane  method  of  social  amelioration.  Nor  is  the  temper 
of  the  times  favorable  to  aristocracies  of  any  sort.  It  calls  for  a 
general  betterment  of  the  whole  mass  of  mankind. 

Can  eugenics  bring  to  pass  this  universal  improvement?  Prob- 
ably many  a  devoted  follower  of  the  cause  has  assumed  that  if  its 
benefits  can  be  realized  by  any  they  might  be  extended  to  all.  Such 
was  the  vision  of  Greg:  "Every  damaged  and  inferior  tempera- 
ment might  be  eliminated,  and  every  special  and  superior  one  be 
selected  and  enthroned,  till  the  human  race,  both  in  its  manhood  and 
its  womanhood,  became  one  glorious  fellowship  of  saints,  sages,  and 


534  CURRENT  ECONOMIC  PROBLEMS 

athletes;  till  we  were  all  Blondins,  all  Shakespeares,  Pericles,  Soc- 
rates, Columbuses,  and  Fenelons."  But  to  hold  such  opinions  is  to 
ignore  the  relativity  of  success  and  to  miss  the  very  meaning  of  em- 
inence. In  a  world  of  Blondins  a  tightrope  walker  would  command 
no  profit  or  applause.  A  world  of  great  teachers  would  lack  pupils 
to  be  taught.  The  unknown  continent  which  everyone  had  found 
could  hardly  immortalize  its  multitudinous  discoverers.  Nor  could 
any  one  master-dramatist  make  mankind  his  audience  so  long  as  all 
clamored  with  equal  right  for  hearing.  Unfortunately,  too  often  we 
overlook,  in  our  projects  for  reform,  the  comparative  character  of 
individual  attainments  and  individual  happiness.  We  bemoan  the 
rarity  of  greatness,  forgetting  how  largely  the  exceptional  individ- 
uals whom  we  call  great  are  great  because  they  are  exceptional.  If, 
then  we  are  to  elevate  the  whole  community,  we  must  work  with  a 
standard  free  from  the  element  of  invidiousness ;  for  no  social  re- 
form can  achieve  a  general  improvement  of  men's  positions  relative 
to  the  positions  of  their  fellow-men. 

Apparently,  then  eugenic  selection  is  concerned  not  with  the  con- 
ditions of  eminence  but  with  the  conditions  of  efficiency.  It  must 
work  for  the  internal  efficiency  which  we  roughly  call  sanity  and  a 
good  constitution,  and  for  the  external  efficiency  which  enables  an 
individual,  regardless  of  the  comparative  efficiency  of  other  individ- 
uals, to  make  steady  progress  in  forcing  his  non-human  surround- 
ings into  conformity  with  his  needs.  Doubtless  the  distinctions  here 
applied  are  definite.  For  instance,  the  personal  advantages  of 
health  and  strength  are  diminished  if  equal  physical  vigor  becomes 
the  possession  of  all.  Unusual  prowess  in  exploiting  external  phy- 
sical resources  has  notoriously  been  among  the  most  potent  causes  of 
inequality.  Yet,  in  a  civilization  which  already  ministers  by  pallia- 
tives to  ill  health,  and  in  which  the  distributed  burden  of  caring  for 
the  incompetent  almost  certainly  drags  more  heavily  on  those  who 
are  stronger  than  would  the  potential  competition  which  incompe- 
tency now  holds  in  check — in  such  a  civilization,  the  promise  of 
gain  to  come  from  the  eradication  of  feeble-mindedness,  or  insanity 
or  the  proneness  to  consumption  would  outweigh  any  new  stress  of 
circumstance  which  it  would  involve.  And  with  this  alleviation  of 
the  miseries  from  within  might  come  augmented  economic  effi- 
ciency, not  of  the  few  but  of  the  many;  a  general  and  continuous 
advance  in  those  characteristics  of  body  and  mind  which  make  for 
man's  larger  control  of  heretofore  reluctant  gifts  of  nature. 

If  this  sketching  of  the  possibilities  is  even  roughly  true,  it  calls 
again  for  the  verdict  of  the  biologist.  But  it  is  by  no  means  only  the 
biologist  whose  judgment  is  required.       Again  and  again,  in  the 


PROBLEMS  OF  POPULATION  535 

light  of  biological  discoveries  a  more  adequate  answer  must  be 
sought  to  that  crucial  question,  the  significance  of  which  the  biol- 
ogists have  mostly  failed  to  comprehend :  Granted  that  by  rational 
marriage  selection  certain  recombinations  of  human  characteristics 
can  be  effected  at  will,  what  eugenic  policy  promises  the  maximum 
increase  of  human  welfare?  To  aid  in  answering  this  question  the 
economist  is  needed.  For  health  and  strength  and  intellect  work 
out  the  good  or  ill  fortunes  of  their  possessors  according  to  the  ways 
of  economic  civilization,  and  not  by  process  of  brute  struggle  for 
existence.  Eugenics  is  not  mere  biology.  The  problems  of  eugenics 
are  problems  of  human  society. 

■      I.    THE  POPULATION  PROBLEM  OF  TODAY 
y,;t     244.     Population  Pressure  in  Japan*" 

BY  WALTER  E.  WEYL 

Of  all  Japanese  problems  that  of  population  is  the  least  discussed, 
the  least  understood,  and  the  most  important.  Everything  in  Japan 
turns  on  this  question;  every  phase  of  policy,  every  hope,  ambition, 
effort  is  unconsciously  affected.  Japanese  emigration,  Japanese  expan- 
sion, Japanese  domestic  and  foreign  relations,  Japanese  groping  toward 
industrialism — all  find  their  agent  and  cause  in  great  part  in  this 
blind  outpouring  of  infants.  The  flood  of  babies,  upbuilding  or 
devastating  as  we  look  at  it,  is  the  most  significant  fact  in  modern 
Japan. 

Somewhere  about  the  year  1700  the  Japanese  population  reached 
the  point  where  under  the  economic  conditions  then  existing  it  was 
unable  to  advance.  Thereafter  for  a  hundred  and  fifty  years  it  fluc- 
tuated between  twenty-four  and  twenty-seven  millions,  these  totals, 
however,  not  including  the  noble  class  and  the  beggars.  The  country 
was  full  up  ;  there  was  standing  room  only.  There  was  no  more  rice  or 
millet  or  fish  to  feed  the  new  babies  although  the  land  was  cultivated 
to  the  last  acre  and  the  seas  were  scoured.  Babies  were  born  but 
they  died.  Population  was  held  down  by  disease,  pestilence  and  star- 
vation. Gradually,  too,  the  people  learned  ways  to  lessen  births. 
Among  nobles  and  well-to-do-  merchants  late  marriages  came  into 
vogue,  and  in  the  large  cities  skilled  physicians  practiced  birth  pre- 
vention. By  the  middle  of  the  nineteenth  century  an  equilibrium 
had  long  since  been  established  between  birth-rate  and  death-rate. 
The  birth-rate  was  probably  lower  than  in  any  country  in  Europe. 

*oAdapted  from  "Japan's  Menacing  Birth-Rate,"  Asia,  XVIII,  129-32. 
Copyright,  1918. 


536  CURRENT  ECONOMIC  PROBLEMS 

Then  came  Perry,  the  breaker  down  of  Japanese  isolation,  the 
restoration,  the  new  factories,  the  growing  world-power  of  Japan. 
Figuratively  it  was  Perry  who  called  forth  the  millions  of  Japanese 
babies.  The  unconcealed  guns  of  the  commodore  created  commerce 
and  an  industrial  system,  and  out  of  these  arose  astonishing  cities 
of  factory  workers.  Japan  drifted  into  the  full  tide  of  a  giddy  in- 
dustrialism, which  meant  wealth  for  the  few,  a  strenuous  poverty 
for  the  many,  congestion,  speed,  and  babies.  As  the  factories  grew 
and  as  the  new  cities  overflowed  into  adjacent  rice  paddies,  babies — 
the  future  factory  workers  and  docile  clerks — poured  forth  unceas- 
ingly from  the  farms.  As  in  other  countries,  new  to  industrialism, 
the  birth-rate  outstripped  custom  and  expectation. 

In  Japan  the  birth-rate  was  stimulated  by  patriotic  and  religious 
motives,  which  heavily  emphasized  the  duty  of  parenthood.  In.  Tact 
the  whole  political  and  social  philosophy  of  Japan  favored  the 
abstemious  and  therefore  fecund  type.  Japan's  thought  ignored  the 
material  needs  and  desires  which  have  held  the  population  of  the 
Western  World  in  check.  Life  was  cheap;  children  cost  little,  and, 
since  they  could  early  be  employed,  paid  for  themselves.  Even  today, 
when  industrialism  has  taken  a  firmer  root,  one  cannot  look  about 
at  the  frail  little  houses,  the  cheap  cotton  clothes,  and  the  inexpensive 
food  and  furnishings  with  which  Japanese  workers  seem  content  with- 
out realizing  how  weak  are  here  the  instincts  which  in  our  Western 
countries  tend  to  set  a  limit  to  the  population. 

Once  the  lid  was  off  the  new  industrial  system  demanded  millions 
of  cheap  workers.  The  millions  were  born.  Since  1870  the  growth 
of  the  population  has  been  portentous.  In  1874  there  were  less  than 
34,000,000  men  in  Japan  proper ;  today  there  are  more  than  56,000,- 
000.  This  is  a  fairly  high  rate  of  increase.  What  is  most  significant, 
however,  is  that  the  rate  of  increase  is  itself  increasing.  In  1886 
there  were  28.8  births  per  thousand;  in  191 1  there  were  33.7.  The 
death-rate  remains  stationary ;  the  birth-rate  steadily  grows.  Be- 
cause of  this  growing  birth-rate  the  crowded  population  of  Japan  is 
increasing  at  the  rate  of  three-quarters  of  a  million  per  year.  Where 
is  room  to  be  found  for  these  new  millions  ? 

In  agriculture,  where  the  average  farm  of  today  is  already  less 
than  three  acres  ?  It  is  to  the  fields  that  man  looks  instinctively  for 
his  support.  It  is  so  in  Japan  as  elsewhere.  Unfortunately  there 
is  a  rigid  and  harsh  law  in  agriculture,  a  law  of  nature  and  not  of 
man.  It  is  the  law  of  decreasing  returns.  The  law  decrees  that 
beyond  a  certain  point  every  added  laborer  employed  and  every  dollar 
invested  on  a  farm  bring  in  a  smaller  return  than  the  former  laborer 
employed  or  the  former  dollars  invested. 


PROBLEMS  OF  POPULATION  537 

The  visual  impression  that  one  gets  of  the  Japanese  countryside  is 
that  the  fields  are  already  overcrowded.  The  country  seems  one 
long,  straggling,  inchoate  village.  The  clustering  men,  the  ubiquitous 
women  and  children  seem  to  have  crowded  the  domestic  animals  from 
off  the  land.  In  many  parts  of  the  country  this  is  literally  true. 
A  horse  or  a  cow  takes  up  too  much  room  for  its  support.  Since 
farms  are  dear  and  fodder  expensive,  the  tiny  farms  in  the  more 
densely  populated  parts  of  Japan  swarm  with  men  and  are  bare  of 
domestic  animals. 

When  we  grasp  the  smallness  of  Japan  and  the  size  of  its  popula- 
tion, we  understand  why  the  land  is  so  crowded.  Japan  proper  is 
a  narrow  and  diminutive  country.  Its  area  of  roughly  150,000  square 
miles  is  somewhat  smaller  than  that  of  California,  while  its  popula- 
tion is  twenty  times  as  great.  Moreover,  Japan  is  chiefly  a  country 
of  moutains  and  its  arable  land  amounts  to  only  some  25,000  square 
miles.  It  follows  that  Japan  is  the  classic  land  of  intensive  agricul- 
ture. Its  dwarf  farms  are  really  not  farms  at  all  in  our  sense  of  the 
word,  but  gardens.  They  are  merely  little  squares  of  land,  now  cov- 
ered with  water,  now  filled  with  mud  drying  in  the  sun,  and  now 
vividly  green  with  rice  plants.  The  living  to  be  made  out  of  these 
pretty  farms  is  of  the  meagerest.  The  farming  is  the  most  meticulous 
in  the  world.  Every  inch  of  ground  is  most  carefully  cultivated, 
every  possible  saving  sedulously  made.  By  dint  of  hard  labor  and 
hard  scrimping  the  Japanese  manage  to  secure  some  sort  of  living 
from  their  three  acres.  While  the  yield  per  acre  is  great ;  the  yield 
per  farm  or  per  family  is  extremely  small. 

In  a  majority  of  cases  this  petty  farmer  does  not  even  own  his 
own  farm.  The  lot  of  the  tenant  is  even  worse  than  that  of  the 
small  proprietor.  For  him  there  is  very  little  surplus  and  next  to  no 
opportunity  to  acquire  property  of  his  own.  Land  values  are  high. 
Good  lands  sell  for  about  $800  per  acre.  The  price  of  the  upland 
farms  is  about  half  as  much.  The  pressure  of  population  upon  the 
small  farm  area  raises  land  values  to  a  point  where  it  is  extremely 
difficult  for  a  tenant  to  become  a  proprietor. 

But  for  the  rural  trades,  and  especially  the  silk  industry,  many 
of  these  little  farmers  could  not  live  at  all.  It  is  the  American  de- 
mand for  raw  silk  that  saves  the  smaller  Japanese  farmers  from  being 
crushed.  In  all  over  1,700,000  Japanese  rural  families  devote  them- 
selves to  this  and  other  occupations,  and  thus  eke  out  the  scanty  re- 
turns from  agriculture.  Of  the  farming  families  almost  a  third  have 
some  occupation  subsidiary  to  farming. 

Thus  the  Japanese  farmer,  assiduous,  economical,  and  hard- 
pressed,  has  managed  in  the  past  to  hold  his  own.     In  fact  he  has 


538  CURRENT  ECONOMIC  PROBLEMS 

more  than  held  his  own.  By  means  of  better  farming  methods,  gov- 
ermental  guidance,  and  favorable  changes  in  agricultural  world-con- 
ditions the  Japanese  farmer  has  bettered  his  conditions.  Yet  this 
improvement  cannot  go  on  indefinitely.  Nor  will  the  small  farmer 
forever  be  contented  with  his  meager  earnings.  In  Japan,  as  else- 
where, the  city  offers  social  and  intellectual  pleasures  not  obtain- 
able on  the  farm.  So  powerful  is  the  attraction  of  even  the  slums 
of  the  great  cities  that  the  exodus  from  the  farms  becomes  greater 
every  year. 

Finally  there  is  little  chance  of  improvement  in  intensive  cul- 
tivation. Intensive  cultivation  is  the  most  wasteful  farming  in  the 
world ;  while  it  saves  material  it  is  excessively  lavish  of  human  labor, 
the  most  valuable  commodity  of  all.  Japan  seems,  therefore,  to  have 
reached  the  stage  where  the  pressure  of  a  growing  population  upon 
the  farmland  of  the  country  will  become  increasingly  intense.  The 
movement  from  the  country  to  the  city  will  be  sharply  intensified. 
The  new  children  will  be  met  at  manhood  with  the  alternative  of 
finding  a  place  in  Japanese  factories,  workshop,  and  offices,  or  else 
of  taking  ship  and  emigrating. 

In  Japan  itself,  however,  there  seem  to  be  few  misgivings  con- 
cerning the  population  problem.  The  steadily  rising  birth-rate  is 
hailed  by  all  classes  as  a  healthy  sign  of  development.  In  part,  no 
doubt,  this  optimism  is  due  to  the  general  hopefulness  of  the  people. 
Japan's  recent  military  successes  have  inspired  in  the  people  a  vast 
self-confidence.  Her  industrial  successes  have  had  a  similar  effect.  Her 
factories  are  multiplying,  her  commerce  is  expanding,  her  merchant 
marine  is  increasing  by  leaps  and  bounds.  Japan's  attitude  toward 
the  population  is  like  that  of  England  a  hundred  years  ago.  Japan 
still  believes  the  more  babies  the  better.  The  high  birth-rate  seems 
to  fit  in, with  the  main  trends  of  thought  in  the  empire.  It  suits  the 
militarists,  who  believe  that  Japan  to  become  a  world-power  must 
have  a  population  of  one  hundred  millions,  to  exercise  the  outward 
pressure  which  will  move  frontiers  and  change  the  face  of  the  world. 
To  have  empire,  say  the  imperials,  we  must  have  children.  We  must 
have  children,  say  the  capitalists,  to  have  cheap  labor  and  successful 
industries.  Let  us  have  children,  cry  all  the  Japanese  people,  to  main- 
tain our  institutions,  our  religion  based  upon  ancestor  worship,  our 
family  piety,  our  ancient  rule  of  simple  living  and  hard  work. 

The  majority  of  men,  and  still  more  of  women,  upon  whom  the 
brunt  of  this  pressure  falls,  are  as  yet  unrepresented  in  these  discus- 
sions. The  fathers  of  most  Japanese  babies  are  voteless  and  speech- 
less ;  they  do  not  discuss  social  problems.  Yet  they,  too,  if  they  were 
consulted,  would  doubtless  agree  that  large  families  were  of  benefit 


PROBLEMS  OF  POPULATION  539 

to  the  emperor  and  the  empire,  and  theories  or  no  theories  they  con- 
tinue to  breed.  Because  of  this  population  pressure,  Japan  today  is 
beset  by  perplexing  difficulties,  by  divided  counsels,  by  an  unin- 
formed discontent,  which  pushes  her  forward  into  all  sorts  of  ad- 
ventures.   She  is  in  the  shadow  of  a  great  trial. 

As  England  profited  by  her  birth-rate  a  hundred  years  ago,  so 
Japan  may  do  in  the  twentieth  century.  But  the  situation  is  not  en- 
tirely the  same.  England  then  possessed  a  far  smaller  population 
than  Japan  now  possesses ;  she  had  greater  agricultural  and  infinitely 
more  valuable  mineral  resources ;  she  was  a  pioneer  in  industrialism, 
whereas  Japan  is  only  the  latest  recruit.  Moreover,  England,  during 
the  period  of  her  highest  birth-rate,  was  able  to  send  her  surplus 
population  not  only  to  her  own  empty  colonies  but  also  to  the  United 
States.  Japanese  emigration,  on  the  other  hand,  is  thwarted  and 
checked. 

Japan  must  meet  the  problem  of  adjusting  her  political  and  eco- 
nomic development  to  her  increasing  birth-rate.  She  must  meet  this 
problem  under  difficulties  greater  and  more  perplexing  than  those 
which  have  faced  the  other  nations  in  their  great  trial. 

245.     The  Threat  of  Emigration" 

BY  FRANCES  A.  KELLOR 

America  today  faces  a  situation  unparalleled  in  its  history.  Hun- 
dreds of  thousands  of  immigrants  are  clamoring  to  leave  its  shores, 
held  back  only  by  passport  restrictions  and  food  scarcity  abroad. 
Whether  these  men  will  be  replaced  by  others  is  not  known.  The 
land  which  once  held  the  imagination  of  all  wanderers  is  now  dis- 
tanced by  prospective  republics  and  by  South  America  and  Canada. 

Active  preparations  are  being  made  by  immigrants  for  leaving  the 
country  as  soon  as  passport  regulations  are  lifted,  the  peace  terms  are 
known,  and  food  conditions  abroad  will  permit.  The  estimates  vary 
between  one  and  three  millions.  Whatever  the  number,  today 
throughout  the  country  men  are  saving  money  to  return,  ticket  agents 
are  doing  a  landslide  business  in  reserving  space,  and  steamship  of- 
fices are  thronged  with  men  clamoring  to  go  back.  Strong  appeals 
are  being  made  to  immigrants  to  go  back  and  help  rebuild  the  home- 
land, and  recognition  in  position  and  leadership  are  being  held  out. 
The  half-naked  Slav  in  the  steel  mill  dreams  of  the  day  when  he  will 
help  direct  the  affairs  of  his  nation,  when  with  his  savings,  there 
reckoned  as  wealth,  he  will  become  a  leader,  and  he  dreams  not  in 
vain.     To  lose  a  million  workers  upon  whom  America  depends  to 

*iAdapted  from  "Immigration  in  Reconstruction,"  North  American 
Review,  CV,  199,  202-4.    Copyright,  1919. 


540  CURRENT  ECONOMIC  PROBLEMS 

fulfil  her  obligations  abroad  and  to  hold  the  lines  in  her  basic  indus- 
tries is  no  small  task.  To  exchange  them  for  battle-scarred  and  tired 
workers  requires  careful  adjustment.  To  return  the  man  with  license 
replaced  by  liberty,  with  the  sense  of  destruction  replaced  by  con- 
struction, with  revolution  stilled  by  evolution  in  exchange  for  the 
lawless  hordes  now  arising  in  Europe  is  no  small  responsibility.  To 
handle  this  vast  migration  of  peoples  with  the  least  possible  loss  of 
man  power,  of  waste  of  savings  and  resources,  and  of  stability  and 
purpose  is  worthy  of  America's  best  thought  and  effort,  and  it  has 
received  but  a  passing  thought  from  the  nation. 

America  has  no  policy  as  to  whether  it  will  attempt  to  retain  them 
and  if  so  what  the  methods  will  be,  or  whether  it  will  bid  them  God- 
speed, adding  as  much  as  possible  to  their  equipment  to  help  them  in 
the  new  task.  Every  immigrant  who  goes  back  could  have  been  made 
a  missionary  of  the  American  spirit,  an  advocate  of  American  busi- 
ness, a  salesman  of  American  goods,  as  well  as  a  champion  of  demo- 
cracy. Instead,  the  indifference  and  neglect  with  which  they  have 
been  treated  has  given  many  no  real  love  for  the  American  brand  of 
democracy.  Today,  allies  though  they  are,  they  are  being  exploited 
by  steamship  ticket  agents  who  are  selling  them  tickets  on  vessels 
whose  sailings  are  unknown,  and  no  provision  is  being  made  for  their 
care  at  the  seaports.  They  will  arrive  on  the  coast  with  their  savings, 
with  their  faces  turned  eastward  with  the  hope  of  seeing  those  from 
whom  they  have  not  heard  during  the  war,  and  America  will  permit 
them  to  be  exploited  as  they  leave  just  as  she  did  when  they  first 
came  to  her.  Every  such  tale  told  on  the  other  side  dims  the  glory 
of  the  Americans  who  fought  in  France. 

These  men  and  women  will  go  back  because  of  loyalty  to  the  suf- 
fering home  country,  to  see  what  has  happened,  to  settle  up  family 
matters,  to  help  the  home  country  and  to  work  out  democratic  ideals 
of  government  in  a  country  free  at  last.  They  will  be  men  of  position 
and  leadership  in  their  homeland.  It  is  of  vital  significance  what 
America  gives  them  to  take  back  with  them  and  what  their  last  im- 
pressions are.  These  depend  primarily  upon  what  their  experience 
and  life  and  treatment  in  this  country  have  been. 

The  nation  has  no  single  policy  which  reaches  all  of  its  immigrants 
and  which  surely  equip  them  to  interpret  America  to  their  native 
homes.  It  has  no  official  program  or  organization  for  safeguarding 
them  while  here  or  of  insuring  a  safe  and  sympathetic  departure.  It 
has  none  of  the  courtesy  of  a  host ;  it  has  not  the  powers  of  the  despot. 
If  America  were  to  decide  tomorrow  that  she  would  make  efforts  to 
keep  her  immigrants  and  interest  them  in  America,  along  what  lines 
would  she  proceed  ? 


PROBLEMS  OF  POPULATION  541 

246.     War  and  a  Population  Policy*^ 

BY  JAMES  A.   FIELD 

The  suggestions  of  the  following  paragraphs  are  not  put  forward 
as  prophecies,  but  rather  to  indicate  some  of  the  possibilities  which 
may  have  to  be  dealt  with  when  the  great  conflict  comes  to  an  end 
and  the  processes  of  readjustment  begin. 

The  direct  effect  of  the  war  upon  the  populations  of  the  belligerent 
nations  are  but  too  terribly  apparent.  Not  only  have  deaths  and 
incapacitating  casualties  run  into  the  millions ;  not  only  is  there  this 
enormous  loss  of  numbers — the  wastage  has  been  so  concentrated 
among  males  of  fighting  age  as  to  work  a  serious  distortion  of  the 
population  structure.  Economically,  the  proportion  of  producer  to 
consumers  has  been  reduced.  Biologically,  the  balance  of  the  two 
sexes  is  disturbed  in  the  reproductive  years  of  life  and  the  capacity 
of  monogamic  increase  is  correspondingly  impaired.  Even  though 
birth-rates  may  nevertheless  rally  at  the  close  of  the  struggle,  this 
disproportion  of  ages  and  sexes  cannot  thereby  be  corrected.  It  will 
leave  its  disfiguring  and  disabling  effects  for  decades  to  come. 

Nor  will  the  present  population  alone  bear  the  scars.  If  there  is  any 
significance  in  heredity,  and  any  truth  in  the  contention  that  modern 
warfare  accomplishes  an  adverse  selection  through  the  slaughter  of 
the  physically  bravest  and  best,  then  the  new  generation,  and  through 
it  posterity,  must  be  the  continuance  of  an  impoverished  breed.  This, 
too,  is  a  damage  that  mere  volume  of  births  can  hardly  mend.  The 
two  inches  of  average  stature  which  the  French  people  is  said  to  have 
lost  in  the  Napoleonic  wars  were  lost  in  spite  of  a  tolerably  vigorous 
revival  of  the  birth-rate  after  those  devastating  campaigns.  Though 
we  may  question  whether  the  selective  agency  of  war  operates  with 
such  obvious  effect  upon  the  human  characteristics  of  body  and  mind 
that  most  concern  us,  we  cannot  well  doubt  that  lasting  modifications 
of  our  racial  endowment  are  now  in  process  on  the  battlefields  of 
Europe.  It  does  not  follow  that  deterioration  will  be  at  once  manifest 
when  the  next  generation  succeeds  to  leadership  in  Western  civiliza- 
tion. Indeed,  it  is  more  to  be  feared  that  civilization  may  conform 
itself  imperceptibly  to  the  lowered  standards  of  a  depleted  stock. 
In  any  event,  history  that  might  have  been  is  now  cut  off  with  the 
lives  of  those  whose  unborn  descendants  would  have  made  it. 

With  the  return  of  peace  we  are  likely  to  see  the  beginnings  of 
new  public  policies  with  reference  to  problems  of  population.  For 
this  there  is  historical  precedent  as  well  as  inherent  probability.    The 

*2Adopted  from  "Problem  of  Population  After  the  War,"  American 
Economic  Review,  VII  (Suppl.),  2ZZ-27-    Copyright,  1917. 


542  CURRENT  ECONOMIC  PROBLEMS 

wars  of  1866-71,  which  left  a  unified  German  Empire  confronting  the 
shaken  military  power  of  France,  gave  a  special  incentive  to  the 
fostering  care  of  the  population  at  home  and  abroad  which  has 
marked  the  state  policy  of  imperial  Germany.  The  Malthusian  doc- 
trine, itself  an  indirect  product  of  the  French  Revolution,  and  long  a 
dominant  influence  in  French  economics,  almost  abruptly  lost  its 
vogue  in  France  when  first  the  menace  of  a  unified  Germany  and 
then  the  humiliation  of  actual  defeat  gave  rise  to  the  more  militaristic 
views  which  characterize  the  French  attitude  on  population  today. 
More  recently  the  growth  of  the  English  eugenics  movement  follow- 
ing the  Boer  War  has  afforded  a  fresh  reminder  that  population 
policies  are  often  tested  by  fighting. 

In  the  past  the  concern  of  nations  for  questions  of  population  has 
been  based  on  a  conviction  that  the  balance  of  population  is  the  bal- 
ance of  power.  Superiority  of  numbers  was,  of  course,  not  all;  it 
was  also  felt  that  the  requisite  national  wealth  should  be  forthcoming. 
Doubtless,  so  long  as  the  requisite  military  equipment  is  available.- 
the  military  importance  of  great  numbers  of  men  is  hard  to  exag- 
gerate. But  the  technique  of  modern  warfare  demonstrates  how  little 
can  be  accomplished  hereafter  by  men  alone.  War  is  more  and  more 
a  supreme  development  of  industry  and  finance.  Nations  which  pre- 
pare for  war  must  shape  their  policies  accordingly.  Quite  possibly 
the  economic  power  to  wage  a  successful  war  will  not  be  found  great- 
est where  there  has  been  the  greatest  increase  of  population. 

At  this  point  the  program  of  military  preparedness  encounters  the 
standard  of  living.  We  are  familiar  with  the  notion  that  a  man's 
standard  of  living  is  defined  by  the  wants  he  insists  upon  satisfying 
before  he  is  willing  to  enlarge  his  family.  If,  now,  he  is  compelled 
to  make  contributions  to  the  state  treasury  for  military  purposes,  this 
public  demand  upon  him  takes  precedence  over  even  the  preferred 
items  of  his  private  wants,  and  tends  by  so  much  more  to  reduce  the 
part  of  his  resources  which  might  be  devoted  to  provision  for  chil- 
dren. No  nation,  therefore,  that  has  to  reckon  with  the  voluntarily 
small  family  can  expect  to  add  indefinitely  to  the  burdens  of  taxation 
without  encountering  a  still  further  restriction  of  births.  Efforts  to 
achieve  preponderance  of  armaments  and  organization  may  threaten 
the  loss  of  preponderance  in  men. 

In  war  time  standards  of  living  change  and  their  effects  on  the 
birth-rate  are  modified.  Motives  of  patriotism  lead  to  a  cutting 
down  of  the  scale  of  personal  expenditure,  the  more  easily  because  at 
such  times  a  universal  rivalry  in  acts  of  patriotic  devotion  supplies 
an  equivalent  for  the  various  emulative  conventionalities  of  ordinary 
life.     Moreover,  by  challenging  the  nation's  power  to  survive,  war 


PROBLEMS  OF  POPULATION  543 

seems  to  intensify  the  demand  for  children.  Possibly  a  change  of 
attitude  is  foreshadowed  by  the  present  revulsion  of  feeling  against 
bearing  children  for  slaughter.  However,  all  these  considerations  are 
aspects  of  the  psychology  of  war.  They  accompany  phases  of  social 
life  which  are  happily  exceptional.  It  is  in  the  longer  intervals  of 
peace,  when  standards  of  living  operate  more  normally,  that  popula- 
tions are  replenished,  war  chests  are  filled,  and  the  debts  of  old  wars 
are  paid  off. 

Aside  from  all  questions  of  future  militalry  establishments  it  has 
yet  to  be  seen  if  the  stupendous  debts  that  are  now  rolling  up  can  be 
carried  and  eventually  repaid  without  serious  disturbances  in  what 
has  been  the  prevailing  rate  and  manner  of  the  increase  in  popula- 
tion. The  economic  choices  of  Englishmen  and  Frenchmen  and  Ger- 
mans for  years  to  come  will  have  been  already  exercised  for  them 
vicariously  to  an  oppressive  degree.  This  is  the  natural  consequence 
of  deficit  financing  in  times  of  war.  How  disturbing  may  be  the 
effects  upon  habits  of  consumption,  and,  through  standards  of  liv- 
ing, upon  population,  can  only  be  conjectured.  This  whole  vague 
but  momentous  issue  lends  new  interest  to  the  question  of  how  the 
burdens  of  war  taxation  are  to  be  distributed  in  the  coming  years 
among  economic  and  social  classes. 

The  problem  of  the  differential  birth-rate  is  likely  to  assume  a 
special  importance  in  the  United  States  after  the  war.  Our  well-to- 
do,  and  highly  conventionalized  classes  are  closely  influenced  in  their 
manner  of  life  by  the  ways  of  the  corresponding  classes  abroad.  H 
the  war  unsettles  economic  class  distinctions  in  Europe,  we  may 
expect  an  indirect  unsettlement  here.  But  we  have  our  own  disturb- 
ances as  v/ell.  The  munitions  contractor  and  the  whole  group  which 
he  typifies  will  confront  us  again  with  the  familiar  and  troublesome 
social  ferment  of  a  notiveau  riche  class  arising  from  the  commerce  of 
war  time.  So  long  as  birth-rates  are  sensible  to  emulative  standards 
of  living,  the  balance  of  increase  among  different  classes  will  hardly 
pass  unshaken  through  such  an  economic  readjustment.  We  must 
prepare  for  a  fresh  crop  of  small  families  with  large  fortunes,  and 
for  a  revival  of  restiveness  on  the  part  of  those  persons  who  see  in 
that  phenomenon  disregard  for  an  indispensable  condition  of  national 
welfare. 

In  current  discussion  of  questions  of  eugenics  and  birth  control, 
a  most  helpful  part  has  been  taken  by  women.  To  the  intelligent 
woman  the  importance  of  such  questions  is  self-evident.  She  looks 
upon  them  sanely,  frankly,  and  earnestly.  She  finds  herself  less  em- 
barrassed by  self -consciousness  in  such  discussions  than  do  most  men, 
because  she  is  more  conscious  of  the  race  interests  which  are  at  stake. 


544  CURRENT  ECONOMIC  PROBLEMS 

If  a  period  of  reaction  should  follow  the  war,  with  the  effect  of  exag- 
gerating masculine  virtues  and  reducing  the  opportunities  for  in- 
fluence permitted  to  women,  progress  in  dealing  with  fundamental 
problems  of  population  would  be  seriously  set  back. 

Our  national  consciousness  has  been  quickened  by  the  events  of 
the  last  two  years.  Unfortunately  national  interference  in  our  popu- 
lation questions  has  heretofore  been  too  typically  negative.  It  has 
manifested  itself  in  minor  restrictions  of  immigration  and  in  the 
enactment  and  sporadic  enforcement  of  censorious  blue  laws  designed 
to  compel  parenthood  through  ignorance.  But  a  changed  attitude 
may  come  with  our  desire  for  a  thorough-going  national  prepared- 
ness and  with  the  awakening  sense  of  our  obligations,  as  a  nation  in  a 
world  of  nations. 

Precisely  what  form  a  national  population  policy  might  best  take 
in  this  country  remains  problematical.  Probably  it  would  provide  for 
the  adequate  segregation  and  care  of  hereditary  defectives.  Possibly 
it  would  include  a  system  of  maternity  benefits.  Certainly  it  should 
recognize  that  parenthood  is  affected  with  a  public  interest,  and  that 
those  parents  who  accept  and  perform  their  function  with  a  due  sense 
of  its  social  responsibilities  must  in  fairness  be  safeguarded  and  sus- 
tained in  the  performance  by  the  community  which  is  a  beneficiary  of 
their  conduct.  Such  a  program  might  necessarily  grope  its  way 
slowly  at  first.  Yet,  if  an  enlightened  spirit  of  nationalism  shall  but 
lead  us  to  make  a  beginning,  then  at  least  one  good  thing  will  have 
come  out  of  the  war. 


XI 

THE  PROBLEMS  OF  ECONOMIC  INSECURITY 

That  "fortune  is  fickle,"  that  "life  is  insecure,"  and  that  "no  one  knows 
what  a  day  may  bring  forth,"  are  among  the  oldest  and  the  best  attested 
generalizations  from  human  experience.  The  problems  associated  with  insuf- 
ficiency of  food,  accident,  sickness,  and  old  age — with  sowing  where  one  never 
reaps — we  have,  quite  proverbially,  always  had  with  us.  But  under  modern 
industrial  conditions,  in  a  developing  system,  such  questions  are  so  closely 
related  to  the  whole  complex  of  life  that  it  is  necessary  for  us,  collectively  as 
well  as  individually,  to  "take  thought  for  the  morrow." 

The  machine  system,  production  on  a  large  scale,  pecuniary  competition, 
dependence  on  distant  and  future  markets,  the  rapid  development  of  technique, 
the  delicate  organization  of  the  "industrial  machine"  and  the  scheme  of  prices, 
the  currents  which  carry  the  shock  of  disturbance  throughout  the  system,  the 
alternation  of  business  optimism  and  pessimism,  the  violent  rhythm  of  the 
economic  cycle,  the  onward  sweep  into  an  unknown  future — all  of  these  things 
prevent  us  from  adequately  guarding  against  what  the  morrow  has  in  store. 
The  insecurity  of  capital  is  attested  by  failures  to  find  purchasers  for  goods, 
by  falling  dividends,  by  business  failures,  by  the  sudden  disappearance  of 
capital  values.  But  these  things  were  discussed  in  connection  with  the  eco- 
nomic cycle.    It  is  the  insecurity  of  the  laborer  which  concerns  us  here. 

To  grasp  the  problem  as  a  whole  we  must  appreciate  the  peculiar  position 
of  the  laborer  in  the  machine  system.  This  can  best  come  from  contrasting, 
say,  the  villein  on  the  manor  with  the  modern  industrial  "hand."  Custom 
granted  to  the  former  the  use  of  the  same  land  year  after  year,  exacted  from 
him  a  fixed  rent,  forbade  his  dispossession,  and  made  his  position  permanent. 
He  and  the  land  formed  an  inseparable  industrial  unit :  there  was  always  some- 
thing for  him  to  work  with;  what  he  produced  he  had.  The  problem  of  want 
might  indeed  confront  him ;  but  it  was  associated  with  a  raid  of  an  alien  feudal 
lord  upon  his  manor  or  the  failure  of  the  elements  to  grant  a  full  yield  from 
the  earth.  The  group  to  which  he  belonged  was  established  upon  a  "personal" 
basis,  and  was  possessed  of  a  spirit  of  solidarity.  He  possessed  as  long  as  they 
possessed. 

In  modern  industrial  society,  on  the  contrary,  there  is  no  permanent  asso- 
ciation of  the  laborer  with  the  instruments  of  production.  He  secures  equip- 
ment with  which  to  work  by  means  of  a  "contract,"  expressed  in  pecuniary 
terms,  and  running  for  a  stipulated  period.  He  owns  no  equities  in  the  prop- 
erty with  which  he  works.  When  the  contract  expires,  it  need  not  be  renewed. 
No  other  property  owner  is  compelled  to  make  a  new  contract  with  him.  The 
bait  of  higher  wages,  drawing  him  from  place  to  place,  is  likely  to  prevent 
his  identification  with  a  group  animated  by  a  spirit  of  solidarity.  He  has  the 
tremendous  advantages  which  come  from  freedom  of  movement  and  the 
chance  to  take  advantage  of  the  best  opportunity  which  presents  itself.  He  has 
the  disadvantages  which  attend  short-time  contracts.  These  last  are  out- 
growths of  two  sets  of  conditions;  first,  those  affecting  employment,  causing 
it  to  increase  or  decrease,  and  to  pay  higher  or  lower  wages ;  and  second,  his 
own  industrial  powers,  which  may  be  partially  impaired  or  even  totally  col- 
lapse, from  accident  or  sickness  to  which  he  is  exposed.  When  they  are  gone, 
as  they  will  eventually  be  in  old  age,  he  has  no  respectable  surety  of  support. 

S4S 


546 


CURRENT  ECONOMIC  PROBLEMS 


This  larger  problem  involves  several  minor  problems,  very  closely  con- 
nected, and  yet  possessed  each  of  its  peculiar  aspects.  Unemployment,  per- 
haps the  most  difficult  of  these,  is  closely  associated  with  the  short-time  con- 
tract. With  changing  business  conditions,  the  employer,  who  is  dependent  upon 
pecuniary  returns,  may  find  it  impossible  to  renew  old  contracts.  Changes  in 
technique,  the  disappearance  of  his  market,  and  a  thousand  other  causes  may 
contribute  to  this  result.  It  is  rendered  more  serious  by  the  ebb  and  flow  in 
the  demand  for  labor,  which  is  closely  associated  with  the  rhythm  of  the 
business  cycle.  Unfortunately  the  supply  of  labor,  unlike  currency,  is  not 
possessed  of  the  necessary  elasticity  to  meet  the  changing  conditions.  The 
risks  are  too  unpredictable  for  insurance  to  become  more  than  a  palliative. 
The  solution  of  the  larger  problem  is,  in  general,  associated  with  that  of  the 
other  problems  of  the  cycle. 

Industrial  accidents  occur  because  we  have  not  yet  learned  absolutely  to 
control  the  dangerous  natural  forces  which  we  have  pent  up  in  our  machines, 
and  because  we  have  not  learned  properly  and  exactly  to  adjust  our  move- 
ments to  these  huge  engines  of  production — and  destruction.  In  general  their 
causes  are  resident  in  the  system  as  a  whole  and  cannot  be  directly  imputed 
to  "individuals."  Unfortunately,  however,  their  consequences  may  be  quite 
concentrated.  They  are  no  respecters  of  persons,  and  are  as  likely  as  not  to 
rob  of  their  productive  abilities  laborers  who  have  families  dependent  upon 
them.  The  problem  involves:  first,  a  prevention  of  industrial  accidents,  at- 
tended as  they  are  with  great  losses  of  productive  power ;  and  second,  the 
devising  of  some  legal  measure  to  compensate  the  injured  and  innocent  party 
for  his  loss. 

Sickness  and  old  age  are  serious  social  problems.  The  former,  through 
the  absence  of  the  laborer  and  the  breaks  in  the  productive  process  which  his 
absence  entails,  piles  up  huge  economic  costs.  Unless  assistance  be  rendered 
at  the  time  of  stress,  sickness  may  lead  to  a  great  loss  of  productive  power 
and  in  many  cases  to  permanent  dependence.  Provision  for  old  age,  under 
short-time  labor  contracts,  is  difficult  and  rarely  is  adequate.  But,  even  if 
individually  made,  there  is  grave  doubt  whether  the  saving  involved  does  not 
deplete  the  income  to  such  an  extent  as  seriously  to  cripple  efficiency.  At  any 
rate  the  feeling  of  insecurity  is  likely  to  hinder  the  laborer's  performance  of  his 
work.  A  scheme  of  insurance  should  be  able  greatly  to  reduce  the  wastes 
incident  to  both  of  these  universal  occurrences.  What  is  needed  is  a  long- 
time calculation,  based  on  the  whole  life  of  the  laborer,  not  a  series  of  short- 
time  calculations  such  as  labor-contracts  make  necessary. 

Finally  there  is  the  problem  of  insecurity  due  to  wages  too  low  to  yield 
a  decent  standard  of  living.  There  is  just  now  a  disposition  to  try  to  solve 
this  problem  by  the  establishment  of  "minimum-wage  scales."  The  problem 
IS  one  of  the  most  difficult  in  the  field  of  economics.  If  the  "natural,"  or  com- 
petitive, wage  is  to  be  set  aside  as  too  low,  what  standard  can  be  found  to 
determine  the  proper  wage?  Will  there  not  be  evasion  of  laws  prescribing 
"artificial"  wages?  To  prevent  this,  will  not  the  government  be  compelled 
to  regulate  prices,  service,  hiring  and  discharge,  accounting  systems,  discipline, 
etc?  Will  not  the  experience  of  the  government  in  attempting  to  prevent 
rebates  be  duplicated?  What  will  be  the  influence  of  regulation  on  the  in- 
vestment of  capital  in  the  industries  involved?  To  what  lengths,  and  to  the 
adoption  of  what  new  social  schemes,  will  this  policy  carry  us?  Can  the 
project  be  made  to  succeed  without  a  supplementary  control  of  the  supply  of 
labor?  Would  it  not  be  better  to  try  to  solve  the  question  through  an  attempt 
to  decrease  the  numbers  of  the  lower  class,  and  through  technical  education? 
It  seems,  from  the  study  which  we  made  above  of  "artificial  price  determina- 
tion," that  prices  seriously  at  variance  with  competitive  prices  cannot  be 
enforced.  _  Such  an  attempt  would  have  far  greater  chances  of  success  if 
accompanied  by  efiforts  to  restrict  the  supply  or  increase  the  efficiency  of  labor. 
A  conscious  "control  of  births,"  a  restriction  of  immigration,  vocational  guid- 
ance, and  compulsory  technical  training  should  do  much  to  make  the  minimum 


PROBLEMS  OF  ECONOMIC  INSECURITY  547 

wage  effective.  If  we  can  wait  for  slowly  changing  conditions  to  produce 
results,  and  if  we  do  not  force  a  single  proposal  to  carry  the  whole  burden  of 
raising  low  wages,  eventually  we  should  expect  success. 

The  problem  of  economic  insecurity  occurs  in  its  most  aggravating  form 
among  unskilled  and  unorganized  laborers.  State  aid  will  help  them ;  but  it 
will  not  free  them  from  the  necessity  of  working  out  their  own  salvation. 
Skilled  and  organized  laborers  should  be  able  to  solve  their  own  problem 
through  their  efifective  device  of  collective  bargaining. 


A.     INSECUmTY    UNDER   MODERN    INDUSTRIALISM 
247.     Competition  and  Personal  Insecurity^ 

BY  THOMAS  KIRKUP 

Perhaps  the  most  painful  feature  of  the  workingman's  lot  is  the 
insecurity  of  his  position.  During  the  long  periods  of  depression 
work  is  scarce  and  precarious,  and  he  must  go  where  he  has  a  chance 
of  finding  it.  At  all  times  the  changes  in  the  labor  market  are  so 
great  and  unexpected  that  he  can  hardly  calculate  upon  a  settled  ex- 
istence. Continual  fluctuations  of  trade  force  him  to  move.  He  has 
no  control,  or  only  a  very  partial  control,  over  the  economic  and 
social  conditions  under  which  he  must  work.  A  settled  home,  a 
piece  of  land  for  a  garden,  a  fixed  outlook  for  his  family,  and  a 
reasonable  prospect  of  a  happy  and  comfortable  old  age,  untroubled 
by  the  horror  of  losing  such  savings  as  he  may  have  made,  through 
want  of  employment,  and  of  ending  his  days  in  a  workhouse — these 
for  a  large  proportion  of  the  workmen  in  the  industrial  centers  are 
unattainable  blessings.  Yet  they  are  unquestionably  such  as  every 
decent  and  honorable  working  man  has  a  right  to  expect. 

This  condition  of  insecurity  under  the  existing  system  of  com- 
petition, however,  is  by  no  means  a  special  evil  of  the  workman. 
It  is  the  common  lot  of  all  who  are  involved  in  it,  and,  not  the  least, 
of  the  capitalists  who  are  exposed  to  ruin  by  it.  The  conditions  of 
industry  are  not  only  beyond  the  control  of  the  w^orkmen  who  serve 
under  the  capitalistic  system.  They  are  beyond  the  effective  con- 
trol also  of  the  individual  capitalists  whose  function  it  is  to  direct 
them,  so  that  competition  frequently  degenerates  into  disorder,  and 
into  an  exterminating  war  carried  on  with  all  the  weapons  permit- 
ted by  the  law,  and  with  many  not  permitted  by  law — underselling, 
adulteration,  fraud,  bribery,  oppression  of  labor.  In  times  when  in- 
dustry is  expanding,  this  may  not  be  so  apparent,  but  when  trade 
becomes  dull,  stationary,  or  retrograde,  the  struggle  grows  painful, 
and  to  many  of  the  competitors  disastrous.     In  this  struggle  many 

^Adapted  from  An  Inquiry  into  Socialism,  pp.  68-74.  Copyright  by  Long- 
mans, Green  &  Co.,  1907. 


548  CURRENT  ECONOMIC  PROBLEMS 

capitalists  are  ruined,  dragging  down  with  them  numbers  of  work- 
men who  have  no  control  of  their  economic  position,  and  are  help- 
less under  the  calamity. 

This  insecurity  is  essentially  connected  with  the  speculative  char- 
acter of  the  competitive  business.  As  production  is  so  often  carried 
on  for  a  market  of  unknown  and  incalculable  extent,  and  for  prices 
which,  even  if  obtained,  cannot  be  accurately  foreseen,  uncertainty 
must  very  greatly  prevail,  and  the  speculative  spirit  must  power- 
fully affect  the  general  course  of  business.  This  spirit  of  specula- 
tion culminates  in  the  great  Exchanges,  disturbs  legitimate  trade, 
and  not  infrequently  throws  into  insecurity,  panic,  and  disorder  the 
industrial  operations  of  the  country,  sometimes  of  the  civilized  world. 

In  the  history  of  the  capitalistic  system  nothing  is  so  extraor- 
dinary as  the  rapid  development  of  mechanical  power.  It  is  only 
natural,  when  the  prizes  of  success  are  so  enormous  and  the  penal- 
ties of  failure  so  severe,  that  human  ingenuity  and  energy  should 
be  wonderfully  quickened.  This  development  of  industrial  power 
still  continues  in  every  country  where  modern  methods  have  been 
introduced.  But  there  is  a  serious  evil  connected  with  it.  This  is 
the  fact  that  labor,  which  is  one  of  the  greatest  factors  of  produc- 
tion, is  thrown  out  of  employment  through  this  excessive  develop- 
ment of  machinery.  But  as  the  laborers  form  the  bulk  of  the 
population  and  should  be  by  far  the  largest  purchasers,  the  very 
force  which  tends  to  over-fill  the  markets  tends  also  to  restrict  the 
purchasing  power  of  the  majority  of  the  community.  Thus  industry 
under  the  competitive  system  runs  and  must  run  in  a  vicious  circle. 

All  the  phenomena  of  competitive  anarchy  find  their  worst  de- 
velopment in  the  great  commercial  and  industrial  crises  which  con- 
tinually recur,  and  now  threaten  to  become  not  only  universal  but 
chronic.  It  is  unnecessary  to  recount  the  familiar  phenomena  of  an 
industrial  crisis.  We  have  a  multitude  of  competing  capitalists  of 
every  class  with  a  market  which  may  be  as  wide  as  the  world.  Each 
has  a  vague  prospect  of  vast  possibilities  of  gain  before  him,  and 
when  trade  is  favorable  each  is  anxious  to  make  the  most  of  his 
opportunities.  Machinery  is  improved,  establishments  are  enlarged 
and  better  organized,  production  grows  lively,  vigorous,  and  rapid 
in  an  ever  increasing  ratio  till  it  becomes  an  impetuous  and  feverish 
rush.  Before  long  the  over-filled  markets  are  unable  to  take  off  the 
enormous  supply.  Goods  will  not  sell.  Embarrassments  set  in, 
followed  by  forced  sales  at  any  price.  Inflation  and  over-confidence 
give  place  to  insecurity  and  panic.  Then  comes  the  crash  result- 
ing in  ruin  to  thousands  of  capitalists  and  in  widespread  depression 
and  stagnation.     Hundreds  of  thousands  of  workmen  are  thrown 


PROBLEMS  OF  ECONOMIC  INSECURITY  549 

out  of  employment.  All  the  classes  that  depend  on  the  operations 
of  capital,  that  is  to  say  the  entire  society,  suffer  more  or  less  from 
the  prevailing  depression.  And  we  have  the  fearful  spectacle  of 
starving  multitudes  in  the  midst  of  overflowing  markets  and  store- 
houses ;  superabundant  food  and  clothing  and  all  the  other  means 
of  subsistence,  comfort  and  culture,  but  inaccessible  even  to  those 
who  are  most  anxious  to  work ;  vast  numbers  of  men  ruined  through 
the  very  effectiveness  and  perfection  of  the  productive  forces  which 
they  have  themselves  created.  The  workers  starve  because  they 
have  produced  too  much  and  too  well ;  through  the  action  of  mechan- 
ical forces  which  have  been  created,  but  are  not  duly  controlled  by 
man. 

So  long  as  these  productive  forces  are  wielded  in  such  a  chaotic 
way  by  private  capitalists  competing  for  a  world-market,  without 
adequate  knowledge  of  its  needs,  without  arrangement  with  each 
other,  without  system  and  prevision,  so  long  must  such  disorder  last. 
The  capitalist,  too,  suffers  fearfully,  but  it  is  the  workman  that  must 
usually  bear  the  heaviest  burden  of  privation  and  wretchedness. 

248.     Machinery  and  the  Demand  for  Labor- 

BY  JOHN  A.  HOBSON 

The  motive  which  induces  capitalist  employers  to  introduce  into 
an  industry  machinery  which  shall  either  save  labor,  by  doing  the 
work  which  labor  did  before,  or  assist  labor  by  making  it  more 
efficient,  is  a  desire  to  reduce  the  expense  of  production.  A  new 
machine  either  displaces  an  old  machine,  or  it  undertakes  a  process 
of  industry  formerly  done  by  hand  labor  without  machinery. 

When  a  new  process  is  first  taken  over  by  machinery  the  ex- 
penses of  making  and  working  the  machines,  as  compared  with  the 
expense  of  turning  out  a  given  product  by  hand  labor,  will  involve 
a  net  diminution  of  employment.  Proof  of  this  is  the  introduction 
of  the  new  machinery;  otherwise  no  economy  would  be  effected. 
Neither  in  economic  theory  nor  in  industrial  practice  is  there  any 
justification  for  the  belief  that  the  net  result  of  improved  machinery 
is  a  maintenance  or  an  increase  of  employment  within  the  particular 
trade,  or  even  within  the  group  of  the  interdependent  trades  en- 
gaged in  producing  or  supplying  a  class  of  commodities.  Still  less 
support  is  there  for  this  belief  as  applied  to  the  trade  of  a  par- 
ticular locality  or  national  area.     While  the  introduction  of  new 

^Adapted  from  The  Evolution  of  Modern  Capitalism  (new  and  revised 
edition),  pp.  317-34.    Published  by  Charles  Scribner's  Sons,  1906. 


550  CURRENT  ECONOMIC  PROBLEMS 

labor-saving  machinery  in  type-setting  and  printing  has  been  fol- 
lowed by  so  large  an  expansion  of  business  as  to  employ  increased 
numbers  of  workers,  recent  improvements  in  most  British  textile 
mills,  cotton,  woolen  and  hemp  mills,  have  been  followed  by  an  ab- 
solute reduction  of  employment.  Statistics  point  to  the  conclusion  that 
the  further  a  nation  advances  in  the  application  of  labor-saving  ma- 
chinery to  the  production  of  goods  which  satisfy  the  primary  needs 
of  the  population,  the  smaller  the  proportion  of  the  total  employed 
class  engaged  in  these  productive  processes.  The  best  available  sta- 
tistics indicate  that  the  proportion  of  employment  afforded  by  the 
staple  manufacturers  as  a  whole  diminishes  after  modern  machine 
methods  are  well  established,  and  that  the  tendency  is  strongest  in 
those  manufacturers  engaged  in  supplying  ordinary  classes  of  tex- 
tile, metal,  and  other  goods  in  the  home  markets. 

In  order  to  judge  the  net  effect  of  labor-saving  machinery  upon 
the  volume  of  employment,  a  wider  view  is  necessary.  If  the  first 
effect  is  to  cheapen  goods,  we  need  not  look  to  the  expansion  of 
demand  for  this  class  of  goods  to  absorb  the  labor  which  it  is  the 
object  of  the  machine  to  displace.  We  must  look  to  the  expansion 
of  demand  for  other  sorts  of  goods  due  to  the  application  of  the 
elements  of  income  saved  by  the  fall  of  prices  in  the  first  class  of 
goods.  For  instance,  if  cotton  goods  are  cheaper  owing  to  im- 
proved methods  of  production,  the  chief  result  may  be  to  increase 
the  demand  for  furniture. 

This  wider  outlook  enables  us  to  conclude  that  though  the  effect 
of  machinery  may  be  a  reduction  of  employment  in  a  special  trade  or 
group  of  trades,  the  general  result  must  be  to  maintain  the  same 
aggregate  volume  of  employment  as  before,  provided  the  income 
liberated  from  a  particular  demand  is  applied  to  other  demands  for 
commodities.  If,  as  may  be  objected,  there  is  a  simultaneous  ten- 
dency to  reduce  the  prices  of  most  articles  of  ordinary  consumption, 
by  applying  machine  methods  of  production,  the  normal  result  would 
be  to  stimulate  new  wants,  and  so  to  create  new  channels  of  produc- 
tion yielding  employment  to  displaced  labor.  That  this  is  the  fact  in 
the  world  of  industry  no  one  can  seriously  doubt. 

If  the  improvements  of  machine  methods  were  regular,  gradual, 
and  continuous  in  the  several  industries,  no  considerable  effect  in 
reducing  the  volume  of  employment  would  occur.  But  where  in- 
dustrial improvements  are  sudden,  irregular,  and  incalculable,  na- 
tural adjustment  is  not  possible.  It  is  this  irregular  action  which 
has  proved  so  injurious  to  large  bodies  of  laborers  whose  employ- 
ment is  subjected  to  a  sudden  and  large  shrinkage.  From  time  to 
time  great  numbers  of  skilled  workers  find  the  value  of  their  per- 


PROBLEMS  OF  ECONOMIC  INSECURITY  551 

sonal  skill  cancelled,  and  are  driven  either  to  acquire  a  new  skill 
or  to  compete  in  the  unskilled  market.  Yet  history  certainly  shows 
that  the  fuller  application  of  great  inventions  has  been  slow,  allow- 
ing ample  time  for  adjustment.  In  most  cases  where  distress  has 
been  caused,  the  directly  operative  influence  has  not  been  intro- 
duction of  machinery,  but  sudden  change  of  fashion.  The  sud- 
denly executed  freaks  of  protective  tariffs  have  also  been  a  source 
of  disturbance.  So  far  as  the  displacement  has  been  due  to  ma- 
chinery sufficient  warning  has  been  given  to  check  the  further  flow 
of  labor  into  such  industries  and  to  divert  it  into  other  businesses. 
Moreover  the  changes  which  are  taking  place  in  certain  machine 
industries  favor  the  increasing  adaptability  of  labor.  Many  machine 
processes  are  either  common  to  many  industries,  or  are  so  narrowly 
distinguished  that  a  fairly  intelligent  workman  accustomed  to  one 
can  soon  learn  another. 

Whether  machinery,  apart  from  the  changes  due  to  its  intro- 
duction, favors  regularity  or  irregularity  of  employment,  is  a  ques- 
tion to  which  a  tolerably  definite  answer  can  be  given.  When  the 
employer  has  charge  of  enormous  quantities  of  fixed  capital,  his 
individual  interest  is  strongly  in  favor  of  full  and  regular  employ- 
ment of  labor.  On  the  other  hand  great  fluctuations  in  price  occur 
in  those  commodities  which  require  for  their  production  a  large 
proportion  of  fixed  capital.  These  fluctuations  in  prices  are  ac- 
companied by  corresponding  fluctuations  in  wages  and  irregularity 
of  employment.  Why  this  contradiction?  It  is  that  in  the  several 
units  of  machine  production  we  have  admirable  order  and  adjust- 
ment of  parts.  In  the  aggregate  of  machine  production  we  have 
less  organization  and  more  speculation.  Industry  has  not  yet  adapted 
itself  to  the  changes  in  the  environment  produced  by  machinery. 
That  is  all.  Modern  machinery  has  enormously  expanded  the  size 
of  markets,  the  scale  of  competition,  the  complexity  of  demand,  and 
production  is  no  longer  for  a  small,  local,  present  demand,  but  for 
a  large,  world,  future  demand.  Hence  machinery  is  the  direct  cause 
of  the  fluctuations  which  bring  irregularity  of  employment. 

But  there  is  another  force  which  makes  for  an  increase  of  specu- 
lative production.  It  has  been  seen  that  the  proportion  of  the 
workers  engaged  in  producing  comforts  and  luxuries  is  growing, 
while  the  proportion  of  those  producing  the  prime  necessities  of  life 
is  declining.  Hence  the  effect  of  machinery  is  to  drive  ever  and 
ever  larger  numbers  of  workers  from  the  less  to  the  more  unsteady 
employments.  Moreover,  there  is  a  marked  tendency  for  the  de- 
mand for  luxuries  to  become  more  irregular  and  less  amenable  to 
calculation,  and  a  corresponding  irregularity  is  imposed  upon  the 


552  CURRENT  ECONOMIC  PROBLEMS 

trades  producing  them.  This  is  true  of  many  season  and  fashion 
trades.  The  irregularity  of  these  trades  prevents  them  from  reap- 
ing the  full  advantages  of  the  economies  of  machinery.  A  larger 
proportion  of  town  workers  is  constantly  passing  into  trades  in 
which  changes  in  taste  and  fashion  are  largely  operative. 

Thus  there  are  three  modes  in  which  modern  capitalist  methods 
of  production  cause  temporary  employment : 

1.  Continual  increments  of  labor-saving  machinery  displace 
laborers,  compelling  them  to  remain  unemployed  until  they  have 
adapted  themselves  to  the  new  situation. 

2.  Miscalculation,  to  which  machine-industries  with  a  wide  un- 
stable market  are  particularly  prone,  bring  about  periodic  depres- 
sions of  trade,  throwing  out  of  employment  large  bodies  of  work- 
ers. 

3.  Economies  of  machine  production  drive  an  increasing  pro- 
portion of  laborers  into  trades  supplying  commodities,  the  demand 
for  which  is  more  irregular,  and  in  which  the  fluctuation  in  the  de- 
mand for  labor  must  be  greater. 

249.     Economic  Insecurity  and  Insurance^ 

BY  WILLIAM  F.  WILLOUGHBY 

In  a  broad  sense  all  forms  of  insurance  may  be  described  as  social 
insurance,  since  social  ends  are  attained  by  them.  As  the  term  is 
now  employed,  however,  it  is  usually  restricted  to  those  forms  of 
insurance  having  to  do  with  contingencies  affecting  individuals  as 
opposed  to  those  affecting  property.  It  looks  to  the  conferring  of 
pecuniary  benefits  in  all  those  cases  where  for  any  reason  the  capacity 
of  the  individual  to  provide  for  the  support  of  himself  and  those 
dependent  upon  him  is  lessened  or  destroyed.  Stated  in  another  way, 
social  insurance  sets  to  itself  the  task  of  meeting  the  problem  of  the 
economic  insecurity  of  labor. 

What  are  the  contingencies  causing  this  economic  insecurity 
against  which  provision  must  be  made  in  some  way?  On  examina- 
tion we  find  that  a  man's  ability  to  support  himself,  and  to  make  due 
provision  for  those  dependent  upon  him,  is  lessened  or  cut  off: 
(i)  by  his  meeting  with  an  accident  incapacitating  him,  temporarily 
or  permanently,  partially  or  completely,  from  labor;  (2)  by  his 
falling  sick;  (3)  by  his  becoming  permanently  disabled  for  labor 
as  a  result  of  old  age  or  failing  powers;  (4)  by  his  death,  leaving 

^Adapted  from  "The  Problem  of  Social  Insurance:  An  Analysis,"  Ameri- 
can Labor  Legislation  Review,  III  (1913),  159-60. 


PROBLEMS  OF  ECONOMIC  INSECURITY  553 

a  widow,  children,  or  others  without  adequate  means  for  their  sup- 
port; and  (5)  by  his  inability  to  secure  remunerative  work. 

To  meet  each  of  these  contingencies  resort  has  been  had  to  the 
principles  of  insurance.  Social  insurance  is  thus  a  term  that  has 
been  coined  to  serve  as  a  collective  designation  of:  (i)  Insurance 
against  accidents;  (2)  insurance  against  sickness;  (3)  insurance 
against  old  age  and  invalidity ;  (4)  insurance  against  death,  or,  as  it 
is  more  usually  called,  life  insurance;  and  (5)  insurance  against  un- 
employment. 

Could  a  just  and  workable  plan  of  insurance  covering  these 
several  points  be  worked  out,  the  problem  of  the  economic  security 
of  labor,  one  of  the  greatest  with  which  society  now  has  to  deal, 
would  be  solved.  Is  there  any  social  problem  more  fundamental  or 
more  deserving  of  unremitting  effort? 

Our  first  analysis  thus  resolves  the  problem  of  social  insurance 
into  these  five  branches.  This  division  is  made  not  merely  in  order 
to  bring  out  the  content  or  orbit  of  social  insurance.  It  is  funda- 
mental, since  each  of  these  branches  of  insurance  has  its  own  special 
features  and  problems.  Insurance,  notwithstanding  the  simplicity 
of  the  ideas  underlying  it  as  a  device,  is  an  exceedingly  technical 
science.  Particularly  is  this  true  where  the  human  factor  has  to  be 
dealt  with.  Still  more  is  it  complicated  where  a  departure  is  con- 
templated from  the  system  of  purely  voluntary,  unencouraged,  un- 
aided use  of  the  device  on  the  part  of  individuals,  and  resort  is 
proposed  to  the  force  of  social  encouragement,  control  and  con- 
pulsion.  Each  of  these  five  branches  of  social  insurance  thus  has  its 
own  special  problems  and  considerations ;  they  are  united  only  in 
respect  to  their  ultimate  social  end. 

These  special  problems  can,  in  each  case,  be  distinguished,  for 
purposes  of  consideration,  into  three  distinct  classes:  (a)  the  social, 
(b)  the  administrative,  and  (c)  the  technical.  Of  these  the  first  is 
the  most  fundamental.  Under  this  head  falls  the  great  question  of 
upon  whom  shall  fall  the  burden  of  making  the  contributions  re- 
quired for  the  support  of  the  system.  No  real  progress  can  be  made 
until  we,  the  public,  have  reached  a  conclusion  regarding  the  problem 
of  justice  that  is  here  involved.  As  a  matter  purely  of  right,  of 
justice,  of  bringing  about  the  widest  possible  distribution  of  welfare, 
how  shall  the  financial  burden  entailed  by  the  system  be  distributed? 
In  seeking  to  reach  an  answer  to  this  question  we  find  that  the  choice 
lies  between  placing  the  burden  in  whole  or  in  part  upon  either: 
(i)  the  beneficiary,  or  workman,  (2)  the  employer,  (3)  the  industry 
in  which  the  workman  is  employed,  or  (4)  the  state. 


554  CUflRENT  ECONOMIC  PROBLEMS 

B.     UNEMPLOYMENT 
250.     Character  and  Types  of  Unemployment* 

BY  W.  H.  BEVERIDGE 

To  grasp  the  problem  of  unemployment  and  free  ourselves  from 
popular  but  erroneous  notions  on  the  subject,  we  must  first  get  a 
clear  impression  of  the  nature  of  the  industrial  system. 

The  popular  conception  is -of  industry  as  rigidly  limited — a  sphere 
of  cast  iron  in  which  men  struggle  for  living  room;  in  which  the 
greater  the  room  taken  by  any  one  man  the  less  must  there  be  for 
others;  in  which  the  greater  the  number  of  men  the  worse  must 
be  the  case  for  all.  The  true  conception  is  a  sphere  made  of  elastic 
material,  capable  of  expansion  and  being  in  fact  continually  forced 
to  expand  by  the  struggling  of  those  within.  Each  individual  ap- 
pears to  be  and,  no  doubt,  to  some  extent  is,  pressing  upon  the  room 
of  his  neighbors;  the  whole  mass  presses  upward  upon  the  limits 
within  which  it  is  for  the  moment  confined ;  the  result  of  a  particu- 
larly violent  struggle  of  one  man  for  the  room  of  others  may  be 
to  enlarge  appreciably  the  room  for  all. 

This  expansion  of  industry  cannot  readily  be  made  visible,  and  is 
nowhere  recorded  in  direct  and  comprehensive  figures.  It  is  and 
must  always  remain  something  of  a  mystery.  It  does  not  take  place 
evenly.  It  is  perhaps  not  a  thing  to  be  counted  on  forever.  The 
sphere  may  at  last  lose  its  elasticity  and  cease  to  respond  further  to 
the  increasing  pressure  from  within.  That,  if  it  ever  happens,  will 
mean  over-population,  a  diminishing  return  to  labor,  a  falling  stand- 
ard of  life,  and,  unless  the  growth  of  numbers  be  arrested,  a  grad- 
ual but  certain  return  to  barbarism  for  the  immense  majority  of 
people.  For  the  present  it  is  sufficient  to  say  that  the  time  has  not 
come ;  it  is  not  within  sight ;  it  can  barely  be  imagined.  For  the 
present  the  sphere  of  industry  retains  its  elasticity.  It  expands,  not 
indeed  steadily,  but  still  sufficiently  for  the  people.  It  absorbs  the 
generations  as  they  come.  It  yields  each  fresh  man  on  the  whole 
more  living  and  working  room  than  fell  to  the  lot  of  those  who  went 
before. 

Yet  with  all  this  comes  the  perpetual  cry  of  some  who  find  no 
living  and  working  room  at  all.  The  number  of  the  unemployed 
never  falls  to  zero.  Many  who  recognize  the  indisputable  facts  of 
the  expansion  of  industry  and  the  rising  standard  of  life  are  pron^ 
to  deny  directly  or  implicitly  the  existence  of  an  unemployment 

^Adapted  from  Unemployment:  A  Problem  of  Industry,  pp.  11-14.  Copy- 
right by  Longmans,  Green  &  Co.,  1908. 


PROBLEMS  OF  ECONOMIC  INSECURITY  555 

problem  at  all.  If  there  are  not  too  many  workmen  in  a  country, 
every  man  who  wants  to  work  must  be  able  to  obtain  it.  If  any  man 
fails  to  find  room  while  all  around  him  fresh  room  is  opening  up, 
he  must  be  either  unfit  or  unwilling  to  do  so.  He  must  be  "unem- 
ployable," incompetent,  lazy,  sick,  or  infirm. 

Yet  unemployment  is  not  to  be  explained  away  as  the  idleness  of 
the  unemployable.  As  little  can  it  be  treated  as  a  collection  of  acci- 
dents to  individual  working  people,  or  individual  firms.  It  is  too 
widespread  and  too  enduring  for  that.  While  the  final  absorption  of 
the  growing  population  in  the  growing  industry  is  accepted  as  being 
for  the  country  still  happilly  the  rule,  it  is  no  less  necessary  to  admit 
the  existence  of  facts  modifying  the  completeness  of  this  absorp- 
tion at  certain  times  and  places — indeed,  at  all  times  and  places. 
There  is  no  general  want  of  adjustment  between  the  increase  of 
the  people  and  the  expansion  of  industry,  between  the  rate  of  sup- 
ply of  fresh  labor  and  the  normal  growth  of  the  demand  for  it. 
There  are  specific  imperfections  of  adjustment  which  are  the  causes 
of  unemployment. 

One  of  these  has  long  been  recognized.  While  industry,  as  a 
whole,  grows,  specific  trades  may  decay,  or  change  in  methods  and 
organization.  The  men  who  have  learned  to  live  by  those  trades 
may  find  their  peculiar  and  hard-won  skill  a  drug  on  the  market  and 
themselves  permanently  displaced  from  their  chosen  occupations, 
while  lacking  both  the  youth  and  the  knowledge  to  make  their  way  in 
new  occupations. 

A  second  type  of  maladjustment  between  the  demand  for  and 
the  supply  of  labor  is  found  in  actual  fluctuations  in  industrial  activ- 
ity. Many  trades,  perhaps  most  trades,  pass  regularly  each  year 
through  an  alternation  of  busy  and  slack  seasons,  determined  by 
climate  or  social  habits,  or  a  combination  of  both.  Building  is  slack 
in  winter  and  busy  in  spring  and  summer.  Printers  find  least  to  do 
in  the  August  holidays  and  most  in  the  season  just  before  Christmas. 

Behind  and  apart  from  these  seasonal  vicissitudes  of  special 
trades,  and  affecting,  though  in  various  degrees,  nearly  all  trades  at 
about  the  same  time,  is  a  cyclical  fluctuation  in  which  periods  of 
general  depression  alternate  at  regular  intervals  with  periods  of  fev- 
erish activity.  At  such  times  of  depression  the  industrial  system 
does  appear  to  suffer  a  temporary  loss  of  elasticity ;  it  fails  for  a 
while  to  keep  pace  with  the  steady  growth  of  population ;  it  gives — 
in  a  phase  of  falling  wages  and  lowered  standards — an  object  lesson 
of  what  might  be  expected  if  the  supply  of  labor  should  ever  come 
permanently  to  outstrip  the  demand. 


556  CURRENT  ECONOMIC  PROBLEMS 

These  two  elements  in  the  problem  of  unemployment  have  long 
been  familiar.  A  third,  apparently  far  more  important  than  either 
of  the  occasional  transformations  of  industrial  structure  or  the  pe- 
riodic fluctuations  of  industrial  activity,  is  only  just  beginning  to 
receive  attention.  This  is  the  requirement  in  each  trade  of  reserves 
of  labor  to  meet  the  fluctuations  of  work  incidental  even  to  years  of 
prosperity.  The  men  forming  these  reserves  are  constantly  passing 
in  and  out  of  employment.  They  tend,  moreover,  to  be- always  more 
numerous  than  can  find  employment  together  at  any  one  time.  This 
tendency  springs  directly  from  one  of  the  fundamental  facts  of 
industry — the  dissipation  of  the  demand  for  labor  in  each  trade  be- 
tween many  separate  employers  and  centers  of  employment.  Its 
result  may  be  described  as  the  normal  glutting  of  the  labor  market. 
The  counterpart  of  such  glutting  is  the  idleness  at  every  moment  of 
some  or  others  of  those  engaged. 

The  three  factors  just  mentioned — changes  of  industrial  struc- 
ture, fluctuations  of  industrial  activity,  and  the  reserve  of  labor  rep- 
resent, not  indeed  all,  but  at  least  the  principal  economic  factors  in 
unemployment. 

251.     An  Ideal  System  of  Labor  Exchanges'^ 

BY  JOHN  B.  ANDREWS 

It  is  apparent  that  our  labor  market  is  unorganized  and  that  there 
is  a  tremendous  waste  of  time  and  energy  in  the  irregular  and  hap- 
hazard employment  of  workers.  This  waste  we  are  beginning  to 
appreciate,  but  methods  for  overcoming  it  in  America  have  thus  far 
proved  inadequate. 

The  first  and  simplest  method  of  bringing  workmen  and  work 
together  is  by  unsystematic  private  search.  A  man  without  work 
starts  from  home  and  drops  in  at  every  sign  of  "Help  Wanted."  This 
sign  is  the  symbol  of  inefficiency  in  the  organization  of  the  labor 
market.  The  haphazard  practice  of  tramping  the  streets  in  search 
of  employment  is  no  method  at  all.  It  insures  success  neither  to  the 
idle  worker  nor  to  the  employer.  On  the  contrary  by  its  very  lack  of 
system  it  needlessly  swells  the  tide  of  unemployment  and  often  leads 
to  vagrancy  and  crime. 

It  is  impossible  to  reckon  the  cost  to  the  community  of  this 
methodless  method.  Beyond  the  tremendous  waste  of  time,  there  is 
the  waste  incurred  in  putting  men  into  the  wrong  jobs.     The  law 

^Adapted  from  "A  National  System  of  Labor  Exchanges,"  New  Republic, 
I  (No.  8,  Suppl.),  1-5.    Copyright,  1914. 


PROBLEMS  OF  ECONOMIC  INSECURITY  557 

of  chance  decrees  that,  under  such  lack  of  care,  misfits  must  be  the 
rule. 

A  second  common  method  is  through  the  medium  of  advertising. 
About  2,000  newspapers  in  New  York  state  carry  every  year  some 
800,000  columns  of  "Help  Wanted"  and  "Situation  Wanted"  adver- 
tising, at  a  cost  of  about  $20,000,000 — an  expenditure  of  about  $5 
for  every  worker  in  the  state.  If  the  money  spent  brought  com- 
mensurate results  there  would  be  less  ground  for  complaint.  But 
unnecessary  duplication  of  work  and  expenses  by  employer  and 
employee  is  inevitable.  In  addition  to  expense,  newspaper  adver- 
tising possesses  inherent  possibilities  of  fraud  not  easy  to  detect. 
The  victimized  employee  seldom  seeks  legal  redress. 

Philanthropic  employment  bureaus  fail  mainly  because  the  taint 
of  charity  justly  or  unjustly  clings  to  them.  For  the  most  part  they 
have  become  bureaus  for  placing  the  handicapped.  Self-reliant  work- 
men are  accustomed  to  shun  such  agencies,  and  employers  do  not  gen- 
erally apply  there  for  efficient  labor. 

Private  employment  agencies,  doing  business  for  profit,  have 
sprung  up  in  all  large  cities.  No  fewer  than  eight  hundred  of  them 
have  been  licensed  in  New  York  City  alone.  While  many  of  them 
operate  with  a  reasonable  degree  of  efficiency,  their  general  character 
is  picturesquely  if  not  elegantly  indicated  by  their  soubriquet,  "em- 
ployment sharks."  Among  the  worst  evils  laid  at  the  door  of  the 
private  agencies  are  charging  extortionate  fees,  "splitting  fees  with 
employers  who  after  a  few  days  discharge  a  workman,  sending  ap- 
plicants to  places  where  there  is  no  work,  and  general  misrepresenta- 
tion of  conditions." 

Public  employment  bureaus  in  America  date  from  1890  when 
Ohio  authorized  the  first  state  system.  Today  there  are  seventy  or 
eighty  such  bureaus,  maintained  by  nineteen  states  and  a  dozen  or 
more  municipalities.  These  offices  charge  no  fees,  maintain  a  neutral 
attitude  in  time  of  labor  disturbances,  and  fill  positions  at  a  cost 
ranging  from  four  cents  to  two  dollars  apiece.  Notwithstanding  the 
work  of  a  few,  these  public  bureaus  are  still  far  from  furnishing  an 
adequate  medium  for  the  exchange  of  information  on  opportunities 
of  employment.  Fewer  than  half  of  the  states  are  represented.  Many 
of  the  managers  are  political  place-holders  of  worse  than  mediocre 
attainments.  Some  of  the  offices  exist  only  on  paper.  A  uniform 
method  of  record-keeping  has  yet  to  be  adopted.  Statistics  are  non- 
comparable  and  frequently  unreliable.  There  is  practically  no  ex- 
change of  information  between  various  offices  in  a  state  or  between 
states. 


558  CURRENT  ECONOMIC  PROBLEMS 

Although  there  are  many  causes  of  unemployment  other  than  the 
malorganization  of  the  labor  market,  these  cannot  be  successfully 
attacked  without  a  basis  in  comprehensive,  conscientiously  collected 
information  such  as  cannot  be  furnished  by  our  present  machinery 
for  dealing  with  the  problem.  Our  paucity  of  information  is  a  great 
hindrance  to  progress.  Any  scientific  law-making  on  the  programs 
of  social  insurance  and  of  vocational  guidance  must  be  grounded  on 
facts  or  relative  employment  and  unemployment  of  the  workers 
tabulated  by  trades,  by  sexes,  and  by  ages.  Without  a  nation-wide 
system  of  labor  exchanges  no  basis  can  exist  for  anticipating  in  an 
accurate  manner  the  ebbs  and  flows  of  the  demand  for  labor.  With- 
out concentration  of  the  information  now  collected  and  now  separ- 
ately held  in  thousands  of  organizations  throughout  the  land,  the  pos- 
sibility of  looking  into  the  future,  or  of  profiting  by  the  past,  is  out 
of  the  question. 

It  was  a  growing  realization  of  the  foregoing  facts  which  inevit- 
ably led  to  the  demand  for  a  federal  system  of  public  employment 
bureaus.  Such  a  system  would  cover  the  whole  country.  It  would 
supplement  and  assist  the  work  of  state  and  municipal  exchanges, 
dovetailing  them  with  its  own  organization  into  an  efficient  whole. 
Country-wide  co-operation  and  exchange  of  information  would  then 
be  an  accomplished  fact  instead  of  merely  a  hope.  Statistics  for  the 
study  of  unemployment  and  for  the  progressive  development  of  new 
tactics  on  the  campaign  against  it  would  be  coextensive  with  national 
boundaries  and  comparable  between  different  parts  of  the  nation. 
The  regulation  of  private  agencies  would  be  a  natural  function  of 
the  bureau,  and  the  troublesome  interstate  problem  would  be  solved 
by  an  interstate  remedy.  Finally  the  greater  resources  at  the  dis- 
posal of  the  federal  government  would  provide  better  facilities  for 
carrying  on  the  work  and  would  command  the  services  of  more  able 
social  engineers. 

To  combine  into  an  effective  organization  the  results  of  the  ripest 
experience,  a  national  bureau  of  employment  should  comprise  three 
main  divisions  :  (i )  the  central  office  at  Washington ;  (2)  a  number 
of  district  clearing-houses;  and  (3)  the  local  labor  exchanges.  Let 
us  briefly  sketch  the  special  functions  of  each. 

The  central  office  would  have  the  task  of  organizing  the  entire 
system.  Its  first  activity  would  be  the  establishment  and  conducting 
of  public  labor  exchanges.  These  should  be  built  up  with  careful 
regard  to  existing  state  and  municipal  bureaus  and  in  as  many  parts 
of  the  country  as  circumstances  require  and  finances  permit.    The 


PROBLEMS  OF  ECONOMIC  INSECURITY  559 

number  of  exchanges  need  not  be  constant,  but  can  be  varied  in  ac- 
cordance with  the  needs  of  the  labor  market. 

A  second  duty  would  be  that  of  co-operating  and  encouraging, 
assisting,  and  to  some  extent  regulating  all  the  public  employment 
offices  conducted  by  other  subdivisions  throughout  the  country — 
state,  county,  town,  or  village.  Here  is  the  great  field  for  the  stand- 
ardizing activities  of  a  federal  bureau.  The  scattered  public  agencies 
must  be  brought  into  co-operation  with  each  other  and  with  the 
federal  system.  It  could  devise  a  standard  record  system,  encourage 
its  adoption  by  the  various  agencies,  and  assist  them  in  installing  it. 
It  could  encourage  the  adoption  of  a  uniform  method  of  doing  busi- 
ness and  appraising  results. 

A  third  duty  would  be  the  division  of  the  country  into  districts 
and  the  inauguration  therein  of  district  clearing  houses.  The  fourth 
duty  would  be  to  carry  on  a  campaign  of  the  fullest  possible  publicity 
on  the  condition  and  fluctuation  of  the  country's  labor  market.  The 
fifth  and  last  important  function  of  a  federal  employment  bureau 
is  the  troublesome  one  of  regulating  private  employment  agencies. 

The  district  clearing-houses  already  mentioned  are  quite  distinct 
from  the  local  labor  exchanges  and  should  not  be  confused  with  them. 
The  clearing-house  finds  no  positions.  Its  functions  are  to  exchange 
information  between  the  local  exchanges  and  between  other  cor- 
respondents in  its  district,  to  receive  daily  reports  from  all  public 
exchanges  within  its  jurisdiction  and  reports  from  private  agencies 
at  least  weekly,  and  to  compile  and  publish  these  data  for  the  district. 
It  also  carries  on  an  interchange  of  information  with  the  clearing- 
houses in  other  districts.  It  is  the  channel  through  which  all  the 
officers  of  its  district  would  keep  in  constant  touch  with  the  national 
headquarters. 

The  functions  of  the  ultimate  units  in  this  system,  the  local  labor 
exchanges,  may  all  be  summed  up  in  the  words  "bringing  together 
workmen  of  all  kinds  seeking  employment  and  employers  seeking 
workmen.  The  good  superintendent  of  an  employment  office  will 
not  wait  behind  his  counter  for  employers  and  employees  to  hunt 
him  up ;  he  will  take  active  steps  in  the  process.  He  will  build  up  a 
clientele  among  both  parties  to  the  labor  contract. 

Thus  the  jurisdiction  of  the  projected  federal  bureau  would  ex- 
tend throughout  the  country.  In  addition  to  its  regulative  activities, 
it  would  operate  exchanges,  build  up  a  clearing-house  system  for 
employment  information,  and  publish  and  distribute  that  information 
wisely.  In  short  it  would  do  "everything  possible  to  aid  in  securing 
the  fullest  application  of  the  labor  force  of  the  country." 


560  CURRENT  ECONOMIC  PROBLEMS 

252.     United  States  Employment  Service^ 

BY  WOODROW  WILSON 

For  more  than  a  year  it  has  been  our  pride  that  not  our  armies  and 
navies  only  but  our  whole  people  is  engaged  in  a  righteous  war.  We 
have  said  repeatedly  that  industry  plays  as  essential  and  honorable 
a  role  in  this  great  struggle  as  do  our  military  armaments.  We  all 
recognize  the  truth  of  this,  but  we  must  also  see  its  necessary  implica- 
tions— namely,  that  industry,  doing  a  vital  task  for  the  nation,  must 
receive  the  support  and  assistance  of  the  nation.  We  must  recognize 
that  it  is  a  natural  demand — almost  a  right — of  anyone  serving  his 
country,  whether  employer  or  employe,  to  know  that  his  service  is 
being  used  in  the  most  effective  manner  possible.  In  the  case  of  labor 
this  wholesome  desire  has  been  not  a  little  thwarted  owing  to  the 
changed  conditions  which  war  has  created  in  the  labor  market. 

There  has  been  much  confusion  as  to  essential  products.  There 
has  been  ignorance  of  conditions — men  have  gone  hundreds  of  miles 
in  search  of  a  job  and  wages  which  they  might  have  found  at  their 
doors.  Employers  holding  government  contracts  of  the  highest 
importance  have  competed  for  workers  with  holders  of  similar  con- 
tracts, and  even  with  the  government  itself,  and  have  conducted 
expensive  campaigns  for  recruiting  labor  in  sections  where  the  supply 
of  labor  was  already  exhausted.  California  draws  its  unskilled  labor 
from  as  far  east  as  Buffalo,  and  New  York  from  as  far  west  as  the 
Mississippi,  Thus,  labor  has  been  induced  to  move  fruitlessly  from 
one  place  to  another,  congesting  the  railways  and  losing  both  time 
and  money. 

Such  a  condition  is  unfair  alike  to  employer  and  employe,  but 
most  of  all  to  the  nation  itself,  whose  existence  is  threatened  by  any 
decrease  in  its  productive  power.  It  is  obvious  that  this  situation 
can  be  clarified  and  equalized  by  a  central  agency — the  United  States 
Employment  Service  of  the  Department  of  Labor,  with  the  counsel 
of  the  War  Labor  Policies  Board  as  the  voice  of  all  the  industrial 
agencies  of  the  government.  Such  a  central  agency  must  have  sole 
direction  of  all  recruiting  of  civilian  workers  in  war  work  and,  in  tak- 
ing over  this  great  responsibility,  must  at  the  same  time  have  power  to 
assure  to  essential  industry  an  adequate  supply  of  labor,  even  to  the 
extent  of  withdrawing  workers  from  nonessential  production.  It 
must  also  protect  labor  from  insincere  and  thoughtless  appeals  made 
to  it  under  the  plea  of  patriotism,  and  assure  it  that,  when  it  is  asked 
to  volunteer  in  some  priority  industry,  the  need  is  real. 

«From  the  President's  announcement  of  the  United  States  Employment 
Service,  June  17,  1918. 


PROBLEMS  OF  ECONOMIC  INSECURITY  561 

Therefore,  I,  Woodrow  Wilson,  president  of  the  United  States  of 
America,  solemnly  urge  all  employers  engaged  in  war  work  to  refrain 
after  August  i,  1918,  from  recruiting  unskilled  labor  in  any  manner 
except  through  this  central  agency.  I  urge  labor  to  respond  as 
loyally  as  heretofore  to  any  calls  issued  by  this  agency  for  voluntary 
enlistment  in  essential  industry.  And  I  ask  them  both  alike  to 
remember  that  no  sacrifice  will  have  been  in  vain,  if  we  are  able  to 
prove  beyond  all  question  that  the  highest  and  best  form  of  efficiency 
is  the  spontaneous  co-operation  of  a  free  people. 

253.     Cyclical  Distribution  of  Government  Orders^ 

BY  SIDNEY  AND  BEATRICE  WEBB 

Without  securing  an  approximate  uniformity,  one  year  with  an- 
other, in  the  aggregate  demand  for  labor  in  the  community  as  a 
whole,  it  is  clear  that  unemployment  on  a  large  scale  cannot  be  pre- 
vented. The  only  possible  way  in  which  that  uniformity  can  be  se- 
cured is  the  use  of  the  government  orders  as  a  counterpoise  to  the 
uncontrollable  fluctuations  in  the  other  orders.  If  this  involved  the 
stopping  of  all  government  orders  in  good  years  and  doing  all  the 
government  work  in  bad  years,  the  proposal  would  be  an  imprac- 
ticable one,  because  the  government  business  must  go  on  cotjtin- 
uously,  whatever  the  state  of  the  labor  market.  But  the  desired 
result  can  be  achieved  by  rearranging,  within  the  decade,  no  more 
than  3  or  4,  or  even  6  or  8  per  cent  of  the  work  that  would  otherwise 
have  been  done  evenly  year  by  year.  It  is  impossible  to  believe  that 
so  relatively  small  a  readjustment  is  not  possible. 

It  may  be  asked  how  this  policy  differs  from  that  of  relief  works 
now  so  universally  condemned.  In  reality  the  two  policies  are  poles 
asunder.  What  gives  to  relief  works  their  evil  character,  whether 
or  not  they  are  of  any  real  public  utility,  and  whatever  rate  of  wages 
is  paid,  is  that  the  men  employed  are  taken  on  because  they  are  un- 
employed. Accordingly,  relief  works  are  of  the  nature  of  relief, 
not  prevention.  They  do  not  prevent  the  occurrence  of  unemploy- 
ment; they  do  not  prevent  that  breach  of  continuity  in  the  work- 
man's industrial  life  which  is  so  harmful  to  him.  They  merely 
come  in,  by  way  of  succor,  after  the  breach  of  continuity  has  oc- 
curred. By  having  to  take  on  only  those  men  who  have  already 
been  thrown  out  of  work,  and  taking  them  on  because  they  have  been 
thrown  out  of  work,  the  managers  of  relief  works  find  themselves 
necessarily  saddled  with  a  heterogeneous  crowd  of  workmen,  who 

■'Adapted  from  The  Prevention  of  Destitution,  pp.  1 14-18.  Copyright  by 
Longmans,  Green  &  Co.,  191 1. 


562  CURRENT  ECONOMIC  PROBLEMS 

are  not  individually  picked  out  for  employment  because  their  specific 
services  are  required,  in  exactly  due  proportions  to  each  other ;  but 
are  taken  en  bloc,  whatever  their  several  qualifications  and  ante- 
cedents, just  because  they  happen,  at  that  particular  time  and  place, 
to  be  together  unemployed.  It  is  characteristic  of  any  enterprise 
of  remunerative  character  that  it  involves  a  high  degree  of  organi- 
zation, division  of  labor,  the  employment  of  the  various  grades  and 
kinds  of  workers  required  in  a  certain  exact  proportion  one  to  an- 
other, and  so  on.  The  result  is  not  being  able,  on  relief  work,  to  pick 
exactly  the  men  having  the  skill  and  antecedents  that  are  required, 
and  of  having,  instead,  to  take  on  a  heterogeneous  crowd,  is  that  no 
industrial  enterprise  of  any  highly  organized  character  can  possibly 
be  undertaken,  and  the  work  accordingly  can  hardly  ever  be  remuner- 
ative, or  form  part  of  normal  productive  industry. 

But  it  is  not  so  much  in  the  extravagant  cost,  or  in  the  waste- 
fulness, or  in  the  lack  of  real  utility  that  the  evil  of  relief  work  lies. 
It  is  in  their  bad  effect  upon  the  character  of  the  men  whom  they 
are  intended  to  succor.  The  taking  on  of  the  heterogeneous  crowd, 
not  to  work  each  of  them  at  his  own  trade,  for  his  own  standard  rate, 
but  to  labor  at  some  common  occupation  that  can  simultaneously  find 
employment  for  them  all ;  which  is  known  to  have  been  undertaken 
merely  to  give  them  employment,  from  which  they  cannot  practi- 
cally be  dismissed;  and  where  they  receive  wages  at  a  rate  arbi- 
trarily fixed,  to  a  view  of  what  they  can  live  on  rather  than  to  the 
market  rate  for  any  particular  kind  of  labbr,  inevitably  has  an  ad- 
verse psychological  reaction  on  the  men  themselves  and  on  the  fore- 
men over  them. 

Contrast  this  with  the  proposal  to  give  the  government  orders 
for  works  and  services  unevenly,  and  more  in  the  lean  years,  rather 
than  unevenly  year  by  year.  The  mere  fact  that,  on  the  index  number 
of  unemployment  beginning  to  rise,  the  government  puts  in  hand 
slightly  more  building  work  than  would  otherwise  have  been  the 
case,  orders  rather  more  printing,  somewhat  increases  its  ship- 
building, raises  this  year  the  amount  of  its  orders  for  blankets  and 
sail-cloth  above  the  normal,  and  temporarily  accelerates  the  rate  at 
which  the  telegraph  wires  are  being  laid  underground,  and  the  tele- 
phone is  being  extended  to  every  village,  would  not  mean  the  taking 
on  of  any  crowd  of  unemployed  workmen  anywhere. 

What  it  would  mean  in  the  first  place,  would  be  that  various 
building  firms  and  printing  establishments  all  over  the  country  would 
find  themselves  relieved  from  the  necessity  of  turning  oflf  men ;  some 
shipbuilding  yards  would  be  able  to  abstain  from  the  necessity  of 
reducing  hands;  the  mills  producing  blankets  and  sail-cloth  would 


PROBLEMS  OF  ECONOMIC  INSECURITY  563 

not  need  to  go  on  short  time ;  and  the  contractors  for  telegraph  and 
telephone  extensions  would  find  themselves  continuing  in  employ- 
ment, and  placing  on  the  government  work  members  of  their  staffs 
whom  they  would  otherwise  have  had  to  dismiss.  All  this  preven- 
tion of  discontinuity  in  the  employment  and  wages  of  tens  of  thou- 
sands of  workmen  all  over  the  country,  and,  for  that  matter,  also  in 
the  profits  of  hundreds  of  employers,  would  automatically  result  in 
preventing  much  other  discontinuity  elsewhere.  Even  the  gramo- 
phone makers  might  find  themselves  continuously,  instead  of  inter- 
mittently, employed! 

Where  employers,  by  reason  of  the  enlarged  government  orders, 
had  actually  to  engage  additional  men  they  would  do  so,  not  with 
a  view  of  "employing  the  unemployed,"  not  even  of  confining  them- 
selves to  the  men  who  were  at  the  moment  actually  out  of  situations, 
but  deliberately,  in  order  to  attract  to  their  service,  it  might  be  from 
some  other  employer's  service,  exactly  the  kinds  and  grades  of  work- 
men, individually  selected  on  their  merits,  as  being  the  most  skilful 
and  the  most  regular  workmen  who  could  then  and  there  be  found, 
in  exactly  the  due  proportion  one  to  another  that  the  expansion  of 
the  particular  business  required. 

There  would  in  this  way  be  no  adverse  psychological  effect  on 
the  workmen,  any  more  than  on  the  foreman  who  selected  them  and 
supervised  their  efforts  or  in  the  employer  who  saw  to  it  that  the 
normal  discipline  of  his  establishment  was  maintained.  Instead  it 
would  not  even  occur  to  any  of  them  that  there  was  anything  "arti- 
ficial" or  abnormal  in  the  government  order  for  sail-cloth  or  other 
commodities. 

254.     The  Relief  of  Unemployment* 

We  therefore  recommend : 

1.  That  the  Federal  Bureau  of  Labor  Statistics  and  the  State 
Industrial  Commission  be  given  suflficient  appropriations  to  enable 
the  creation  of  a  complete  statistical  "barometer  of  trade." 

2.  That  organizers  more  competent  for  such  a  task  than  the 
present  Committee  undertake  the  study  of  the  underlying  economic 
causes  of  industrial  dislocations  which  produce  abnormal  unemploy- 
ment. 

3.  That  a  more  widespread  education  of  the  people  in  the  mean- 
ing and  effects  of  financial  crises  and  industrial  depressions  and  in 
the  fluctuations  of  prices,  trade  activity,  and  business  prospects  be 

^Adapted  from  How  to  Meet  Hard  Tivies  (pp.  125-27),  a  report  prepared 
by  the  Mayor's  Committee  on  Unemployment,  New  York  City,  1917. 


564  CURRENT  ECONOMIC  PROBLEMS 

made  the  means  of  preventing  needless  panics  on  the  part  of  the 
consumers,  and  of  encouraging  expenditure  on  a  normal  scale. 

4.  That  manufacturers  prepare  against  the  necessity  of  closing 
down  or  seriously  curtailing  production  at  times  of  depression  by 
developing  a  production  policy  which,  taking  account  of  fluctuations 
in  demand,  (a)  plans  for  the  utilization  of  slack  times  to  introduce 
new  staple  lines,  (&)  retards  deliveries  in  good  times,  as  far  as  pos- 
sible, so  as  to  have  work  on  hand  when  the  demand  slackens,  (c) 
diverts  permanent  additions  to  buildings,  equipment  and  machinery, 
and  other  capital  investments,  important  repairs  and  additions  to 
stock  from  busy  times  to  times  of  depression,  {d)  distributes  such 
employment  as  there  is,  if  production  must  be  reduced,  over  as  large 
as  possible  a  proportion  of  the  force  by  means  of  short  time,  without, 
however,  depressing  the  earnings  of  individual  employes  materially 
below  the  minimum  necessary  to  support  family  life. 

5.  That  when  trade  crises  threaten,  the  large  financial  and  busi- 
ness interests  co-operate  to  the  fullest  possible  extent  with  one  an- 
other and  with  the  Federal  Reserve  Board  to  maintain  stability  of 
credit  and  to  allay  needless  alarm,  by  widespread  publicity  as  to  the 
reassuring  elements  in  the  existing  business  conditions. 

6.  That  banks  and  credit  institutions,  during  periods  of  indus- 
trial expansion,  distinguish  carefully  between  healthy  home  industries 
reasonably  sure  of  a  permanent  market,  which  deserve  every  en- 
couragement, and  industries  of  a  more  speculative  and  ephemeral 
character  which  should  be  induced  to  maintain  their  capital  expendi- 
tures within  the  narrowest  limits. 

7.  That  the  city  of  New  York,  with  all  due  regard  to  the  other 
factors  that  must  be  taken  into  consideration,  attempt  to  make  its 
expenditures  for  permanent  improvements  as  far  as  possible  inverse 
in  total  volume  to  the  general  rate  of  employment  in  the  city. 

8.  That  similarly  the  federal  and  state  governments  be  induced 
to  plan  public  expenditures  upon  permanent  improvements  over  a 
period  of  years,  withholding  work  which  is  not  urgent  at  times  of 
trade  prosperity  and  speeding  it  at  times  of  depression. 

9.  That,  however  serious  such  an  emergency,  a  sincere  effort 
be  made  by  the  public  authorities  and  voluntary  agencies  of  relief  to 
classify  those  in  need  of  assistance  in  terms  of  capacity  for  self-help, 
possession  of  resources,  station  in  life,  family  responsibilities,  age, 
health,  etc. 

10.  That  registration  at  a  public  or  private  employment  bureau 
be  uniformly  adopted  as  an  obligatory  test  of  unemployment,  and  a 
condition  precedent  to  payment  of  out-of-work  benefits  and  relief 
by  gift  or  loan. 


PROBLEMS  OF  ECONOMIC  INSECURITY  565 

11.  That  there  be  created  either  as  a  function  of  a  "department 
of  pubHc  welfare"  or  otherwise  an  office  charged  with  the  threefold 
task  of  (a)  maintaining  a  current  survey  of  the  state  of  unemploy- 
ment in  the  city;  (b)  keeping  an  up-to-date  register  of  the  city's 
relief  resources  which  can  be  relied  upon  as  elements  in  a  city-wide 
co-operative  system  of  relief  should  an  emergency  occur;  (c)  dis- 
tributing information  to  social  workers  and  others  to  whom  persons 
in  need  are  most  likely  to  apply  for  advice,  enabling  them  to  direct 
these  to  the  agencies  most  likely  to  be  able  to  help  them. 

12.  That  at  a  time  of  abnormal  unemployment  the  public  author- 
ities and  the  press  encourage  the  benevolent  public  to  support  existing 
agencies  equipped  to  relieve  distress  rather  than  create  new  funds. 

13.  That  the  incorporation  of  city,  state  and  national  co-opera- 
tive associations  for  thrift  and  credit  purposes  be  encouraged. 

14.  That  the  federal  government  take  appropriate  steps  to  or- 
ganize the  employment  market  through  a  nation-wide  system  of 
public  employment  bureaus,  assuring  the  complete  mobilization  of 
employment  opportunities  and  the  available  labor  supply. 

15.  That  measures  be  taken  by  the  federal  government  at  the 
present  time  to  accumulate  an  insurance  fund,  and  to  devise  the  most 
effective  means  of  inaugurating  a  workable  system  of  unemployment 
insurance. 

16.  That  relief  employment  approximate  employment  under 
normal  conditions  as  nearly  as  possible,  as  regards  the  utility  of  the 
work  done,  the  assignment  of  tasks  suited  to  the  needs  of  the  workers, 
and  the  output  expected  of  him  in  relation  to  the  wages  paid  and  to 
the  degree  of  efficiency  possible ;  it  need  not  afford  opportunities  for 
specific  industrial  training,  though  this  is  desirable. 

17.  That  relief  employment,  as  far  as  possible,  be  organized  only 
by  such  agencies  as  are  already  in  intimate  touch  with  the  persons 
whom  it  is  intended  to  aid;  that  relief  employment  wages  be  paid 
at  an  hourly  rate  sufficient  to  cover  the  minimum  cost  of  living. 

18.  That  the  cultivation  of  vacant  lots  be  taken  into  considera- 
tion as  a  useful  method  of  relief  employment  if  the  necessity  for 
it  arise. 

19.  That  the  amount  of  relief  given  be  adequate  to  insure  that 
the  total  family  resources  cover  the  minimum  cost  of  living. 

20.  That  smaller  neighborhood  organizations  be  more  extensively 
utilized  by  the  larger  relief  societies  as  distributors  of  their  relief 
grants. 

21.  That  at  times  of  abnormal  unemployment  organizations  en- 
gaging in  any  form  of  relief  to  the  unemployed  register  all  families 
and  individuals  assisted  in  a  central  confidential  exchange. 


566  CURRENT  ECONOMIC  PROBLEMS 

22.  That  relief  in  kind  be  made  only  supplementary  to  other 
forms  of  relief  when  found  expedient  to  insure  adequacy  of  the  total 
amount  of  help  given  the  individual ;  and  that  in  the  allocation  of  aid 
the  needs  of  the  family,  not  those  of  the  person  unemployed  alone, 
be  taken  into  account. 

23.  That  shelter  for  persons  made  homeless  through  unemploy- 
ment, but  not  permanently  belonging  to  the  vagrant  class,  be  provided 
separately  from  institutions  for  the  care  of  the  latter ;  and  that  in  no 
case  homeless  minors  be  provided  with  shelter  in  institutions  housing 
a  miscellany  of  adult  persons  of  every  description. 

24.  That  the  period  of  unemployment  in  the  case  of  minors  be 
utilized  for  educational  purposes  by  the  provision  of  suitable  training, 
attendance  at  which  for  a  certain  number  of  hours  might  be  made 
compulsory  for  all  unemployed  youths  and  girls  up  to  the  age  of 
eighteen. 

25.  That,  in  order  to  reduce  the  supply  of  juvenile  labor  at  times 
of  general  unemployment,  school  attendance  beyond  the  age  limit 
of  legal  compulsion  be  encouraged  by  the  provision  of  scholarships. 

C.     INDUSTRIAL  ACCIDENT 
255.     The  Machine  Process  and  Industrial  Accident" 

■»  BY  E.   H.  DOWNEY 

Work  accidents  in  the  United  States,  according  to  the  best  at- 
tainable estimates,  annually  cause  more  than  35,000  deaths  and  about 
2,000,000  injuries,  whereof  probably  500,000  produce  disability  last- 
mg  more  than  one  week.  To  employ  a  telling  comparison  frequently 
made,  the  industrial  casualties  of  a  single  year  in  this  country  alone 
equal  the  average  annual  casualties  of  the  American  Civil  War, 
plus  all  those  of  the  Philippine  War,  increased  by  all  those  of  the 
Russo-Japanese  War.  As  many  men  are  killed  each  fortnight  in  the 
ordinary  course  of  work  as  went  down  with  the  "Titanic."  This 
single  spectacular  catastrophe  appalled  the  civilized  world  and  com- 
pelled governmental  action  in  two  hemispheres ;  while  the  ceaseless, 
day-by-day  destruction  of  the  industrial  juggernaut  excites  so  little 
attention  that  few  states  take  the  trouble  to  record  the  deaths  and 
injuries. 

The  point  especially  to  be  emphasized  in  this  connection  is  that 
the  appalling  waste  of  life  revealed  by  the  above  cited  estimates  is, 
in  great  part,  unavoidable.     Doubtless  the  number  of  work  acci- 

'Adapted  from  History  of  Work  Accident  Indemnity  in  Iowa,  pp.  1-5. 
Published  by  the  State  Historical  Society  of  Iowa,  1912. 


PROBLEMS  OF  ECONOMIC  INSECURITY  567 

dents  may  be  considerably  reduced  in  the  United  States,  as  it  has 
been  reduced  in  Europe,  by  preventive  measures.  Yet  when  all  pos- 
sible precautions  have  been  taken  modern  industry  will  continue  to 
exact  a  fearful  toll  of  life  and  limb.  Even  in  the  German  Empire, 
which  leads  the  world  in  accident  prevention,  there  were  reported  in 
191 1,  the  last  year  for  which  statistics  are  available,  662,321  work 
accidents,  whereof  9,687  terminated  fatally  and  142,965  caused  dis- 
ability for  more  than  thirteen  weeks.  Scientific  accident  prevention 
in  Germany  has  produced  a  lower  accident  rate  and  a  much  lower 
rate  of  fatal  accidents  than  obtains  in  the  United  States,  but  it  has 
left  the  total  casualty  list  of  industry  deplorably  large.  Indeed,  the 
number  of  work  injuries  in  Germany,  as  elsewhere,  is  increasing, 
both  absolutely  and  relatively  to  the  numbers  employed,  as  indus- 
trial development  goes  forward.  The  ugly  fact  is  that  work  acci- 
dents, in  the  main,  arc  due  to  causes  inherent  in  mechanical  industry 
on  the  one  hand,  and  in  the  hereditary  traits  of  human  character  on 
the  other  hand. 

In  the  first  place,  a  high  degree  of  hazard  inheres  in  present-day 
methods  of  production.  Modern  technology  makes  use  of  the  most 
subtle  and  resistless  forces  of  nature — forces  whose  powers  of  de- 
struction when  they  escape  control  are  fully  commensurate  with 
their  beneficent  potency  when  kept  in  command.  Moreover,  these 
forces  operate  not  the  simple  hand  tools  of  other  days,  but  a  maze  of 
complicated  machinery  which  the  individual  workman  can  neither 
comprehend  nor  control,  but  to  the  movements  of  which  his  own 
motions  must  closely  conform  in  rate,  range,  and  direction.  Nor  is 
the  worker's  danger  confined  to  the  task  in  which  he  is  himself 
engaged,  nor  to  the  appliances  within  his  vision.  A  multitude  of 
separate  operations  are  combined  into  one  comprehensive  mechanical 
process,  the  successful  consummation  of 'which  requires  the  co-opera- 
tion of  thousands  of  operatives  and  of  countless  pieces  of  apparatus 
in  such  close  interdependence  that  a  hidden  defect  of  even  a  minor 
part,  or  a  momentary  lapse  of  memory  or  of  attention  by  a  single 
individual  may  imperil  the  lives  of  hundreds.  A  tower  man  misin- 
terprets an  order,  or  a  brittle  rail  gives  way,  and  a  train  loaded  with 
human  freight  dashes  to  destruction.  A  miner  tamps  his  "shot" 
with  slack  and  dust  explosion  wipes  out  a  score  of  lives.  A  steel 
beam  yields  to  a  pressure  that  it  was  calculated  to  bear  and  a  rising 
skyscraper  collapses  in  consequence,  burying  a  small  army  of  work- 
men in  the  ruins. 

In  the  second  place,  human  nature,  inherited  from  generations 
that  knew  not  the  machine,  is  imperfectly  fitted  for  the  strain  put 
upon  it  by  mechanical  industry.     Safely  to  perform  their  work  the 


568  CURRENT  ECONOMIC  PROBLEMS 

operatives  of  a  modern  mill,  mine,  or  railway  should  think  consistently 
in  terms  of  those  mechanical  laws  to  which  alone  present-day  indus- 
trial processes  are  amenable.  They  should  respond  automatically  to 
the  most  varied  mechanical  exigencies,  and  should  be  as  insensible  to 
fatigue  and  as  unvarying  in  behavior  as  the  machines  they  operate. 

Manifestly  these  are  qualities  which  normal  human  beings  do  not 
possess  in  anything  like  the  requisite  degree.  The  common  man  is 
neither  an  automaton  nor  an  animated  slide-rule.  His  movements 
fall  into  a  natural  rhythm,  indeed,  but  the  beat  is  both  less  rapid  and 
more  irregular  than  the  rhythm  of  most  machines — with  the  conse- 
quence that  he  fails  to  remove  his  hand  before  the  die  descends  or 
allows  himself  to  be  struck  by  the  recoiling  lever.  It  requires  an 
appreciable  time  for  the  red  light  or  the  warning  gong  to  penetrate  his 
consciousness,  and  his  response  is  apt  to  be  tardy  or  in  the  wrong 
direction.  Fatigue,  also,  overcomes  him,  slowing  his  movements, 
lengthening  his  reaction  time,  and  diminishing  his  muscular  accuracy 
— thereby  trebly  enhancing  his  liability  to  accident. 

The  machine  technology,  in  fact,  covers  so  small  a  fraction  of 
the  life-history  of  mankind  that  its  discipline  has  not  yet  produced  a 
mechanically  standardized  race,  even  in  those  communities  and  classes 
that  are  industrially  most  advanced.  And  so  there  is  a  great  number 
of  work  injuries  due  to  the  "negligence  of  the  injured  workman" — 
due,  that  is  to  say,  to  the  shortcomings  of  human  nature  as  measured 
by  the  standards  of  the  mechanician.  This  maladjustment  is  ag- 
gravated by  the  never-ceasing  extension  of  machine  methods  to  new 
fields  of  industry,  and  the  continued  influx  of  children,  women,  and 
untrained  peasants  into  mechanical  employments.  Accordingly,  the 
proportion  of  accidents  attributable  to  want  of  knowledge,  skill, 
strength,  or  care  on  the  part  of  operatives  appears  everywhere  to 
be  increasing. 

There  is,  then,  no  prospect  that  the  "carnage  of  peace"  will  be 
terminated,  as  the  carnage  of  war  may  be,  within  the  predictable 
future.  An  industrial  community  must  face  the  patent  fact  that 
work  injuries  on  a  tremendous  scale  are  a  permanent  feature  of 
modern  life.  Every  mechanical  employment  has  a  predictable  haz- 
ard ;  of  a  thousand  men  who  climb  to  dizzy  heights  in  erecting  steel 
structures  a  certain  number  will  fair  to  death,  and  of  a  thousand 
girls  who  feed  metal  strips  into  stamping  machines  a  certain  number 
will  have  their  fingers  crushed.  So  regularly  do  such  injuries  occur 
that  every  machine-made  commodity  may  be  said  to  have  a  definite 
cost  in  human  blood  and  tears — a  life  for  so  many  tons  of  coal,  a 
lacerated  hand  for  so  many  laundered  shirts. 


PROBLEMS  OF  ECONOMIC  INSECURITY  569 

256.     Casualties  in  War  and  Industry^" 

How  many  Pennsylvanians  will  be  returned  disabled  from  war 
after  a  given  period  ?  How  will  that  number  of  war  disabled  compare 
with  the  number  of  workers  injured  in  the  industries  of  Pennsylvania 
during  a  given  period  ? 

The  answer  to  the  first  question  can  only  be  estimated,  using  as  a 
basis  the  experience  of  countries  engaged  in  the  war  over  a  period 
of  years.  The  answer  to  the  second  question  can  be  determined  from 
the  records  of  industrial  accident  reports  submitted  over  a  given 
period  to  the  Pennsylvania  Department  of  Labor  and  Industry. 

The  experience  of  Canada  in  the  present  war  gives  an  unusual 
opportunity  to  forecast  the  number  of  disabling  casualties  that  may 
be  expected  among  Pennsylvania's  soldiers.  The  population  of  Penn- 
sylvania is  approximately  the  same  as  the  population  of  the  entire 
Dominion  of  Canada,  about  8,000,000.  It  is  believed  that  Pennsyl- 
vania will  ultimately  raise  an  army  of  approximately  the  same  size 
as  Canada,  between  400,000  and  500,000.  It  is  therefore  within  the 
limits  of  possibility  that  the  disabled  soldiers,  returned  to  Pennsyl- 
vania after  a  given  period  of  warfare,  will  be  in  the  same  proportion 
as  to  number  and  types  of  disability  as  have  been  returned  to  Canada 
during  an  equal  period. 

The  army  of  employees  remaining  in  Pennsylvania  may  be  con- 
sidered as  six  times  as  great  in  number  as  the  army  Pennsylvania  will 
ultimately  put  in  the  field.  The  casualties  suffered  by  that  army 
of  Pennsylvania  workers — estimated  to  average  continuously  3,000,- 
000  during  the  two  years  and  a  half  from  January  i,  1916,  to  July  i, 
1918 — amounted  to  577,053,  including  7,575  fatalities.  The  number 
of  industrial  workers  injured  in  two  and  one-half  years  in  Pennsyl- 
vania is  greater  than  the  army  that  either  Canada  or  Pennsylvania  is 
sending  against  Germany. 

In  other  words,  if  the  number — not  the  percentage  of  the  total 
engaged — of  Pennsylvanians  injured  in  the  war  equals  in  two  and 
one-half  years  the  number  injured  in  the  industries  of  Pennsyl- 
vania during  the  same  period,  every  man  in  an  army  of  500,000  will 
be  injured  once  and  more  than  75,000  men  will  be  twice  wounded 
during  the  same  period. 

Canada,  after  four  years  of  war,  has  had  approximately  50,000 
men  returned  as  unfit  for  further  military  service.  This  number  does 
not  include  men  who  were  sick  or  wounded  and  who  recuperated. 
A  vital  factor  in  oilr  comparison  is  the  number  of  men  returned  as 

^"Adapted  from  "Comparative  Casualties  in  War  and  Industry,"  Bulletin 
of  the  Pennsylvania  Department  of  Labor  and  Industry,  V  (No.  2.  1918),  121-25. 


570  CURRENT  ECONOMIC  PROBLEMS 

unfit  because  of  disease.  In  England  evidence  shows  that  out  of 
every  one  thousand  cases  of  disablement,  547  are  cases  of  disease  and 
453  are  cases  of  wounds  and  injuries.  If  this  ratio  holds  true  for  the 
disabled  soldiers  returned  as  unfit  to  Canada  and  to  Pennsylvania,  it 
indicates  that  only  about  one-half  of  the  men  invalided  from  war  are 
suflfering  from  wounds.  Yet  every  man  in  the  list  of  industrial  acci- 
dents reported  is  actually  wounded. 

Approximately  1,200  of  the  50,000  disabled  soldiers  returned  to 
Canada  are  "amputation  cases."  For  the  same  period  in  the  indus- 
tries of  Pennsylvania  there  have  been  3,798  industrial  "amputation 
cases."  After  almost  four  years  of  war  Canada's  experience  shows 
that  less  than  fifty  soldiers  have  been  blinded.  In  the  shorter  period 
of  only  two  years  and  one-half  there  have  been  1,157  eyes  lost  in  the 
industries  of  Pennsylvania;  twenty-nine  workers  have  been  totally 
blinded. 

257.     Some  Sample  Accidents" 

An  engineer  at  a  power  house  fell  asleep  and  allowed  his  fire 
to  go  out.  Upon  awakening,  he  secured  some  waste,  saturated  it 
with  kerosene  and  lighted  the  fire.  Despite  twenty-five  years'  ex- 
perience, he  thoughtlessly  failed  to  open  the  damper  when  he  re- 
kindled the  fire.  When  the  door  was  suddenly  opend  the  flames  shot 
outward  and  ignited  his  clothing,  inflicting  burns  that  caused  his 
death  three  days  later. 

Recently  an  employee  of  an  electric  company  was  engaged  in 
taking  a  cable  off  a  reel  and  placing  it  on  the  drum  of  an  electric 
hoisting  engine.  This  operation  required  the  man  to  hold  the  cable 
in  one  hand.  When  he  was  so  engaged,  his  glove  caught  between 
the  cable  and  the  drum,  pulling  him  over  the  latter  and  causing  his 
head  to  strike  the  floor.  He  was  injured  so  badly  that  he  died  the 
next  day. 

An  employee  of  an  engineering  company  was  placing  a  temporary 
door  frame  in  an  elevator  hatch.  He  was  down  on  his  knees  placing 
a  wooden  block  at  the  lower  corner  of  the  frame.  He  failed  to  notice 
that  the  elevator  was  above  him.  While  he  was  in  this  stooping  po- 
sition, the  operator,  without  giving  a  signal,  started  to  lower  the 
elevator.  In  its  descent  the  repair  man's  head  was  caught  between 
the  floor  and  the  bottom  of  the  car  and  he  was  killed  instantly. 

An.  employee  of  a  manufacturing  establishment  spilled  some 
gasoline  on  his  clothes  while  filling  a  can  from  a  storage  tank.    While 

iiAdapted  from  the  Bulletin  of  the  Pennsylvania  Department  of  Labor 
and  Industry,  IV  (No.  7,  1917),  12-18. 


PROBLEMS  OF  ECONOMIC  INSECURITY  571 

his  clothes  were  in  this  condition  he  attempted  to  Hght  a  cigarette. 
An  explosion  followed,  and  the  man  was  badly  burned  about  the 
chest  and  abdomen. 

Although  rules  prohibited  the  oiling  of  machinery  while  in  motion, 
an  employee  in  a  manufacturing  plant  placed  a  ladder  against  the 
moving  line  shaft  and  attempted  to  oil  the  bearings.  His  blouse 
caught  on  the  shafting  and  he  was  whirled  around  and  crushed 
against  the  rafters. 

An  employee  of  a  steel  company  went  behind  a  scrap  pan  in 
the  pouring  pit  to  take  a  nap.  A  pan  from  the  adjacent  pit  was 
hooked  up  by  the  crane  man  and  transferred  to  the  side  of  the  other 
pan,  and  on  being  lowered  it  dropped  on  the  man's  head  killing 
him  instantly.  It  had  been  the  practice  of  some  of  the  men  to  sleep 
behind  these  pans.  In  this  instance  it  was  impossible  for  the  crane 
man  to  see  the  man,  as  he  was  lying  on  the  opposite  side  of  the  pan. 

A  laborer  at  an  open  hearth  went  out  on  the  railroad  track,  where 
a  draft  of  four  cars  was  standing,  and  sat  down  on  a  rail  in  the 
shade  of  the  end  car  to  rest.  While  he  was  sitting  there,  a  draft 
of  six  cars  was  pushed  in  on  the  siding  and  bumped  into  the  four 
cars  already  there.    The  man  was  run  over  and  instantly  killed. 

A  man  was  handling  freight.  A  splinter  penetrated  the  sole  of 
his  shoe  and  entered  his  foot.  He  did  not  report  the  injury  for  nine 
days.  By  this  time  septic  poisoning  had  resulted.  Five  days  later 
he  died. 

Recently  an  employee  of  an  electric  manufacturing  company 
was  making  repairs  to  a  fan  support  under  a  ceiling.  He  was  using 
the  traveling  crane  as  a  base  for  his  scaffolding,  and  he  had  placed 
several  planks  across  between  girders  which  were  about  six  feet 
apart.  The  planks  he  selected  were  6  inches  by  2  inches,  and  care- 
lessly he  used  one  with  a  knot  which  extended  half  across  the 
plank.  When  he  stepped  on  the  plank  it  broke  under  his  weight 
and  he  fell  to  the  floor,  sustaining  injuries  from  which  he  died. 

Considerable  grease  had  collected  upon  the  large  calender  rolls 
of  a  paper  manufacturing  company..  A  man  was  cleaning  them  with 
a  gasoline  blow  torch,  as  was  customary.  Hd  had  occasion  to  go 
underneath  the  machine,  and  he  thoughtlessly  set  a  lighted  torch  on 
the  edge  of  the  machine.  It  fell  on  him  when  he  was  underneath 
the  gears.  His  clothing  caught  fire  and  he  was  burned  so  badly  that 
he  died  the  next  day. 


572  CURRENT  ECONOMIC  PROBLEMS 

258.     Imputation  of  Responsibility  for  Accidents'^ 

a)    Safety  First 

Employees,  before  they  attempt  to  make  couplings  or  to  uncouple, 
will  examine  and  see  that  the  cars  or  engines  to  be  coupled  or  un- 
coupled, couplers,  drawheads,  and  other  appliances  connected  there- 
with, ties,  rails,  tracks,  and  roadbeds,  are  in  good  safe  condition. 
They  must  exercise  great  care  in  coupling  and  uncoupling  cars.  In 
all  cases  sufficient  time  must  be  taken  to  avoid  accident  or  personal 
injury. 

b)    Efficiency  First 

Entirely  too  much  time  is  being  lost,  especially  on  local  trains, 
due  to  train  and  enginemen  not  taking  advantage  of  conditions  in 
order  to  gain  time  doing  work,  switching  and  unloading  and  loading 
freight.  Neither  must  you  wait  until  train  stops  to  get  men  in 
position.  It  is  also  of  the  utmost  importance  that  enginemen  be 
alive,  prompt  to  take  signals,  and  make  quick  moves.  In  this 
respect  it  is  only  necessary  to  call  your  attention  to  the  old  adage, 
which  is  a  true  one,  that  when  train  or  enginemen  do  not  make  good 
on  local  trains  it  thoroughly  demonstrates  those  men  are  detrimental 
to  the  service  as  well  as  their  own  personal  interests,  and  such  men, 
instead  of  being  assigned  to  other  runs,  should  be  dispensed  with. 
I  am  calling  your  attention  to  these  matters  with  a  view  of  invigorat- 
ing energy  and  ambition,  in  order  that  your  families  who  are  depend- 
ent on  you  to  make  a  success  shall  not  some  day  point  the  finger  of 
scorn  at  you,  and  that  the  public  may  not  be  able  to  say  you  lost  your 
position  due  to  lack  of  energy  and  interest  in  your  own  personal 
welfare,  for  which  you  can  consistently  place  the  responsibiUty  on 
no  one  but  yourself. 

259.     Industrial  Accidents  and  the  Theory  of  Negligence" 

BY  LEE  K.  FRANKEL  AND  MILES  M.  DAWSON 

Let  US  consider  the  principles  which,  only  a  quarter  century  ago, 
determined  the  right  of  a  workman  to  recover  compensation  from 
his  employer.    Thoes  principles  still  apply,  with  some  modification, 

^2  The  first  of  the  two  selections  given  here  is  an  excerpt  from  an  official 
bulletin  of  a  railway  company;  the  second  is  an  excerpt  from  a  letter  of  instruc- 
tion to  employees  issued  by  the  same  company.  The  first  suggests  that  there 
may  be  truth  in  the  frequently  repeated  statement  that  "the  most  effective  way 
for  railroad  employees  to  practice  sabotage  is  to  live  up  to  the  rules  of  the 
company." 

^^Adapted  from  Workingmen's  Insurance  in  Europe,  pp.  5-7.  Copyright 
by  the  Russell  Sage  Foundation,  1910. 


PROBLEMS  OF  ECONOMIC  INSECURITY  573 

in  all  the  states  of  the  United  States,  and  have  but  recently  been 
discarded  in  part  by  the  federal  government  itself.  The  elementary 
theory  of  "the  law  of  negligence,"  as  it  is  usually  called,  in  its  rela- 
tion to  the  liability  of  employers  for  financial  loss  to  workmen  and 
their  families,  was  originally  the  same  in  all  civilized  countries.  The 
development  of  the  law  of  liability  has  not  been  identical  in  every 
country,  but  nowhere,  probably,  has  the  principle  been  pushed  so  far 
as  in  the  United  States.  The  doctrine  has,  however,  been  modified 
somewhat  by  decisions  of  the  courts  and  by  act  of  our  legislatures. 

The  underlying  principle  of  the  law  of  negligence  is  that  the 
employer  is  liable  only  in  case  he  is  at  fault;  that  is,  he  must  have 
been  neglect f til  in  some  respect  and  this  negligence  must  have  been 
the  proximate  and  sole  cause  of  the  accident.  In  that  case  it  declares 
that  he  alone  must  bear  the  financial  burden  of  compensation. 

Liability  of  the  employer  for  his  own  negligence  is  qualified  as 
follows : 

First,  it  is  not  enough  that  he  was  the  chief  cause. 

If  the  employe  himself  has  been  negligent  and  if  this  in  any 
degree  contributed  to  the  accident,  the  employer  is  not  held.  This  is 
known  as  the  principle  of  "contributory  negligence."  The  idea  is 
that  the  courts,  not  being  able  to  separate  results  flowing  from  these 
two  causes  and  to  determine  how  much  was  due  to  one  and  how  much 
to  the  other,  will  refuse  to  grant  compensation  if  the  employe's  negli- 
gence contributed  to  the  accident  even  though  only  in  a  slight  degree. 

Second,  the  accident  must  not  have  been  a  consequence  of  the 
ordinary  risks  of  the  occupation. 

If  it  can  be  shown  or  the  conclusion  fairly  be  deducted  that  the 
employe  assumed  this  particular  risk  as  a  condition  of  his  contract 
of  employment,  or  as  the  ordinary  risk  of  his  occupation  of  which 
he  knew  or  was  bound  to  know,  the  employer  is  not  held.  If  the 
employe  was  aware  that  certain  danger  existed  and  notwithstanding 
continued  to  work,  this  action  on  his  part  would  bar  recovery.  As 
a  corollary  to  this,  the  courts  have  held  very  generally  that  the  em- 
ploye must  be  presumed  to  know  what  are  the  ordinary  dangers  of 
his  occupation,  and  even  what  are  the  unusual  dangers  connected 
with  continuing  to  perform  the  duties  of  that  occupation,  when  the 
place  where  it  is  carried  on,  or  the  machinery  or  tools  with  which  it 
is  carried  on,  are  defective. 

This  is  called  the  principle  of  "assumption  of  risk."  Some  courts 
have  gone  so  far  as  to  hold  that,  even  though  the  employer  is  required 
by  law  to  keep  the  machinery,  tools,  and  the  place  in  which  the  work 
is  done  in  a  certain  condition  of  safety,  and  that  although  by  failing 
to  do  so  he  has  rendered  himself  liable  to  a  penalty,  the  workman, 


574  CURRENT  ECONOMIC  PROBLEMS 

notwithstanding,  will  not  be  able  to  recover  if  he  has  known  of  these 
defects  and  has  nevertheless  continued  to  work.  The  same  courts 
have  also  held  that  the  fact  that  he  has  called  the  defects  to  the 
attention  of  his  employer  and  asked  that  they  be  remedied,  will  not 
render  the  employe  liable  if  the  workman,  notwithstanding  that  the 
defects  have  not  been  remedied,  continues  to  work.  In  fact,  calling 
the  defects  to  the  attention  of  others  prejudices  his  claim  in  that  it 
is  proof  positive  that  he  knows  of  them. 

Third,  the  accident  must  have  been  the  result  of  the  employer's 
own  negligence  and  not  that  of  another  employe  or  employes. 

If  the  workman  has  been  injured  because  one  or  more  of  the 
employes  working  with  him  were  negligent,  the  employer  will  not  be 
held.  This  proceeds  from  the  idea  that  each  workman  whose  negli- 
gence has  caused  the  injury  should  himself  be  held  financially  re- 
sponsible ;  and  since  in  most  cases  he  is  in  fact  financially  irrespon- 
sible and  could  not  respond  to  a  judgment,  the  result  of  the  applica- 
tion of  this  rule  is  that  the  persons  injured  are  not  compensated  at 
all.  This  is  directly  contrary  to  the  rule  which  applies  when  the 
injury  is  to  one  not  an  employe ;  in  that  case  the  employer,  under  the 
general  doctrine  of  principal  and  agent,  is  held  liable. 

The  principle  stated  above  is  known  in  practice  as  the  "fellow- 
servant"  rule.  It  has  been  carried  so  far  by  some  courts  that  it  is 
difficult  to  see  how  a  corporation  employer  could  be  held  responsible 
at  all,  no  matter  what  officer  or  other  employe  was  negligent.  Even 
an  officer  is  an  agent  or  employe,  and  therefore  a  fellow-servant  with 
all  other  employes,  although  the  courts  have  usually  not  so  held. 
Except  in  the  case  of  executive  officers,  however,  the  rule  has  been 
applied  so  sweepingly  that,  for  instance,  a  scrubwoman  washing  out 
railway  coaches  might  be  held  to  be  a  fellow-servant  with  the  super- 
intendent of  the  road,  and,  therefore,  without  a  good  claim  against 
the  company  for  negligence  attributable  to  him. 

The  "fellow-servant"  rule  grew  up  in  the  courts  out  of  the 
simplicity  of  the  common  law,  which  in  its  origin  did  not  know 
employers  and  employes  in  the  modern  industrial  or  commercial 
sense,  but  only  "masters"  and  "servants."  The  law  did  not  hold 
the  master  liable,  even  on  the  ground  of  negligence.  It  certainly 
would  have  refused  to  require  him  to  compensate  one  servant  for  the 
negligence  of  another.  This  principle  manifestly  has  little  or  no 
suitability  for  the  uses  of  a  commercial  and  highly  organized  indus- 
trial community,  in  which  much  the  larger  part  of  the  services  per- 
formed by  employes  is  not  for  the  direct  enjoyment  of  the  employer 
but  is  part  of  the  aggregate  cost  of  products  or  services  sold  by  him 
to  the  public  at  a  price  to  cover  all  the  costs.     In  recent  years  the 


PROBLEMS  OF  ECONOMIC  INSECURITY  575 

"fellow-servant"  rule  has  been  much  relaxed,  first  by  the  courts 
and  later  by  legislatures.  In  many  states  an  employe  who  super- 
vises the  work  and  controls  the  w^orkman  is  held  to  be  a  "vice- 
principal"  and  to  represent  the  employer,  so  that  his  negligence  is 
treated  as  if  it  were  the  negligence  of  the  employer. 

Under  the  rules  of  law  just  outlined,  a  very  large  proportion  of 
the  accidents  which  occur  in  the  industries  of  the  country  go  uncom- 
pensated. In  some  cases,  on  the  other  hand,  the  employer  is  held 
for  substantial  amounts,  and  occasionally  very  large  verdicts  are 
recovered,  but  only  a  small  percentage  of  the  cases  is  the  com- 
pensation adequate. 


260.     The  Incidence  of  Work  Accidents'* 

BY  E.  H.  DOWNEY 

Work  accidents,  in  the  nature  of  the  case,  are  sustained  prin- 
cipally by  wage-earners,  who  are  substantially  propertyless  as  a  mat- 
ter of  course,  who  have  no  savings  to  speak  of,  and  whose  incomes, 
for  the  most  part,  are  too  small  to  leave  any  adequate  margin  for 
accident  insurance.  The  almost  total  absence  of  property  or  savings 
among  wageworkers  is  abundantly  demonstrated  by  tax  returns 
and  the  records  of  savings  banks  and  life  insurance  companies. 
But  wages  statistics  are  yet  more  conclusive  to  the  same  efifect.  A 
recent  investigator  of  this  subject.  Professor  Scott  Nearing  of  the 
University  of  Pennsylvania,  concludes  that  one-half  of  the  adult 
male  wageworkers  of  the  United  States  receive  less  than  $500  a 
year;  that  three- fourths  of  them  get  less  than  $600,  and  that  only  10 
per  cent  are  in  receipt  of  more  than  $800  annually.  As  to  women 
wageworkers,  three-fifths  are  receiving  less  than  $325  yearly ;  nine- 
tenths  are  paid  less  than  $500,  and  only  one  in  twenty  is  paid  more 
than  $600.  These  estimates  are  well  substantiated  by  the  findings  of 
other  investigators.  More  than  half  of  the  workmen  injured  in  the 
Pittsburgh  district  in  1907  were  earning  less  than  $15  weekly  (mak- 
ing no  allowance  for  unemployment)  at  the  time  of  injury.  Of  the 
men  sustaining  industrial  injuries  in  Minnesota  in  1909-10,  47  per 
cent  were  receiving  less  than  $12.50  and  78  per  cent  were  receiving 
less  than  $15  weekly. 

It  needs  no  argument  to  show  that  families  in  receipt  of  incomes 
such  as  these  can  have  neither  property,  savings  accounts  nor  in- 
surance.    And  this  conclusion,  finally,  is  corroborated  by  investiga- 

i*Adapted  from  History  of  Work  Accident  Indemnity  in  Iowa,  pp.  6-8. 
Published  by  the  State  Historical  Society  of  Iowa,  1912. 


576  CURRENT  ECONOMIC  PROBLEMS 

tions  into  the  insurance  actually  carried  by  wage  workers.  Of  132 
married  men  killed  in  Pittsburgh,  only  6  had  insurance  in  substan- 
tial amount  and  only  25  out  of  214  left  savings,  insurance,  and 
trade-union  and  fraternal  benefits  to  the  amount  of  $500  each.  In 
New  York  state  175  workingmen  who  suffered  fatal  or  permanently 
disabling  accidents  had  insurance  in  the  aggregate  sum  of  $18,635. 
Nor  are  these  extreme  instances  selected  to  make  out  a  case.  The 
average  value  of  13,488,124  "industrial  insurance"  policies  in  force 
in  1902  was  only  $135.  The  unvarnished  fact  is  that  the  wage- 
earner  neither  does,  nor  can,  provide  for  the  contingencies  of  sick- 
ness, accident,  and  unemployment. 

To  the  wageworker,  then,  even  when  no  one  but  himself  is  de- 
pendent on  his  earnings,  the  loss  of  a  few  weeks'  wages  means  se- 
rious privation,  and  permanent  incapacity  means  beggary.  But 
quite  half  the  victims  of  work  accidents  are  married  men,  and  a 
majority  of  even  the  unmarried  contribute  to  the  support  of  others. 
For  example,  of  467  fatal  accidents  in  Allegheny  County,  Pennsyl- 
vania, 258  were  sustained  by  married  men  and  129  others  by  reg- 
ular contributors  to  the  support  of  relatives ;  whereas  only  80  of  the 
467  dead  were  wholly  without  dependents.  Of  285  fatal  accidents 
investigated  in  Cuyahoga  County,  Ohio,  176  were  suffered  by  heads 
of  families.  Of  1,476  men  killed  on  the  job  in  New  York  state,  679 
were  the  sole  supporters  of  1,775  dependents,  167  were  the  principal 
supporters  of  520  dependents  and  252  contributed  to  the  support  of 
668  relatives — leaving  but  378,  or  35  per  cent  of  the  whole  number 
of  deceased,  entirely  without  economic  responsibilities.  In  Wiscon- 
sin 43  per  cent  of  the  injured  workmen  whose  conjugal  conditions 
could  be  learned  by  the  State  Bureau  of  Labor  were  married. 

A  serious  work  accident,  therefore,  commonly  deprives  a  neces- 
sitous family  of  its  sole,  or  chief,  or  at  least  a  very  important,  source 
of  income.  The  inevitable  result,  in  the  absence  of  systematic  acci- 
dent indemnity,  is  poverty,  and  the  long  train  of  social  evils  that 
spring  from  poverty.  It  is  not  only  that  victims  of  unindemnified 
work  accidents  suffer  prolonged  incapacity  and  often  needless  death 
from  want  of  means  to  obtain  proper  care,  not  only  that  families  are 
compelled  to  reduce  a  standard  of  living  already  low,  and  that  women 
and  children  are  forced  into  employments  unsuited  to  their  age  and 
sex,  with  resultant  physical  and  moral  deterioration ;  but  it  is  that  the 
ever-present  fear  of  undeserved  want  goes  far  to  impair  that  spirit  of 
hopefulness  and  enterprise  upon  which  industrial  efficiency  so  largely 
depends. 


PROBLEMS  OF  ECONOMIC  INSECURITY  577 

261.     The  Necessity  of  Employer's  Liability ^^ 

BY  ADNA  F.  WEBER 

It  must  be  clear,  upon  reflection,  that  the  conditions  under  which 
modern  industry  is  carried  on  preclude  the  possibility  of  explaining 
every  accident  by  somebody's  negligence.  This  much  was  dimly 
understood  when  various  countries  took  the  first  step  of  shifting  the 
onus  probandi  from  employee  to  employer.  If,  now,  the  employees 
are  not  to  blame  for  the  innumerable  injuries  to  which  they  are  sub- 
ject, why  should  they  be  made  to  bear  the  financial  burden  of  those 
injuries  ?  Why  should  not  that  burden  be  distributed  over  the  com- 
munity instead  of  being  concentrated  upon  a  certain  number  of 
families  who,  in  any  event,  v^ill  have  to  bear  the  physical  and  mental 
suffering  involved  in  the  death,  crippling,  or  maiming  of  men?  The 
risk  of  fire  is  undeniably  greater  in  a  gunpowder  mill  than  in  a 
brewery,  but  the  owner  of  the  mill  does  not  bear  the  burden  by  con- 
tenting himself  with  lower  profits  than  the  brewer's ;  he  simply  pays 
for  the  greater  risk  by  higher  rates  of  fire  insurance  and  passes  the 
cost  on  to  the  consuming  public  in  a  higher  price  for  his  product.  If 
the  additional  expense  imposed  upon  a  gunpowder  manufacturer 
through  the  more  frequent  losses  by  fire  can  be  thus  recouped  from 
consumers,  why  should  not  the  expense  of  indemnifying  his  work- 
men for  accidents  be  likewise  made  a  part  of  the  cost  of  production, 
and  thereby  be  transferred  to  the  community  at  large?  Only  one 
thing  will  prevent  such  shifting  of  the  burden,  and  that  is  the  ability 
of  competitors  to  put  their  goods  on  the  market  without  incurring 
like  charges.  Hence  the  law  must  require  all  competitors  in  a  given 
trade  to  make  the  same  compensation  for  the  same  injuries.  This  is 
what  Europe  has  done ;  by  compelling  employers  to  compensate  in- 
jured employees  according  to  a  fixed  scale,  it  has  taxed  the  com- 
munity, through  higher  prices  of  goods,  for  the  support  of  its  injured 
members. 

Many  minds  bred  in  the  philosophy  of  individualism  will  undoubt- 
edly see  in  such  legislation  nothing  but  injustice  to  the  employer.  In 
reality  such  legislation  is  in  strict  conformance  with  the  innermost 
spirit  of  English  and  American  common  law.  It  recognizes  the  exist- 
ence of  undeserved  distress  among  workingmen  and  undertakes  to 
alleviate  their  suffering  by  giving  them  a  claim  upon  some  person 
who  is  pecuniarily  responsible.  And  that  is  precisely  the  principle 
embodied  in  the  time-honored  common-law  rule  that  the  principal 
is  liable  for  the  acts  of  his  agent. 

I'^Adapted  from  an  article  published  in  the  Political  Science  Quarterly, 
XVII,  279-81.    Copyright,  1902. 


578  CURRENT  ECONOMIC  PROBLEMS 

The  course  of  reasoning  thus  followed  to  justify  the  principal- 
and-agent  theory  of  liability  also  justified  the  workmen's  compensa- 
tion acts  adopted  by  all  the  leading  countries  of  Europe,  which  require 
the  employer  to  assume  all  the  risks  of  the  employment  which  he  calls 
into  being.  But  while  the  employer  makes  the  primary  payment,  just 
as  he  pays  for  the  wear  and  tear  of  his  machinery  or  the  loss  of  his 
plant  by  fire,  the  consumers  ultimately  pay  the  cost.  The  alternative 
to  such  a  general  distribution  of  the  financial  burdens  of  industrial 
through  the  public  charities. 

accidents  is  the  present  method,  by  which  the  entire  burden  is  put 
primarily  upon  the  poorest  classes,  and  when  it  crushes  them,  to  the 
damage  of  the  community,  is  at  last  tardily  assumed  by  the  latter 


D.     SICKNESS  AND  HEALTH 
262.    The  Nation's  Physical  Fitness^*^ 

In  an  instructive  chapter  the  second  report  of  the  Provost  Marshal 
General  summarizes  the  data  relating  to  the  physical  qualifications 
of  the  men  examined  for  military  service  under  the  selective  draft  law 
during  the  period  from  December  15,  1917,  to  September  11,  1918. 
Inasmuch  as  the  data  pertain  to  3,208,446  men  physically  examined,  it 
is  evident  that  they  furnish  an  unparalleled  source  of  information  re- 
garding the  physical  condition  of  the  nation's  manhood. 

It  is  interesting  to  note  that  out  of  these  3,208,446  registrants 
physically  examined  by  the  local  boards,  70.41  per  cent  were  found 
fully  qualified  for  all  military  duty.  These  men  were  re-examined  by 
the  camp  surgeons  for  induction  into  military  service,  and  an  average 
of  8.1  per  cent  of  them  were  rejected.  These  physical  examinations 
and  re-examinations  therefore  revealed  the  fact  that  only  64.71  per 
cent  of  the  registrants  in  the  age-group  twenty-one  to  thirty-one  were 
fully  qualified  for  all  military  duty. 

It  is  further  noted  that  there  were  rejected  as  having  defects  such 
as  to  render  them  unfit  for  military  duty  21.68  per  cent  of  registrants 
from  urban  regions;  and  16.89  per  cent  of  registrants  from  rural 
regions.  Likewise  17.32  per  cent  of  negro  registrants  were  rejected 
and  16.08  per  cent  of  whites.  From  alien  communities  17.14  per  cent 
of  registrants  were  rejected,  and  from  native  communities  13.64  pel 
cent  of  registrants.  This  seems  to  indicate  that  rural  registrants 
were  in  better  physical  condition  than  the  urban,  the  white  than  the 
colored,  and  the  native  than  the  foreign-born. 

i«Adapted  from  an  abstract  of  the  second  report  of  the  Provost  Marshal 
General,  published  in  Public  Health  Reports,  XXXIV  (1919),  624,  633-34. 


PROBLEMS  OF  ECONOMIC  INSECURITY  579 

Undoubtedly  the  physical  examinations  of  so  many  men  in  this 
age  group  taken  evenly  from  all  sections  of  the  country  constitute  a 
fair  index  of  the  health  of  the  general  population.  This  is  especially 
true  since  the  local  board  examinations  were  checked  up  by  the 
examinations  of  the  camp  surgeons.  In  considering  these  findings 
and  before  applying  the  ratios  to  the  general  population  the  age  of  the 
registrants  examined  must  not  be  forgotten.  Physical  unfitness 
undoubtedly  increases  with  age.  The  report  gives  an  important  clue 
to  the  increasing  ratio  of  physical  unfitness  in  comparing  the  men  in 
the  age-group  twenty-one  with  those  in  the  age-group  twenty-one  to 
thirty-one.  Those  in  the  younger  age-group  gave  76.89  per  cent 
physically  fit  for  all  military  duty  as  compared  with  69.17  per  cent 
given  by  the  older  age-group.  Only  9.93  per  cent  of  the  men  in  the 
younger  group  were  found  wholly  unfit  as  compared  with  17.47  per 
cent  of  the  older  age-group. 

Making  due  allowance  for  error  and  dififerences  due  to  sex,  age, 
and  sections  of  the  country,  an  application  of  these  findings  to  the 
country  as  a  whole  leads  to  the  conclusion  that  the  health  of  the 
nation  is  far  below  what  it  ought  to  be.  This  is  especially  true  when 
one  considers  that  only  65  per  cent  of  our  young  men  are  found 
physically  fit  for  military  service  and  over  21  per  cent  are  disquali- 
fied for  all  military  duties,  even  of  the  limited  class. 

These  conditions  are  not  confined  to  any  one  section  of  the  coun- 
try. There  is  no  great  difference  in  the  ratios  for  the  North,  South, 
East,  or  West,  urban  or  rural,  native  or  foreign-born.  In  fact  some 
of  our  previously  formed  conclusions  as  to  the  healthfulness  of  the 
several  sections  of  the  United  States  have  to  be  somewhat  revised. 
Thus  we  face  the  striking  fact  that  when  the  rejections  made  by  the 
camp  surgeons  are  included  less  than  52  per  cent  of  the  registrants  in 
the  state  of  Washington  are  in  the  condition  of  health  required  of  all 
accepted  for  all  military  duties  as  compared  with  over  73  per  cent  in 
this  condition  for  the  state  of  Arkansas,  and  this  despite  the  fact  that 
Washington  enjoys  the  lowest  death-rate  of  any  state  in  the  union. 
Again,  taking  some  of  the  findings  from  New  England  usually  con- 
sidered one  of  the  most  healthful  sections  of  the  country,  we  observe 
that  in  Massachusetts  less  than  53  per  cent  of  the  residents  are  up 
to  the  required  standard  in  health,  in  Vermont  less  than  52  per  cent, 
and  in  Maine  less  than  62  per  cent,  whereas  the  southern  section  of 
the  United  States  shows  that  Oklahoma  furnished  over  yy  per  cent 
fit  for  all  military  duties,  Arkansas  over  73  per  cent,  and  Alabama 
over  66  per  cent. 

The  figures  from  all  sections  of  the  country  are  sufficiently  ap- 
palling to  show  that  it  is  of  the  greatest  importance  for  the  whole 


58o  CURRENT  ECONOMIC  PROBLEMS 

nation  to  realize  that  it  is  high  time  to  search  out  the  causes  of  the* 
physical  unfitness  and  find  the  proper  remedies.    It  is  the  supreme 
duty  of  all  agencies,  national,  state,  and  local,  to  work  together  to 
these  ends. 

263.     The  Industrial  Cost  of  Sickness^^ 

BY   JOSEPH    p.    CHAMBERLAIN 

It  is  important  that  we  should  consider  the  many  shreds  of 
information  which  may  be  pieced  together  to  show  the  extent  and 
need  of  sickness  insurance  in  the  United  States.  No  figures  exist 
from  which  we  may  estimate  accurately  the  probable  amount  of  loss 
caused  by  sickness  in  this  country,  but  a  committee  of  experts  acting 
for  the  American  Association  for  Labor  Legislation  has  estimated 
that  annually  there  are  248,750,000  days  of  sickness  among  workmen 
in  the  United  States,  costing  $792,892,860.  The  United  States  Bureau 
of  Labor  reports  that  every  workman  in  the  steel  industry  has  the 
expectation  of  nine  days  lost  by  sickness  in  a  year  as  against  four 
days  lost  by  accident,  a  significant  proportion  when  we  realize  that 
it  does  not  cover  the  cases  of  men  forced  by  sickness  to  quit  entirely, 
and  that  only  the  sick  leave  their  work. 

The  burden  is  not  borne  entirely  by  the  working  people.  Sums 
which  would  undoubtedly  amount  to  considerable  in  the  aggregate 
are  paid  by  employers  as  wages  to  sick  employees  and  to  the  differ- 
ent insurance  funds  in  which  both  employer  and  employee  are  in- 
terested. The  extent  of  the  contribution  of  private  charity  may  be 
guessed  by  the  statement  of  the  New  York  Association  for  Improv- 
ing the  Condition  of  the  Poor,  that  40  per  cent  of  the  persons  helped 
by  it  in  1912  became  dependent  on  account  of  sickness,  a  proportion 
which,  according  to  most  authorities,  is  rather  higher  than  the  aver- 
age. The  contribution  of  the  state  and  the  public,  through  the  sup- 
port of  hospitals  and  dispensaries,  is  a  larger  figure.  Studies  of  social 
conditions  in  New  York  City  show  thafcthe  dispensary  and  the  hos- 
pital are  the  principal  resources  in  sickness  of  the  poorest  paid  classes 
of  workmen. 

These  sums,  large  though  they  must  be  in  the  aggregate,  leave 
the  huge  bulk  of  the  cost  of  sickness  on  the  shoulders  of  the  work- 
men themselves,  and  to  lessen  in  individual  cases  its  crushing  weight, 
often  increased  by  the  cost  of  burial,  a  widely  extended  system  of 
sickness  and  burial  insurance  has  grown  up.  There  are  a  variety 
of  carriers  of  this  insurance:  (i)  Industrial  and  assessment,  sick- 
ness and  burial  insurance  companies  and  associations;  (2)  estab- 

iTAdapted  from  "The  Practicability  of  Compulsory  Sickness  Insurance  in 
America,"  American  Labor  Legislation  Review,  IV  (1914),  52-53. 


PROBLEMS  OF  ECONOMIC  INSECURITY  583 

is  made  by  the  use  of  stamps  and  the  employer  is  authorized  to  deduct 
the  employee's  contribution  from  his  weekly  wage. 

There  are  five  benefits  to  be  given :  ( i )  Medical  benefit.  This 
includes  medical  attention  and  the  necessary  drugs  when  one  is  ill, 
and  may  be  extended  to  the  dependents  of  the  injured  person  when 
the  authorities  have  the  means  and  deem  it  advisable.  (2)  Sana- 
torium benefit.  This  entitles  a  member  who  has  tuberculosis  or  a 
similar  disease  to  be  treated  in  a  sanatorium  when  it  is  heeded.  This 
benefit  also  may  be  extended  to  the  dependents  of  the  injured  person. 
A  definite  amount,  i  shilling  4  pence,  is  available  for  each  member 
annually  for  the  payment  of  this  benefit.  This  amount  must  not  be 
exceeded  unless  the  local  authorities  and  the  Treasury  vote  extra  aid. 
(3)  Sickness  benefit.  This  is  a  cash  payment  made  weekly  to  the 
insured  person  or  his  dependents  and  continues  for  26  weeks.  In 
the  case  of  men  it  is  10  shillings  a  week  for  the  first  13  weeks  and  5 
shillings  for  the  second  13  weeks;  in  the  case  of  women  7  shillings 
6  pence  for  the  first  13  weeks  and  5  shillings  for  the  second  13  weeks. 
If  the  financial  condition  of  the  society  permits,  the  benefits  for  the 
second  13  weeks  may  be  increased.  (4)  Disability  benefit.  This  is 
a  weekly  payment  of  5  shillings  to  a  member  who  is  temporarily  or 
permanently  disabled  as  the  result  of  sickness  or  accident  not  in  any 
way  connected  with  his  work.  It  lasts  "so  long  as  he  is  rendered  unfit 
by  the  disease  or  disablement."  (5)  Maternity  benefit.  This  is  a 
lump  sum  of  30  shillings  paid  upon  the  birth  of  a  child,  either  when 
the  mother  herself  is  insured  or  when  she  is  the  wife  of  an  insured 
man.  In  addition  to  these,  other  benefits  may  be  granted,  if  the  finan- 
cial condition  of  the  society  permits  it.  The  benefits  are  decreased 
when  the  person  is  in  arrears  with  his  contribution,  when  he  is  under 
age  and  not  married,  and  when  he  is  past  50  at  the  time  of  becoming 
insured. 

If  a  person  is  not  so  employed  as  to  become  a  regular  member, 
he  may  join  a  society  as  a  voluntary  contributor.  The  rate  at  which 
he  pays  is  determined  by  his  age  at  entrance.  Adequate  provision  is 
made  to  allow  the  transfer  of  a  member  from  the  voluntary  to  the 
employed  rate  and  vice  versa.  Since  there  is  no  contribution  from 
the  employer  in  the  case  of  a  voluntary  member,  this  amount  must  be 
paid  by  the  member.  The  contribution  from  Parliament  is  the  same 
as  in  the  case  of  the  regular  member,  and  the  benefits  he  receives  are 
the  same. 

A  deposit  contributor  is  one  who  cannot  obtain  admission  to  an 
approved  society  either  as  an  employed  or  a  voluntary  contributor. 
He  deposits  his  savings  in  the  postoffice  in  a  manner  similar  to  our 
Postal  Savings  Bank  system.    From  his  deposit,  after  it  is  subsidized 


584  CURRENT  ECONOMIC  PROBLEMS 

by  Parliament,  the  proper  amount  is  deducted  to  entitle  him  to  medi- 
cal and  sanatorium  benefits.  For  the  other  benefits  he  can  merely 
withdraw  the  remainder  of  his  subsidized  deposit. 

There  are  two  separate  organizations  for  the  administration  of 
benefits.  A  local  health  committee  is  established  for  each  county 
and  county  borough.  This  committee  in  conjunction  with  the  local 
authorities  already  existing  administers  the  medical  and  sanatorium 
benefits.  The  other  benefits  are  administered  by  approved  societies. 
The  reason  for  this  division  of  labor  is  that  friendly  societies,  hav- 
ing millions  of  members,  already  give  benefits  of  various  sorts.  It  is 
intended  not  to  interfere  with  the  other  activities  of  these  societies, 
but  to  have  them  establish  separate  branches  to  administer  the  re- 
maining health  insurance  benefits.  Any  society  which  does  this  may 
become  an  approved  society,  provided  it  is  not  carried  on  for  profit 
and  is  subject  to  the  control  of  its  members.  The  approval  rests 
with  the  insurance  commissioners. 

Many  details  of  the  scheme  are  fully  set  forth  in  the  bill,  but 
many  others  are  left  to  the  insurance  commissioners.  Their  rules 
and  regulations  are,  of  course,  subject  to  the  approval  of  Parliament. 
Strange  as  this  delegation  of  legislative  power  seems,  there  is  little 
doubt  that  it  will  contribute  much  to  the  initial  success  of  the  scheme. 
The  commission  will  be  able  to  adapt  many  of  its  regulations  to 
exigencies  as  they  arise  and  thus  correct  at  once  many  of  the  defects 
which  are  bound  to  appear  upon  the  launching  of  this  mighty  scheme. 

266.     Health  Insurance  for  the  United  States^" 

BY  B.  S.   WARREN  AND  EDGAR  SYDENSTRICKER 

The  case  for  a  health  insurance  system  for  the  United  States  or 
for  the  several  states  and  the  general  outlines  of  an  effective  system 
can  be  indicated  in  the  following  summary  statement : 

1.  The  fact  that  health  insurance  has  been  so  generally  adopted 
in  European  countries  as  a  solution  of  the  problem  of  the  wage- 
earner's  health  suggests  its  serious  consideration  in  this  country  as  a 
measure  for  the  relief  and  prevention  of  sickness, 

2.  At  present  each  of  the  30,000,000  wage-earners  in  the  United 
States  loses  about  nine  days  each  year  on  account  of  sickness. 
Estimating  the  loss  in  wages  at  $2  per  day  and  the  cost  of  medical 
attention  at  $1  per  day,  the  total  loss  to  the  wage-earners  of  the  nation 
is  approximately  three-quarters  of  a  billion  dollars  annually. 

_  3.     In  addition  to  conditions  which  affect  the  health  of  the  popu- 
lation as  a  whole,  some  of  the  more  important  economic  factors  which 

■^  .^i^^^P?^^  ^'"°"^  //ca///i  Insurance:  Its  Relation  to  the  Public  Health  pp. 
06-68  (Public  Health  Bulletin  No.  76,  1916). 


PROBLEMS  OF  ECONOMIC  INSECURITY  585 

increase  the  health  hazard  of  the  wage-working  population  are :  (a) 
occupational  hazards ;  (b)  irregularity  of  employment ;  (c)  unhealth- 
ful  conditions  of  living  (d)  employment  of  women  under  modern  con- 
ditions of  work,  particularly  of  married  women;  and  (e)  economic 
disadvantages  at  which  a  large  proportion  of  wage- workers  and  their 
families  are  placed  as  the  result  of  low  wages  and  insufficient  annual 
income. 

4.  Underlying  all  the  economic  factors  is  the  fact  of  poverty 
and  the  partnership  of  poverty  and  disease. 

5.  Three  groups — employers,  the  public,  and  employees — are 
responsible  for  conditions  causing  sickness  among  wageworkers  and 
their  families. 

6.  With  few  exceptions,  the  responsibility  of  employers  for  the 
health  of  employees  is  limited  to  places  of  employment  and  working 
conditions. 

7.  The  public  is  responsible  for  community  conditions  or  con- 
ditions common  to  all  classes  of  citizens. 

8.  The  greatest  share  of  responsibility  rests  upon  the  individual 
unable  to  meet  this  responsibility,  especially  the  unskilled,  low-paid 
wage-earner.  Under  present  conditions  a  large  proportion  are 
workers. 

9.  The  inability  of  the  wage  worker  to  meet  the  cost  of  sickness 
places  a  serious  handicap  upon  the  medical  profession  in  its  efforts 
for  the  relief  and  prevention  of  disease. 

10.  There  is  an  increasing  need  for  a  more  effective  method  of 
dealing  with  the  problem  of  the  wage-earner's  health — one  which 
will  place  the  burden  of  responsibility  where  it  belongs  and  stimulate 
the  co-operation  of  all  concerned  in  its  solution. 

11.  Health  insurance  is  the  most  feasible  method  because  (a) 
it  distributes  the  cost  of  sickness  among  those  responsible  for  con- 
ditions causing  sickness  and  lightens  the  burden  upon  the  individual ; 
(b)  it  gives  a  financial  incentive  for  the  prevention  of  sickness  to 
those  who  are  responsible  for  the  conditions  causing  sickness. 

12.  Health  insurance  in  its  most  highly  developed  form  (a) 
j^rovides  for  adequate  cash  and  medical  benefits  to  all  wage-earners 
in  time  of  sickness;  (b)  distributes  the  cost  among  employers,  the 
public,  and  wage-earners ;  (c)  becomes  an  effective  health  measure 
by  stimulating  the  co-operative  effort  of  the  three  responsible  groups 
and  by  linking  their  efforts  with  those  of  governmental  health 
agencies ;  (d)  correlates  all  the  forces  in  the  prevention  of  disease ; 
and  (e)  affords  a  better  basis  for  the  co-operation  of  the  medical 
profession. 


586         CURRENT  ECONOMIC  PROBLEMS 

13.  Under  an  efficient  health  insurance  system  a  contribution  of 
approximately  50  cents  per  week  per  insured  person  (25  cents  by 
employees,  20  cents  by  employers,  and  5  cents  by  the  government) 
should  enable  the  insured  persons  to  receive  (a)  $7  per  week  when 
disabled  by  sickness  or  accident  for  as  much  as  twenty-six  weeks 
in  a  year;  (b)  adequate  medical  and  surgical  care  during  disability; 
(f)  medical  and  surgical  care  of  wife  of  insured  person  during  con- 
finement; (d)  a  death  benefit  of  $100. 

14.  A  governmental  system  of  health  insurance  can  be  adapted 
to  American  conditions,  and  when  adapted  will  prove  to  be  a  health 
measure  of  extraordinary  value. 

The  fact  that  under  such  a  system  the  employee  has  such  a  large 
measure  of  ownership  and  control  will  remove  all  elements  of  pater- 
nalism. He  will  regard  the  benefits  as  rights,  not  charities.  Ade- 
quate medical  relief  will  be  placed  within  the  reach  of  even  the  lowest 
paid  worker  and  provide  for  him  and  his  family  during  sickness. 
It  will  give  to  those  responsible  for  conditions  causing  sickness  a 
financial  incentive  to  prevent  disease. 

Its  administration  must  be  closely  co-ordinated  with  public- 
health  agencies  if  it  is  to  attain  the  greatest  degree  of  success  as 
a  preventive  measure. 

E.     THE  STANDARD  OF  LIVING 

267.     The  Nature  of  the  Standard  of  Living=^ 

BY  FRANK  HATCH  STREIGHTOFF 

"How  can  these  people  endure  it  ?"  asked  the  fair  boarder,  clos- 
ing her  novel  and  languidly  sinking  into  the  depths  of  her  hammock. 
"Mr.  Farmer  drudges  from  four  a.  m.  till  dark,  and  never  a  visible 
result !  He's  never  been  to  the  theater !  Why,  he  hasn't  even  read 
The  Balance  of  Power.  I  don't  call  that  living — it  may  be  existing." 
Such  words  are  heard  every  day  in  rural  summer  resorts.  Corre- 
sponding sentiments  are  entertained  by  many  a  farmer  who  cannot 
see  how  his  guests  are  held  by  the  chaotic  buzz  of  the  metropolis. 
The  people  of  one  city  block  "couldn't  be  hired"  to  move  to  certain 
other  squares;  yet  the  respectable  inhabitants  of  these  latter  dis- 
tricts "wouldn't  be  buried  from  Z  Street."  It  is  really  amusing  to 
notice  how  the  words  "live"  and  "exist"  are  contrasted,  but  the  dis- 
tinction is  merely  the  expression  of  the  fact  that  "consciously  or  un- 
consciously every  man  whose  means,  or  wealth,  or  resources  are 
more  limited  than  this  wants — and  this  is  practically  the  case  with 

2iAdapted  from  The  Standard  of  Living  among  the  Industrial  People  of 
America,  pp.  1-4.    Copyright  by  Hart,  Schaffner  &  Marx,  191 1. 


PROBLEMS  OF  ECONOMIC  INSECURITY  587 

human  beings  generally — has  a  scale  of  wants  in  his  mind  when  he 
arranges  these  means.  On  the  basis  of  this  scale  he  satisfies  what  are 
his  most  urgent  wants  and  leaves  the  less  urgent  ones  unsatisfied. "-- 
In  other  words,  every  man  has  his  own  "standard  of  living." 

Satisfactorily  to  define  the  standard  of  living  is  extremely  diffi- 
cult. Bullock  writes,  "Each  class  of  people  in  any  society  is  accus- 
tomed to  enjoy  a  greater  or  less  amount  of  the  comforts  or  luxuries 
of  life.  The  amount  of  comforts  or  luxuries  customarily  enjoyed 
forms  the  standard  of  living  of  that  class."^^  That  is  to  say,  the 
standard  of  living,  as  the  expression  is  usually  understood,  consists 
simply  of  what  men  do  actually  enjoy.  On  the  other  hand  there 
are  always  felt  but  unsated  wants  that  prompt  men  to  struggle ; 
those  reasonable  unfilled  desires  are  the  motive  powers  to  progress. 
Few  indeed  are  the  women  who  do  not  confidently  whisper  to  their 
friends,  "We  cannot  do  that  now,  for  we  are  rather  poor  this  year." 
There  is  an  "ideal"  standard  of  living  which  is  always  in  advance 
of  achieved  satisfaction. 

The  definition  given  here  is  valuable  in  suggesting  two  impor- 
tant truths.  First,  it  properly  emphasizes  comforts  and  luxuries.  In 
everyday  affairs  effort  is  often  directed  more  to  securing  superflu- 
ities than  in  providing  necessities.  In  the  second  place,  the  extent 
and  content  of  the  unsated  wants  in  a  man's  ideal  standard  is  largely 
determined  by  actual  satisfactions. 

Each  individual  has  his  own  more  or  less  rational  concept  of 
what  is  essential  to  the  maintenance  of  his  own  social  position ;  and 
he  knows  exactly  what  this  position  is,  whether  he  be  the  bank  clerk 
who  delights  in  race  horses,  or  the  man  who  shares  the  same  desk 
and  plays  on  the  Sunday-school  ball  team.  The  one  demands 
"smart"  raiment  and  amusement  at  highly  nervous  tension,  the  other 
wants  respectable,  serviceable  clothes  and  healthy  sport.  They  live 
in  different  worlds,  they  have  individual  criteria:  so  each  man  has 
his  own  standard  of  living.  But  it  will  be  noted  that  bank  clerks  as 
a  class  have  some  wants  in  contrast  to  the  mechanics,  for  instance. 
The  clerks  must  enter  their  offices  clean-shaven,  the  mechanics  like 
a  good  scrub  after  work;  the  former  wear  kid  gloves  and  fresh 
linen,  the  latter  are  more  comfortable  in  woolen  gloves  and  flannel 
shirts.  These  contrasts  and  comparisions  can  be  extended  until  the 
standard  of  each  group  can  be  determined  with  considerable  pre- 
cision. Thus  the  class  standard  of  living  may  be  compared  to  a 
composite  photograph ;  certain  features  are  emphasized,  while  others 

22Smart,  Introduction  to  the  Theory  of  Value,  p.  22. 
'^^Introduction  to  the  Study  of  Economics,  p.  126. 


588  CURRENT  ECONOMIC  PROBLEMS 

are  faint  or  blurred  according  to  the  proportion  of  the  individuals 
possessing  the  character.  On  the  other  hand,  development  of  the 
individual  is  so  largely  influenced  by  his  environment  that  his  notions 
are,  in  the  main,  those  of  his  class. 

But  class  is  not  the  only  factor  in  the  development  of  the  indi- 
vidual's ideal  standard  of  living.  Aside  from  its  large  determining 
influence  in  the  matter  of  class  membership,  income  has  an  import- 
ant part  to  play ;  purchasing  power  limits  the  quantity  and  quality 
of  obtainable  satisfactions.  The  higher  the  indvidual  climbs  on  the 
ladder  of  success,  the  wider  is  his  view ;  the  more  he  sees,  the  more 
he  seeks. 

Another  determinant  of  the  standard  of  living  is  the  progress  of 
civilization.  The  modern  carpenter  has  far  more  comfort  than 
Richard  II  dreamed  of,  simply  because  progress  has  put  new  things 
within  his  reach,  but  the  carpenter  knows  that  there  are  many,  many 
things  which  he  cannot  have.  Thus  there  is  constant,  though  ir- 
regular rise  of  the  standard  of  living  as  civilization  becomes  more 
complex. 

268.     The  War  and  the  Standard  of  Living-* 

BY  W.  F.  OGBURN 

The  facts  of  the  increased  cost  of  living,  upon  which  wage  in- 
creases during  the  war  were  based,  were  determined  from  extensive 
surveys  made  by  various  agencies,  such  as  United  States  Bureau 
of  Labor  Statistics,  the  National  War  Labor  Board,  the  National 
Industrial  Conference  Board,  the  Shipbuilding  Labor  Adjustment 
Board,  the  Railroad  Wage  Commission,  the  University  of  Washing- 
ton, and  others.  Of  these  studies  by  far  the  most  important  are 
those  by  the  Bureau  of  Labor  Statistics.  From  all  these  studies  we 
know  fairly  certainly  that  the  cost  of  living  based  upon  all  the  items 
of  the  family  budget,  including  food,  rent,  fuel  and  light,  clothing 
and  sundries,  has  increased  for  the  country  as  a  whole  about  55  per 
cent  from  the  pre-war  period,  as  measured  by  the  year  1914,  to 
June,  19 18.  We  also  know  that  the  increase  has  been  fairly  uniform 
over  the  country  as  a  whole,  the  greatest  variation  being  in  rent. 
Up  to  August,  19 1 8,  the  increase  had  been  about  65  per  cent,  this 
figure  being  the  average  increase  over  19 14,  in  fifteen  shipbuilding 
centers,  as  measured  by  the  United  States  Bureau  of  Labor  Statistics. 
At  the  present  time  a  fair  estimate  of  the  increase  in  the  cost  of  living 
would  probably  be  70  per  cent.    This  figure  I  think  can  be  interpreted 

2^Adapted  from  "Standard  of  Living  as  a  Basis  of  Wage  Adjustment," 
Proceedings  of  the  Academy  of  Political  Science,  VIII,  102-4,  107-8.  Copy- 
right, 1919. 


PROBLEMS  OF  ECONOMIC  INSECURITY  589 

as  meaning  that  unless  wages  have  increased  over  this  period  70  per 
cent,  there  has  been  a  fall  in  the  standard  of  living. 

We  do  not  have  available  so  far  as  I  know  the  figures  to 
show  whether  wages  have  increased  70  per  cent  over  1914  or  not. 
*The  general  economic  theory  of  wages  and  prices  is  that  wages  do 
not  increase  as  rapidly  as  prices,  and  that  during  the  period  of  rising 
prices  real  wages  are  lowered.  The  conditions  upon  which  such  a 
general  economic  theory  is  based  have  been  modified  during  the 
present  war  by  several  forces  all  tending  to  raise  wages  more  than 
usually  occurs  during  a  period  of  rising  prices.  These  forces  have 
been  the  shortage  of  men,  due  to  the  cutting-off  of  immigration,  the 
drafting  of  men  into  the  military  forces,  the  demand  of  stimulated 
industry,  the  degree  of  social  control  of  wages  by  the  government, 
and  the  extension  of  credit. 

What,  of  course,  is  true,  is  that  in  some  industries  wages  have 
risen  more  than  the  cost  of  living  has  risen  and  in  others  they  have 
not,  while  in  some  occupations  wages  have  just  about  kept  pace  with 
prices.  Thus  in  the  steel  and  iron  industries  wages  have  increased 
more  than  the  cost  of  living.  The  National  War  Labor  Board  has  in 
a  number  of  its  decisions  increased  wages  more  than  the  cost  of  living 
has  increased.  The  awards  of  the  National  War  Labor  Board  in 
the  street-car  cases  and  a  number  of  the  decisions  of  the  Shipbuilding 
Labor  Adjustment  Commission  affecting  trades  engaged  in  ship- 
building have  placed  wage  rates  at  very  nearly  the  increase  in  the 
cost  of  living.  In  the  building  trades  and  in  the  printing  trades  wages 
have  not  increased  as  much  as  the  cost  of  living. 

The  only  figures  I  have  secured  on  increases  in  real  wages  are 
the  following :  I  have  been  able  to  get  the  increases  in  union  wage 
rates  since  1914  up  to  May  15,  1918,  in  nineteen  trades  in  about  twelve 
cities.  Expressing  these  rates  in  terms  of  their  purchasing  power 
and  calling  the  result  real  wage  rates,  then  the  bricklayers'  real  wage 
rates  have  fallen  21  per  cent,  carpenters'  real  wage  rates  have  fallen 
18  per  cent,  cement  finishers'  have  fallen  20  per  cent,  granite  cutters' 
have  fallen  18  per  cent,  hod  carriers'  have  fallen  9  per  cent,  painters' 
have  fallen  14  per  cent,  plasterers'  have  fallen  25  per  cent,  plasterer 
laborers'  have  fallen  20  per  cent.  The  blacksmiths'  wage  rates  have 
risen  5  per  cent,  the  boilermakers'  have  fallen  5  per  cent,  the  machin- 
ists' have  risen  10  per  cent,  the  iron  molders'  5  per  cent.  The  real 
wages  of  plumbers  and  gas  fitters  have  fallen  20  per  cent,  of  stone 
cutters  18  per  cent,  of  structural  iron  workers  14  per  cent.  Com- 
positors' real  wage  rates  have  fallen  25  per  cent,  electrotypers'  and 
stenographers'  have  fallen  27  yer  cent.  These  changes  are  based 
upon  union  wage  rates  and  not  on  earnings. 


590  CURRENT  ECONOMIC  PROBLEMS 

I  have  been  able  to  get  figures  on  the  increase  in  earnings  in  six 
important  industries.  The  earnings  have  been  found  by  dividing  the 
total  payroll  by  the  number  of  wage-earners  on  the  pay-roll  for  the 
week  prior  to  December  31,  1914,  and  to  October  i,  1918.  Express- 
ing these  earnings  in  terms  of  their  purchasing  power  and  calling  the 
result  real  wages,  the  real  wages  in  the  boot  and  shoe  industry  have 
increased  23.5  per  cent,  in  the  cotton  finishing  industry  they  have 
increased  6  per  cent,  in  cotton  manufacturing  they  have  increased  13 
per  cent,  in  the  manufacturing  of  hosiery  and  underwear  the  in- 
crease has  been  1 1  per  cent,  in  the  silk  industry  the  increase  has  been 
5  per  cent,  in  woolen  manufacturing  they  have  increased  9  per  cent, 
and  in  the  iron  and  steel  industry  real  wages  have  increased  45  per 
cent. 

For  common  labor  I  found  that  in  the  government  employment 
offices  of  130  cities  the  last  common  labor  placed  prior  to  August  i, 
1918,  averaged  36.6  cents  per  hour.  If  in  December,  1914,  such 
common  labor  was  receiving  23  cents  per  hour,  then  real  wages  for 
common  labor  have  risen,  and  if  common  wages  were  placed  at  more 
than  23  cents  per  hour  then  real  wages  for  common  labor  have 
fallen. 

The  foregoing  figures  do  not  of  course  show  whether  real  wages 
as  a  whole  have  risen  or  fallen,  but  they  furnish  some  indication  of 
what  has  happened  to  a  large  percentage  of  American  workers, 

A  national  policy  in  regard  to  wages  should  determine  and  declare 
minimum  standards  of  living  below  which  families  ought  not  to  be 
permitted  to  fall,  and  wages  should  be  kept  at  such  a  level  as  to  permit 
such  a  standard  of  living.  This  is  an  issue  now  discussed  in  British 
social  politics  under  the  term  "the  national  minimum."  We  in  the 
United  States  shall  in  the  near  future  probably  be  setting  minimum 
living  wages  for  families  as  well  as  for  women,  by  one  agency  or 
another.  The  question  of  proper  standards  of  living  has  been  the  sub- 
ject of  some  research  by  the  cost-of-living  department  of  the  National 
War  Labor  Board.  This  department  has  drawn  up  for  the  con- 
sideration of  the  board  two  levels,  one  of  which  is  called  the  mini- 
mum-comfort budget  and  the  other  the  minimum-of-subsistence 
budget.  After  considerable  investigation  a  minimum-comfort 
budget  was  drawn  in  detail  for  June,  1918,  for  a  man,  wife,  and  three 
children  living  in  a  large  eastern  city.  The  income  necessary  to  live 
according  to  this  plane  of  living  was  at  that  time  $1,760  a  year. 

The  minimum-comfort  standard  has  been  used  relatively  little 
in  setting  wages,  chiefly  during  the  past  year.  On  the  other  hand 
there  has  been  a  great  deal  of  research  upon  the  question  of  the  mini- 
mum of  subsistence.    Thus  in  1907  Dr.  Chapin  estimated  that  prob- 


PROBLEMS  OF  ECONOMIC  INSECURITY  591 

ably  an  income  between  $800  and  $900  a  year  would  furnish  a  family 
of  five  with  the  bare  physical  necessities.  In  1914,  the  New  York 
Factory  Investigating  Commission  set  such  a  budget  for  a  family 
living  in  New  York  City  at  $876.  Today  we  are  forced  to  think  in 
terms  of  a  price  level  much  higher  and  we  have  not  yet  become  ac- 
customed to  the  new  price  terms.  So  it  is  altogether  a  proper  question 
to  ask  what  would  these  two  authoritative  minimum-of-subsistence 
budgets  cost  at  the  present  level  of  prices.  In  June,  1918,  these  two 
budgets  were  brought  up  to  date  by  translating  the  prices  of  the 
various  budget  items  of  the  pre-war  period  into  the  new  price  level 
as  measured  by  the  percentages  of  increase  of  the  various  items.  By 
this  method  Dr.  Chapin's  budget  would  have  cost  $1,390  and  the 
budget  of  the  New  York  Factory  Investigating  Commission  $1,360. 
Independently  at  that  time  also  a  minimum-of-subsistence  budget 
was  drawn  up  from  data  from  600  family  budgets  collected  by  the 
United  States  Bureau  of  Labor  Statistics,  which  set  the  minimum  of 
subsistence  budget  at  $1,380.  Still  another  method  of  estimating  the 
minimum  wage  was  also  used.  It  was  found  in  New  York  in  June, 
191 8,  that  the  dietaries  which  yielded  enough  calories  and  grams  of 
protein  and  which  were  actually  in  use  cost  approximately  $615  for 
a  family  of  five  counted  as  3.4  equivalent  adult  males.  As  we  know 
that  at  the  plane  of  bare  subsistence  food  costs  about  44  per  cent 
of  the  total  budget,  it  is  possible  to  estimate  the  total  budget.  Accord- 
ing to  this  approximation  the  minimum  living  wage  would  be  $1,390. 
It  seems  fairly  evident  then  that  in  New  York  in  June,  1918, 
the  minimum  living  wage  was  between  $1,350  and  $1,400.  From 
June  to  December  the  cost  of  living  has  increased  probably  10  per 
cent.  This  would  mean  that  at  the  present  time  the  minimum  living 
wage  necessary  for  a  family  of  five  in  New  York  City  is  about  $1,500. 
What  it  should  be  in  other  parts  of  the  country  we  do  not  know. 

F.     THE  MINIMUM  WAGE 
269.     The  Promise  of  a  Minimum  Wage-^ 

BY  A.  N.  HOLCOMBE 

The  immediate  direct  effect  of  the  establishment  of  a  minimum 
standard-of-living  wage  would  be  to  put  an  end  to  the  employ- 
ment of  normal  adult  workers  at  lower  rates.  Not  every  wage- 
worker  who  has  been  employed  at  lower  rates  would  necessarily 
be   deprived  of  employment,   nor  would   the  wage  of  every  such 

-^Adapted  from  an  article  in  the  American  Economic  Review,  II,  2iZ-27- 
Copyright,  1912. 


592  CURRENT  ECONOMIC  PROBLEMS 

wage-earner  necessarily  be  increased  in  the  standard  minimum  rate. 
Some  employes  would  receive  the  increase,  and  some  would  lose 
their  employment.  The  actual  effect  would  depend  partly  upon  the 
efficiency  of  the  wage-earners  concerned,  and  partly  upon  the  char- 
acter of  the  demand  for  their  services.  In  industries  like  depart- 
ment stores  and  steam  laundries,  which  serve  local  markets  and  are 
free  from  outside  competition,  probably  the  increase  of  wages  could 
be  paid  to  all  employes  below  the  minimum  without  so  increasing 
the  cost  of  production  as  to  produce  a  material  decline  in  the  de- 
mand. But  in  industries  serving  a  wider  market  and  subject  to  out- 
side competition,  such  as  cotton  mills  and  shoe  factories,  the  estab- 
lishment of  a  legal  minimum  wage  might  reduce  employment  rather 
than  increase  wages.  The  outcome  would  depend  largely  upon  the 
extent  of  the  necessary  increase  and  the  rapidity  with  which  it 
should  be  put  in  force.  Some  sweated  industries  might  be  alto- 
gether capable  of  maintaining  themselves.  But  such  as  these  the 
country  would  be  better  without. 

The  greatest  difficulty  arises  in  the  cases  where  work-people  of 
distinctly  different  standards  of  living  come  into  competition  with 
one  another.  Unless  the  groups  are  of  equal  efficiency,  the  attempt 
to  establish  a  single  standard  for  all  might  result  in  securing  the 
industry  to  the  most  efficient  group  and  excluding  the  others  from 
all  employment  therein.  To  attempt  to  establish  an  American  stand- 
ard-of-living  wage  for  alien  races  of  distinctly  lower  standards  and 
lower  efficiency  would  probably  result  in  the  exclusion  of  many 
aliens  from  employment  in  the  country.  It  would  also  result  in  the 
exclusion  of  most  of  the  negroes  from  the  occupations  in  which  the 
wage  should  be  adjusted  to  the  efficiency  of  the  native  whites.  A 
legal  minimum  wage  would  probably  be  of  advantage  in  promoting 
a  better  distribution  of  such  immigrants  among  our  various  industries. 

The  indirect  economic  effects  of  the  establishment  of  a  minimum 
standard-of -living  wage  may  be  mentioned  summarily. 

First,  the  establishment  by  legislation  of  such  a  wage  would  make 
available  to  the  poorest  and  most  helpless  of  the  laboring  population 
a  share  in  the  advantages  obtained  by  the  better-to-do  and  stronger 
through  voluntary  association.  An  advantage  would  be  the  greater 
security  for  the  protection  of  the  interests  of  the  public  against  the 
abuse  of  irresponsible  power  in  the  interests  of  special  classes. 

Secondly,  the  line  would  be  more  sharply  drawn  between  the 
unemployable  and  the  merely  unemployed.  It  would  also  tend  to 
restrict  the  influx  of  the  unemployable  from  abroad,  thus  at  once 
checking  the  increase  of  inferior  labor  and  raising  the  average  effi- 
ciency of  the  domestic  supply. 


PROBLEMS  OF  ECONOMIC  INSECTRITY  593 

Thirdly,  there  would  result  a  restriction  of  the  field  of  competi- 
tion between  workpeople.  The  wage-earner  whose  chief  recom- 
mendation is  his  willingness  to  work  for  a  pittance  would  lose  the 
advantage  of  his  submissiveness,  and  skill  and  strength  would  be- 
come of  greater  importance  in  obtaining  employment. 

Fourthly,  there  would  result  a  restriction  of  the  field  of  com- 
petition between  employers.  The  employer  whose  chief  stock  in 
trade  is  his  shrewdness  in  driving  hard  bargains  would  lose  his  ad- 
vantage. The  peculiar  qualities  of  the  best  type  of  business  men 
would  be  of  greater  importance  in  the  achievement  of  success. 

270.     The  Case  for  Wage  Boards-^ 

BY  CONSTANCE  SMITH 

Many  of  the  objections  ordinarily  advanced  against  wages  boards, 
or,  indeed,  against  any  proposal  to  regulate  wages,  are  little  more 
than  a  restatement  of  the  arguments  employed  to  defeat  the  passing 
of  the  earlier  factory  acts.  They  rely  for  support  on  the  principle, 
more  or  less  disguised,  of  laissez  faire.  But  there  are  some,  more 
strictly  addressed  to  the  practical  proposal  now  before  the  country, 
to  which  it  seems  desirable  to  give  such  brief  consideration  as  space 
permits. 

First,  there  is  the  fear  frequently  expressed,  that  wages  boards 
would  increase  unemployment,  by  pushing  out  of  the  labor  market 
the  less  competent  worker,  who  is  unfit  to  earn  even  the  minimum 
rate,  and  by  giving  the  coup  de  grace  to  weak  and  tottering  indus- 
tries. The  existing  wages  boards  legislation  of  Victoria,  makes 
special  provision  for  the  case  of  the  old  and  slow  worker.  But 
granted  that  there  are  individuals  of  this  class  who  will  be  unable, 
under  the  new  conditions,  to  find  employment,  even  at  special  rates, 
there  still  remains  the  question  whether  it  is  not  wiser,  on  purely 
economic  grounds,  to  face  boldly  the  necessity  of  maintaining  for  a 
while  a  certain  number  of  persons  physically  or  mentally  incapable  of 
fully  maintaining  themselves,  rather  than  of  condemning  to  "half 
employment"  an  infinitely  greater  number  of  people  who,  given  a 
fair  chance,  are  perfectly  able  to  earn  their  own  living. 

But  sound  economists  who  have  carefully  studied  the  subject 
do  not  hold  that  under  a  wages  board  system  we  should  have  a 
"net"  reduction  of  employment.  Since  the  first  result  of  the  estab- 
lishment of  such  a  system  will  be  an  increased  wages  bill,  involving 
the  transference  of  a  fresh  portion  of  wealth  to  the  pockets  of 

26Adapted  from  The  Case  for  Wages  Boards,  pp.  75-86.  Published  by  the 
National  Anti-Sweating  League,  London,  191 1. 


594  CURRENT  ECONOMIC  PROBLEMS 

certain  classes  of  workers,  there  must  at  once  follow  an  increased 
purchasing  power  on  the  part  of  those  workers  and  a  raising  of  the 
general  standard  of  consumption  in  the  community.  Workers  will 
not  only  buy  more,  but  better  articles,  and  this  movement  must  in- 
evitably tend  both  to  greater  volume  and  greater  regularity  of  em- 
ployment. 

With  regard  to  those  industries  which  are  so  deficient  in  capital 
or  in  organization  that  they  can  only  maintain  a  precarious  foothold 
in  the  competitive  area  by  underpayment  of  the  workers  they  em- 
ploy, it  is  clear  that  the  community  would  be  better  off  for  their 
disappearance. 

Would  the  cost  of  production,  and  consequently  the  price  of  the 
article  to  the  consumer,  be  greatly  raised  by  the  establishment  of 
minimum  rates?  Daily  experience  shows  that,  in  a  considerable 
number  of  industries,  there  is  a  margin  which  could  safely  be  drawn 
upon  for  the  leveling-up  purposes  of  a  minimum  rate.  Cases  are 
not  infrequently  found,  for  instance,  in  trades  employing  women's 
labor  at  a  sweated  wage,  where  vigorous  representation  on  behalf 
of  the  workers,  acting  upon  a  wholesome  fear  of  publicity  on  the 
part  of  the  employing  firm,  has  produced  a  considerable  increase, 
amounting  on  occasion  to  something  like  a  doubling  of  the  rate  of 
pay.  It  must  be  remembered,  further,  that  the  cash  margin  is  not 
the  only  one  at  the  disposal  of  employers  of  labor.  Human  nature 
is  lazy,  and  most  people  need  some  stimulus  to  enterprise.  The 
economy  which  is  now  too  often  effected  by  taking  a  penny  or  a 
halfpenny  off  the  wages  of  the  employes,  would,  were  that  method 
made  impracticable  by  a  wages  board  determination,  be  otherwise 
contrived ;  by  the  introduction  of  improved  machinery,  by  better 
organization,  by  checking  the  reckless  waste  which,  where  a  vast 
quantity  of  very  cheap  articles  are  made  by  indifferent  workers 
laboring  desperately  against  time,  swallows  up  a  considerable  amount 
of  profit  every  year,  and  by  abolition  of  the  ruinous  practice  of  selling 
under  cost  price  in  the  case  of  certain  of  the  articles  manufactured, 
in  order  to  make  a  market  for  the  rest.  Further,  all  industrial  ex- 
perience teaches  that  with  the  improvement  of  the  workman  comes 
improvement  also  in  his  work,  even  where  this  is  highly  organized. 
Nor  is  cost  of  production  necessarily  lowest  where  the  wages  are  low 
and  the  hours  long. 

Apprehension  is  often  expressed  lest  the  minimum  wage,  once 
established  in  an  industry,  should  become  the  maximum  in  that  in- 
dustry ;  and  assertions  that  this  actually  occurs  have  not  been  want- 
ing. Again,  there  is  much  testimony  from  Victoria  to  support  the 
contrary  view.    Opening,  almost  at  haphazard,  the  latest  Report  of 


PROBLEMS  OF  ECONOMIC  INSECURITY  595 

the  Victorian  Chief  Inspector  of  Factories,  we  find,  under  the  head- 
ing of  the  Aerated  Water  Trade  Board,  "The  Determination  is 
well  complied  with,  the  wages  of  many  of  the  men  and  boys  being 
above  the  minimum."  A  similar  state  of  things  is  found  to  obtain 
at  home  in  industries  where  minimum  rates  have  been  fixed  by  means 
of  collective  bargaining  or  arbitration  under  the  board  of  trade. 
Here,  too,  the  more  skilled,  industrious,  and  capable  worker  is  able 
to  earn  a  higher  wage  than  that  calculated  on  the  average  capacity 
of  the  average  man  or  woman. 

The  last  objection  to  be  considered  is  what  may  be  called  the 
moral  objection.  Many  of  those  who  have  not  been  brought  into 
personal  contact  wit];i  sweated  workers,  and  with  the  conditions 
under  which  sweated  industry  is  carried  on,  deprecate  the  setting  up 
of  any  machinery  which  appears  to  limit  the  opportunity  for  free 
bargaining  between  employer  and  employed.  They  are  afraid  that 
such  machinery  may  destroy  the  spirit  of  enterprise,  and  that  the 
assumption  of  responsibility  in  the  matter  of  wages  by  the  state 
will  tend  to  weaken  the  personal  relation  between  masters  and  men. 
To  such  objectors  the  best  reply  is  an  invitation  to  study  the  situa- 
tion at  close  quarters  and  at  first  hand.  They  cannot  then  fail  to 
perceive  that  the  outstanding  features  in  the  present  position  of  the 
sweated  worker,  especially  when  that  worker  is  a  woman,  are  ab- 
solute inability  to  bargain  freely  and  total  lack  of  independence. 
Such  a  worker  must  take  the  work  offered,  at  any  terms  that  may  be 
proposed,  under  penalty  of  an  immediate  drop  into  the  abyss  of 
destitution.  The  spirit  of  enterprise  is  rarely  found  to  animate  those 
who  are  working  excessive  hours  for  a  bare  pittance.  As  to  the 
"personal  relationship,"  it  is  useless  to  devise  schemes  for  preserv- 
ing it ;  for  good  or  evil,  it  is  practically  a  thing  of  the  past.  More 
and  more,  industry  and  commerce,  like  battleships,  tend  toward  the 
"all  big"  type.  Everywhere,  the  business  that  was  formerly  the 
aflFair  of  an  individual  or  a  family  is  now  the  result  of  the  activities 
of  an  association  or  a  limited  company  acting  through  Its  salaried 
servants. 

In  a  great  number  of  cases  the  employer  is  practically  powerless, 
even  now,  to  deal  personally  with  his  employes.  In  time  to  come, 
as  he  becomes  increasingly  the  instrument  of  great  impersonal  forces, 
financial  and  social,  behind  him,  all  capacity  for  such  individual 
dealing  will  be  taken  from  him.  It  is  only  by  accepting,  under  the 
sanction  of  the  state,  the  regulation  of  wages  in  those  industries 
where  it  has  hitherto  gone  unregulated,  with  such  results  in  the 
shape  of  economic  chaos  and  human  degredation  as  we  have  been 
considering,  that  the  best  employer  can  save  himself  from  being 


596  CURRENT  ECONOMIC  PROBLEMS 

ultimately  dragged  down  to  the  level  of  the  worst.  For  him,  as  for 
his  workers,  an  act  establishing  wages  boards  would  be  a  genuine 
measure  of  protection, 

271.     The  Futility  of  the  Minimum  Wage" 

BY  J.  LAURENCE  LAUGHLIN 

The  hysterical  agitation  for  a  minimum  wage  (today  urged  chiefly 
for  women)  has  in  it  no  conception  of  a  relation  between  wages  and 
producing  power.  It  is  unsound  for  several  reasons  which  touch 
the  very  interests  of  the  laborers  themselves. 

It  introduces  a  new  and  unjustifiable  basis  of  wages — that  wages 
shall  be  paid  on  the  basis  of  what  it  costs  the  recipient  to  live.  If 
it  is  urged,  for  instance,  that  a  woman  cannot  live  on  $5.00  a  week 
but  can  live  on  $8.00  and  hence  her  minimum  wage  should  be  $8.00, 
the  whole  case  has  not  been  considered.  If  we  accept — what  we 
should  not  accept — the  principle  that  wages  should  be  related  to  the 
cost  of  living,  and  if  it  is  accepted  that  the  woman  should  live  on 
$8.00  a  week,  on  what  grounds  should  she  ever  receive  more  than 
$8.00  a  week?  On  what  grounds  could  any  one  get  $18.00  a  week? 
At  present  $18.00  is  paid  on  the  ground  that  it  is  earned,  that  is, 
on  the  basis  of  a  relation  between  wages  and  producing  power.  No 
other  basis  can  stand  for  a  moment  in  the  actual  work  of  industry. 
Men  go  into  business  to  gain  profit ;  if,  in  their  opinion,  the  employe 
is  not  worth  $8.00  a  week,  she  will  not  be  retained,  no  matter  what  it 
costs  to  live.  If  she  is  worth  to  the  business  $18.00,  that  will  be  the 
wage.  No  law  can  force  anyone  to  remain  in  a  business  that  does 
not  pay. 

The  theory  of  a  minimum  wage  based  on  the  cost  of  living  is 
flatly  inconsistent  with  the  facts  of  daily  life  and  preparation  for  any 
occupation.  At  what  age  or  point  is  a  beginner,  or  apprentice,  to 
receive  the  full  legal  wage  ?  Is  no  boy,  or  apprentice,  to  be  allowed 
to  receive  a  partial  reward  till  he  is  a  full-fledged  adult  workman? 
How  about  the  woman,  who,  in  the  economic  role  of  domestic  labor, 
knits  stockings  in  odd  hours  in  order  to  add  a  little  to  the  family 
income — shall  she  receive  nothing  if  not  the  full  legal  wage?  Shall 
the  boy,  or  even  a  young  lawyer  just  entering  an  office,  be  forbidden 
to  receive  the  small  stipend  of  the  preparatory  period? 

Suppose  it  were  required  by  law  to  pay  shopgirls  $8.00  a  week 
instead  of  $5.00  on  the  ground  that  the  insufficient  $5.00  leads  to 
vice  :  then,  since  no  ordinary  business  would  pay  $8.00  unless  it  were 

-'Aaapted  from  "A  Monopoly  of  Labor,"  Atlantic  Monthly,  CXII,  451-53. 
Copyright,  1913. 


PROBLEMS  OF  ECONOMIC  INSECURITY  597 

earned,  those  who  did  not  earn  $8.00  would  inevitably  be  dropped 
from  employment  without  even  the  help  of  $5.00  to  save  them.  If 
$5.00  is  no  protection  from  vice,  how  much  less  is  no  wage  at  all? 
This  proposal  of  a  minimum  wage  is  directly  opposed  in  practice  to 
the  very  self-interest  of  the  girls  themselves. 

It  is  crass  to  try  to  remedy  wages  which  are  admittedly  too  low 
by  fixing  a  legal  minimum  wage,  which  can  never  be  enforced  unless 
private  business  establishments  are  to  be  regarded  as  state  institu- 
tions. In  a  state  factory,  wages  may  possibly  be  determined  by  law, 
but  not  in  open  competitive  business  conditions,  where  the  supply 
of  labor  has  as  much  influence  on  wages  as  the  demand.  If  the 
supply  of  women  wage-earners  converges  on  only  certain  kinds  of 
work,  wages  will  be  lowered  by  the  very  large  supply  of  the  workers. 
There  is  no  exit  by  this  door  of  legal  enactment  as  to  the  amount  of 
wages. 

The  true  and  immediate  remedy  is  the  creation  of  ready  means 
by  which  the  industrial  capacity  of  the  wage-earning  women  will  be 
increased.  The  wrong  situation — of  which  low  wages,  possible 
starvation,  and  the  temptation  to  vice  are  only  symptoms — is  due 
primarily  to  the  fact  that  women  thrown  on  their  own  resources 
labor.  The  remedy  lies  in  the  creation  of  places  of  instruction  where 
know  no  trade  and  crowd  each  other  in  the  market  for  unskilled 
any  woman  (no  matter  how  poor)  shall  be  taught  a  trade  and  have 
skill  given  to  her  by  which  she  can  obtain  a  living  wage. 

The  remedy  lies  in  preventing  a  congestion  of  unskilled  feminine 
labor  by  industrial  education.  There  is  no  other  rational  or  per- 
manent or  human  way  out  of  the  present  wretched  situation,  if  we 
have  the  real  interest  of  the  workers  at  heart — and  are  not  interested 
chiefly  in  getting  some  cheap  political  notoriety. 

This  conclusion  applies  to  men  as  well  as  to  women.  Is  not  a 
skilled  carpenter  worth  more  than  a  blunderer?  In  any  business, 
does  not  everyone  agree  that  it  is  fair  to  give  a  very  energetic,  live, 
active,  skilful  salesman  more  than  a  stupid?  If  he  is  skilled  he 
earns  more,  because  he  brings  in  more  business.  That  being  settled 
we  do  not  fix  his  wages  on  what  it  costs  him  to  live.  He  has  a  right 
to  spend  his  income  as  he  pleases.  Hence  if  we  were  to  adopt  the 
theory  of  the  minimum  wage  we  should  be  adopting  a  new  theory 
of  wages,  which  would  justify  the  refusal  to  pay  higher  wages  based 
on  efficiency. 

The  only  real  permanent  aid  to  low  wages  is  to  increase  the  pro- 
ductivity and  skill  of  the  persons  at  the  bottom.  Instead  of  talking 
of  such  injurious  palliatives  as  minimum  wages,  create  institutions 
at  once  wh^re  those  persons  can  be  given  a  trade  or  training  for  a 


598  CURRENT  ECONOMIC  PROBLEMS 

gainful  occupation.  The  cry  for  a  minimum  wage  is  evidence  of  the 
industrial  incapacity,  the  lack  of  producing  power,  in  masses  of  our 
people.  The  concrete  ways  of  increasing  the  productive  power  of 
each  man  and  woman  are  not  unknown.  Moreover,  the  captain  of 
industry  can  introduce  carefully  worked-out  plans  for  helping  his 
operatives  to  rise  in  life;  to  better  conditions  by  welfare  work;  to 
encourage  savings  and  thrift;  to  introduce  the  stimulus  of  profit- 
sharing;  and,  above  all,  establish  civil-service  methods  devised  to 
pick  out  and  promote  the  promising  youth  so  that  the  path  from  the 
bottom  to  the  top  is  open  to  every  employee.  Under  unrestricted 
competition,  there  will  be  seen  the  inevitable  results  of  "natural 
monopoly"  by  which  superiority  comes  to  its  own  and  wages  are  in 
some  proportion  to  productive  power. 


272.     A  Minimum  Wage  for  Immigrants-^ 

BY  PAUL  U.  KELLOGG 

My  plea  is  to  draft  into  our  immigration  law  the  provision  that 
no  immigrant  who  arrives  here  after  a  specified  date  shall  be  per- 
mitted to  hire  out  to  a  corporate  employer  at  less  than  a  living  wage, 
say  $2.50  or  $3.00  a  day — until  five  years  has  elapsed,  and  he  has 
become  a  naturalized  citizen.  When  he  is  a  voter,  he  can  sell  his 
American  workright  for  a  song  if  he  must  and  will,  but  until  them  he 
shall  not  barter  it  away  for  less  than  the  minimum  cash  prize,  which 
shall  be  determined  as  a  subsistence  basis  for  American  family  live- 
lihood. 

It  would  be  neither  the  intent  nor  the  result  of  such  legislation 
to  pay  newcoming  foreigners  $3.00  a  day.  No  corporation  would 
hire  Angelo  Lucca  and  Alexis  Spivak  at  $3.00  as  long  as  they  could 
get  John  Smith  and  Michael  Murphy  and  Karl  Schneider  for  less. 
It  would  be  the  intent  and  result  of  such  legislation  to  exclude  Lucca 
and  Spivak  and  other  "greeners"  from  our  congregate  industries, 
which  beckon  to  them  now.  It  would  leave  village  and  farm  and 
country  open  to  them  as  now.  Meanwhile,  as  the  available  labor 
supply  fell  off  in  our  factory  centers,  the  wages  paid  Smith,  Murphy, 
Schneider,  and  the  rest  of  our  unskilled  labor  would  creep  up  toward 
the  federal  minimum. 

First  a  word  as  to  the  constitutionality  of  such  a  plan.  It  would 
be  an  interference  with  freedom  of  contract ;  but  the  contract  would 

28Adapted  from  "Immigration  and  the  Minimum  Wage,"  Annals  of  the 
American  Academy  of  Political  and  Social  Science,  XLVIII,  75-77.  Copyright, 
1913. 


PROBLEMS  OF  ECONOMIC  INSECURITY  599 

He  between  an  alien  and  a  corporation ;  between  a  non-citizen  and  a 
creature  of  the  state.  I  have  the  advice  of  constitutional  lawyers 
that  so  far  as  the  alien  workman  goes  the  plan  would  hold  as  an 
extension  of  our  laws  regulating  immigration.  On  the  other  hand, 
the  corporation-tax  laws  afford  a  precedent  from  setting  off  the  cor- 
porate employer  and  regulating  his  dealings. 

For  three  special  reasons  my  belief  is  that  the  general  enforce- 
ment of  such  a  law  would  be  comparatively  simple.  Sworn  state- 
ments as  to  wage  payments  could  be  added  to  the  data  now  required 
from  corporations  under  the  federal  tax  law.  This  would  be  an 
end  desirable  in  itself.  In  the  second  place  every  resident  worker 
would  report  every  violation  that  affected  his  self-interest  or  threat- 
ened his  job.  For  my  third  reason  I  would  turn  to  no  less  a  counsel 
than  Mark  Twain's  Pudd'n  Head  Wilson.  With  employment  re- 
port cards  half  a  dozen  clerks  in  a  central  office  in  Washington 
could  keep  tab  on  the  whole  situation  by  means  of  finger  prints. 
Finger  prints  could  be  taken  of  each  immigrant  on  entry ;  they  could 
be  duplicated  at  any  mill  gate  or  mine  entry  by  the  employer,  filed 
and  compared  rapidly  at  the  Washington  bureau. 

As  compared  with  joint  minimum  %age  boards  affecting  men 
and  women  alike,  as  do  those  of  Australia  and  England,  the  plan 
would  have  the  advantage  of  not  being  democratic.  The  workers 
themselves  would  not  take  part  in  its  administration.  The  plan 
would  have  the  signal  advantage  of  being  national,  so  that  progres- 
sive commonwealths  need  not  penalize  their  manufacturers  in  com- 
peting with  laggard  states. 

As  compared  with  the  literary  test,  the  plan  would  not  shut 
America  off  as  a  haven  of  refuge  and  would  not,  while  it  was  under 
discussion,  range  the  racial  societies  and  the  internationalists  along- 
side the  steamship  companies  and  the  exploiters  of  immigrant  labor. 
It  would  have  an  even  more  profound  influence  on  the  condition  of 
Iffe  and  labor. 

What  are  the  positive  benefits  to  be  expected  from  such  a  pro- 
gram? 

1.  It  would  gradually,  but  irresistibly,  cut  down  the  common 
labor  supply  in  our  industrial  centers. 

2.  Once  the  unlimited  supply  of  green  labor  was  lessened  in 
these  industrial  centers,  a  more  normal  equilibrium  would  be  struck 
between  common  labor  and  the  wages  of  common  labor.  Now  it  is 
like  selling  potatoes  when  everybody's  bin  is  full. 

3.  It  would  tend  to  stave  off  further  congestion  in  the  centers 
of  industrial  employment  and  give  us  a  breathing  spell  to  conquer 
our  housing  problems  and  seat  our  school  children. 


6oo  CURRENT  ECONOMIC  PROBLEMS 

4.  It  would  shunt  increasing  numbers  of  immigrants  to  the 
rural  districts  and  stimulate  patriotic  societies  to  settle  their  fellow- 
countrymen  on  the  land. 

5.  It  would  tend  to  cut  down  the  accident  rate  in  industries 
where  "greeners"  endanger  the  lives  of  their  fellows. 

6.  It  would  cut  down  the  crowd  of  men  waiting  for  jobs  at  mill 
gates  and  street  corners,  correspondingly  spread  out  rush  and  sea- 
sonal work,  and  help  along  toward  the  time  when  a  man's  vocation 
might  mean  a  year-long  income  for  him. 

7.  It  would  give  resident  labor  in  the  cities  a  chance  to  organize 
at  the  lower  levels  and  develop  the  discipline  of  self-government. 

8.  It  would  put  a  new  and  constructive  pressure  on  employers 
to  cut  down  by  invention  the  bulk  of  unskilled  occupations,  the 
most  wasteful  and  humanly  destructive  of  all  work. 

273.     The  Progress  of  the  Minimum  Wage^^ 

Since  1912,  when  the  first  minimum-wage  law  in  the  United 
States  was  enacted  in  Massachusetts,  fourteen  states  and  Congress  for 
the  District  of  Columbia  have  adopted  legislation  the  aim  of  which 
is  to  fix  the  lowest  wage  which  may  legally  be  paid  to  women  and 
child  workers.  The  states  in  question  are  Arizona,  Arkansas,  Cali- 
fornia, Colorado,  Kansas,  Massachusetts,  Minnesota,  Nebraska, 
North  Dakota,  Oregon,  Texas,  Utah,  Washington,  and  Wisconsin. 
These  laws  are  of  two  types.  Three  states — Arizona,  Arkansas,  and  Utah 
— have  specified  the  minimum  rate  in  the  statutes.  In  all  the  other 
states  the  laws  lay  down  only  the  general  principles  that  wages  shall 
be  sufficient  to  meet  the  "necessary  cost  of  proper  living,"  or  some 
similar  standard,  and  leave  to  a  commission  the  duty  of  determining 
wage  rates  which  conform  to  the  principle. 

The  constitutionality  of  the  minimum  wage  legislation  was  estab- 
lished in  191 7  through  an  even  decision  of  the  United  States  Supreme 
Court,^"  which  left  in  force  a  previous  favorable  decision  by  the 
Oregon  Supreme  Court.^^  Since  this  decision  several  other  laws 
have  been  upheld  by  state  supreme  courts. 

All  the  laws  except  those  of  Arizona,  North  Dakota,  Texas,  and 
the  District  of  Columbia  apply  to  all  industries.  In  Arizona  a  specific 
list  of  establishments  is  covered,  most  important  of  which  are  fac- 

29Adapted  from  "Minimum  Wage  Legislation  in  the  United  States," 
American  Labor  Legislation  Review,  IX  (1919),  (advance  proof  sheets). 

^^Stettler  v.  O'Hara,  37  Sup.       475. 

^^Stettler  v.  O'Hara,  69  Ore.  519,  139  Pac.  743. 


PROBLEMS  OF  ECONOMIC  INSECURITY  6oi 

tories,  laundries,  stores,  restaurants,  and  offices.  The  District  of 
Columbia  and  North  Dakota  and  Texas  acts  exempt  domestic  serv- 
ants; the  acts  of  North  Dakota  and  Texas,  agricultural  laborers;  and 
the  Texas  act,  students  working  their  way  through  school,  and  miners. 
The  three  flat  rate  laws  cover  only  females ;  the  remainder  cover 
women  and  minors,  who  are  defined  as  persons  under  eighteen,  except 
in  Minnesota  and  Wisconsin,  where  the  protection  is  extended  to  all 
under  twenty-one,  and  in  Texas  where  it  is  limited  to  those  under 
fifteen.    None  of  the  laws  applies  to  adult  males. 

Arkansas  and  Utah  set  a  minimum  wage  of  $1.25  a  day  for  all 
experienced  females.  In  Arizona  the  act  fixes  a  minimum  of  $10 
a  week  for  all  females.  The  other  states  have  in  the  main  adopted 
as  the  standard  the  principle  of  the  "living  wage."  The  phrase  used 
in  a  number  of  laws  is  that  wages  must  be  sufficient  "to  cover  the 
necessary  cost  of  living  and  to  maintain  the  health  and  welfare"  of 
the  worker.  All  the  states  having  commission  regulation  of  wages, 
except  Texas,  permit  the  payment  of  lower  wage  rates  to  "learners" 
and  "apprentices,"  and,  generally  by  some  form  of  special  license, 
all  allow  lower  rates  to  women  less  capable  than  the  average  worker 
because  of  age  or  physical  defect. 

The  commissions  which  determine  wage  standards  are  made  up  of 
from  three  to  five  persons  appointed  by  the  governor.  The  members 
are  often  required  to  be  representatives  of  employers,  female  em- 
ployes, and  the  public.  In  Colorado  and  Wisconsin  the  wage-fixing 
body  is  the  state  industrial  commission.  In  California,  Kansas,  North 
Dakota,  Oregon,  Washington,  and  Wisconsin,  the  commissions  may 
fix  certain  standards  of  hours  and  working  conditions  as  well  as 
minimum  wages ;  in  Texas  merely  standard  working  conditions. 
Elsewhere  they  deal  only  with  wages. 

The  first  step  in  the  determination  of  wages  for  a  given  occupa- 
tion is  investigation  of  existing  wage  scales.  For  this  purpose  the 
commission  is  given  power  to  enter  the  employer's  premises,  to  ex- 
amine books  and  wage  records,  to  subpoena  witnesses,  and  to  ad- 
minister oaths.  The  commission  may  act  on  its  own  initiative.  It 
IS  often  required  to  act  on  complaint  of  a  specified  number  of  em- 
ployes. 

The  creation  of  a  subordinate  advisory  board  or  conference  in  the 
occupation,  to  recommend  minimum  rates  to  the  commission,  is  also 
provided  for,  except  in  Texas.,  This  body  is  made  up  of  an  equal 
number  of  representatives  of  employers  and  employes  from  the  in- 
dustry under  consideration,  representatives  of  "the  public"  (except 
in  Wisconsin),  and  frequently  a  member  of  the  commission  as  chair- 
man. 


6o2  CURRENT  ECONOMIC  PROBLEMS 

In  Colorado,  Massachusetts,  and  Minnesota  its  members  must  be 
elected,  whenever  possible,  by  the  employers  and  employes  concerned. 
When  women's  wages  are  under  consideration  the  creation  of  a  wage 
board  is  in  some  states  required  and  in  some  optional  with  the  com- 
mission, but  rates  for  minors  are  fixed  by  the  commission  direct. 
The  commission  may  accept  the  decision  of  the  subordinate  board, 
may  refer  it  back  for  further  consideration,  or  form  another  board 
for  further  recommendation. 

After  a  wage  rate  has  been  fixed,  most  of  the  laws  authorize  re- 
investigation and  revision  of  the  award  on  petition  of  the  employers 
or  employes  affected.  A  court  review  of  wage  rulings  is,  as  a  rule, 
specifically  provided  for,  but  in  most  instances  it  can  be  on  questions 
of  law  only  and  not  of  fact. 

Every  state  provided  for  enforcement  of  the  wage  standards 
established,  with  the  exception  of  Arizona,  where  apparently  there 
is  no  enforcing  authority.  In  the  states  where  the  commission  method 
of  determining  standards  is  used,  enforcement  is  in  charge  of  the 
commission  itself.  In  Arkansas  and  Utah  it  is  in  the  hands  of  the 
agency  enforcing  the  other  labor  laws  of  the  state.  In  California, 
Colorado,  Texas,  Washington,  and  Wisconsin,  the  commission  can, 
seemingly,  take  action  against  violation  of  wage  rulings  only  on  com- 
plaint. In  Massachusetts  and  Nebraska  employers  paying  less  than 
the  minimum  wage  are  punishable  merely  by  publication  of  their 
names,  but  a  fine  may  be  imposed  on  newspapers  refusing  to  publish 
such  names.  Elsewhere  violation  may  be  punishable  by  fine  or  im- 
prisonment or  both.  Discrimination  by  employers  against  employes 
who  testify  regarding  wages,  and  in  Colorado,  District  of  Columbia, 
and  Massachusetts,  against  those  who  serve  on  a  wage  board,  is  pun- 
ishable by  a  fine.  Employes  receiving  less  than  the  legal  minimum 
may  bring  suit  for  the  unpaid  wage  balance  together  with  the  costs 
of  the  suit. 

274.     Compulsory  Arbitration  in  Theory  and  Practice^- 

BY  JAMES  EDWARD  LE  ROSSIGNOL  AND  WILLIAM  DOWNIE  STEWART 

There  is  a  pretty  well-defined  theory  in  justification  of  compul- 
sory arbitration  in  the  minds  of  those  who  favor  that  method  of 
settling  industrial  disputes.  The  competitive  system,  in  this  view, 
has  resulted  in  two  great  evils ;  sweating  and  strikes.  Under  sweat- 
ing the  workers  receive  less  than  enough  to  secure  a  decent  subsist- 
ence for  a  human  being,  and  the  strike  is  a  form  of  private  war  in 

32Adapted  from  State  Socialism  in  New  Zealand,  pp.  238-47.  Copyright 
by  Thomas  Y.  Crowell  &  Co.,  1910. 


PROBLEMS  OF  ECONOMIC  INSECURITY  603 

which  the  strongest  win,  not  those  who  have  justice  on  their  side, 
and  which  causes  great  inconvenience  to  the  pubHc,  who  are  a  third 
party  in  every  strike.  All  this  evil  and  injustice  should  be  done 
away  with  by  an  appeal  to  a  court. 

On  the  surface  the  theory  appears  to  be  highly  reasonable,  but 
when  put  into  practice  serious,  if  not  fatal,  difficulties  arise.  One  of 
these  has  to  do  with  the  discovery  of  specific  principles  of  justice ; 
the  other  with  the  enforcement  of  awards  supposedly  just. 

The  theory  of  fair  wages  that  appears  to  prevail  is  the  doctrine 
of  the  living  wage,  stated  both  in  its  negative  and  its  positive  form. 
Stated  negatively,  the  theory  holds  that  extremely  low  wages,  such 
as  are  found  under  the  sweating  system,  are  not  fair  wages,  be- 
cause insufficient  to  afford  a  decent  living  according  to  the  colonial 
standard.  Stated  positively,  a  fair  wage  is  a  wage  which  is  suf- 
ficient to  give  the  worker  a  decent  living  according  to  the  colonial 
standard. 

Other  difficulties  arise  when  the  theories  are  applied  to  actual 
cases.  For  example,  a  w^ge  which  would  be  quite  sufficient  for  a 
single  man  might  be  inadequate  for  a  married  man,  and  should  vary 
with  the  size  of  his  family  and  their  ability  to  contribute  to  their 
support.  Again,  a  living  wage  for  a  skilled  worker  must  be  higher 
than  that  for  a  common  laborer,  since  his  standard  of  living  is  higher. 
This  arises  from  the  fact  that  skilled  laborers  are  scarce,  but  this 
introduces  another  complicating  factor,  the  supply  of  labor,  which, 
in  densely  populated  countries,  threatens  to  destroy,  not  only  the 
theory,  but  the  possibility  of  a  living  wage. 

These  and  other  complications  prevent  the  creation  of  a  body 
of  legal  principles  defining  and  explaining  the  nature  of  fair  or 
reasonable  wages,  but  do  not  prevent  the  court  from  bearing  in 
mind  the  desirability  of  keeping  the  customary  standards  of  colonial 
life  from  falling,  and  the  equal  or  greater  desirability  of  raising 
those  standards  as  much  as  possible.  The  doctrine  of  a  living  wage, 
then,  is  not  an  established  legal  principle,  but  an  ideal  toward  which 
people  may  strive. 

In  practice,  the  awards  appear  to  be  based  on  two  main  prin- 
ciples ;  first  the  desire  and  intention  of  the  court  to  secure  a  living 
wage  to  all  able-bodied  workers;  second,  the  desire  of  the  court  to 
make  a  workable  award,  that  is,  to  grant  as  much  as  possible  to  the 
workers  without  giving  them  more  than  the  industry  can  stand. 
In  doing  this  regard  must  be  had  to  the  prosperity  of  a  given  in- 
dustry as  a  whole,  if  not  to  the  profit  of  individual  employers.  It 
is  usually  taken  for  granted  that  no  reduction  will  be  made  in  the 
customary  wages  in  any  industry,  and,  in  times  of  depression,  this 


6o4  CURRENT  ECONOMIC  PROBLEMS 

might  be  regarded  as  a  third  regulative  principle.  Again,  it  is  the 
custom  of  the  unions,  in  formulating  their  disputes,  to  demand  more 
than  they  expect  to  get,  knowing  that,  in  the  worst  case,  they  will 
lose  nothing.  So  frequently  has  this  been  done  that  one  might 
almost  lay  down  a  fourth  regulative  principle,  the  principle  of  split- 
ting the  difference. 

The  rigidity  of  system  which  is  characteristic  of  the  railway 
rates  seems  to  be  taking  possession  of  the  regulation  of  wages  also. 
M'hen  the  awards  were  few  in  number,  it  was  easy  to  make  a  change 
without  any  serious  disturbance  in  industry ;  but  now  that  they  are 
numerous  and  their  scope  has  been  widely  extended,  it  is  difficult 
to  make  a  change  in  one  without  making  many  other  changes,  for 
the  sake  of  adjusting  conditions  of  labor  to  the  changing  conditions 
of  business. 

Another  stumbling-block  in  the  way  of  advance  in  wages  is  the 
inefficient  or  marginal  or  no-profit  employer,  who,  hanging  on  the 
ragged  edge  of  ruin,  opposes  the  raising  of  wages  on  the  ground 
that  the  slightest  concession  would  plunge  him  into  bankruptcy.  His 
protests  have  their  effect  on  the  Arbitration  Court,  which  tries  to 
do  justice  to  all  the  parties  and  fears  to  make  any  change  for  fear 
of  hurting  somebody.  But  the  organized  workers,  caring  nothing 
for  the  interests  of  any  particular  employer,  demand  improved  con- 
ditions of  labor,  even  though  the  inefficient  employer  be  eliminated 
and  all  production  be  carried  on  by  a  few  capable  employers  doing 
business  on  a  large  scale  and  able  to  pay  the  highest  wages.  This  is 
not  to  say  that  even  the  most  efficient  employers  could  afford  to  pay 
wages  much  in  excess  of  those  now  prevailing. 

From  such  a  statement  as  this  it  is  but  a  step  to  the  position  that 
wages  are  determined  chiefly  by  economic  laws,  and  that  the  Arbi- 
tration Court  can  cause,  at  most,  very  slight  deviations  from  the 
valuations  of  the  market. 

It  is  not  easy  to  show  that  compulsory  arbitration  has  greatly 
benefited  the  workers  of  the  Dominion.  Sweating  has  been  abol- 
ished, but  it  is  a  question  whether  it  would  not  have  disappeared 
m  the  years  of  prosperity  without  the  help  of  the  Arbitration  Court. 
Strikes  have  been  prevented,  but  New  Zealand  never  suffered  much 
from  strikes,  and  it  is  possible  that  the  workers  might  have  gained 
as  much,  or  more,  by  dealing  directly  with  their  employers  as  by  the 
mediation  of  the  court. 

It  is  a  common  opinion  in  New  Zealand  that  the  increase  in  the 
cost  of  hvmg  has  been  due  largely  to  the  high  wages  and  favorable 
conditions  of  labor  fixed  by  the  Arbitration  Court,  but  so  wide- 
spread a  result  cannot  have  been  due  chiefly  to  local  causes 


PROBLEMS  OF  ECONOMIC  INSECURITY  605 

Manufacturers  complain  that  the  awards  have  been  so  favorable 
to  the  workers  as  to  make  it  difficult  to  compete  with  British  and 
foreign  manufacturers,  and  demand  that  either  the  arbitration  system 
be  abolished  or  that  they  be  given  increased  protection  by  increased 
duties  on  imported  goods.  It  is  claimed  that  the  growth  of  manu- 
factures has  not  kept  pace  with  the  growth  of  population  and  the 
importation  of  manufactures  from  abroad. 

There  is  such  agreement  among  manufacturers  as  to  the  effect 
of  compulsory  arbitration  in  increasing  the  cost  of  production  that 
their  statements  cannot  be  lightly  dismissed,  especially  as  many  un- 
biased writers  concur  in  the  opinion. 

Unquestionably,  manufacturers,  with  the  exception  of  the  great 
industries  which  work  up  raw  materials  for  market,  are  not  doing 
any  too  well,  but  it  is  not  likely  that  compulsory  arbitration  is  the 
chief  cause  of  this.  The  high  wages  which  manufacturers  have  to 
pay  are  due  chiefly  to  industrial  conditions  which  always  prevail 
in  a  new,  thinly  populated  country  with  great  natural  resources 
awaiting  development. 

G.     THE  HAZARDS  OF  THE  CHILD 
275.     The  Hazard  of  Birth^^ 

BY  CHARLES  J.   HASTINGS 

To  produce  a  fitter  race  we  must  begin  with  the  germ  plasm  from 
which  it  is  developed.  Eugenists  tell  us  that  the  moment  conception 
takes  place  the  door  of  parental  gifts  is  closed.  Obviously,  then,  if 
we  are  to  develop  a  fit  race  there  must  not  be  a  missing  link.  Where 
nature  ends  nurture  must  begin.  We  have  no  say  as  regards  the  man 
timber  out  of  which  our  ancestors  were  made.  But  we  have  a  say 
and  are  responsible  for  the  man  timber  out  of  which  our  descend- 
ants will  be  fashioned. 

Every  child  has  a  right  to  be  well  born,  born  of  parents  who  are 
physically  and  mentally  sound.  It  should  develop  from  a  germ  plasm 
which  is  free  from  any  taint  that  might  militate  against  it.  If  our 
campaign  against  the  unduly  high  infant  death-rate  is  to  be  efficient 
obviously  it  must  begin  just  after  conception  has  taken  place.  The 
necessity  for  this  is  apparent  when  we  realize  that  more  than  one- 
third  of  the  infants  that  die  in  the  first  year  die  during  the  first 
month,  and  from  60  to  70  per  cent  of  these  die  during  the  first  week. 
Consequently,  if  these  lives  are  to  be  saved  it  must  be  by  prenatal 
care.    Here  the  grim  monster  reaps  his  harvest,  ofttimes  by  a  dual 

83Adapted  from  "Democracy  and  Public  Health  Administration,"  Ameri- 
can Journal  of  Public  Health,  IX  (1919).  174-75- 


6o6  CURRENT  ECONOMIC  PROBLEMS 

action,  directed  both  against  the  mother  and  the  child.  If  we  would 
save  the  baby,  we  must  save  and  protect  the  baby's  mother. 

It  is  well  known  that  the  infant  nursed  at  the  mother's  breast 
has  ten  chances  to  one  for  life  and  efficient  development  that  the 
artificially  fed  child  has.  Consequently  our  prenatal  care  must  em- 
brace not  only  the  efficient  piloting  of  the  mother  through  her  preg- 
nancy, and  confinement  but  also  care  that  we  make  it  possible  for  her 
to  nurse  her  baby. 

The  fact  that  the  infant  depends  entirely  on  the  mother's  blood 
for  nutrition  makes  it  all  the  more  imperative  that  the  blood  be  kept 
in  the  best  possible  condition,  which  can  only  be  accomplished  by  the 
efficient  safeguarding  of  the  mother's  health.  Where  efficient  pre- 
natal care  has  been  established,  there  has  been  a  marked  increase  in 
the  number  of  mothers  nursing  their  babies,  and  the  infant  mortality 
during  the  first  month  has  been  reduced  more  than  50  per  cent. 

Obviously,  then,  prenatal  care  will  not  only  secure  a  better  and 
more  vigorous  race  of  infants,  to  start  life  with,  but  it  will  also  save 
the  lives  of  many  mothers  that  are  needlessly  sacrificed  at  present. 

276.     The  Hazard  of  the  War^* 

BY  S.  JOSEPHINE  BAKER 

During  a  war  no  part  of  the  civilian  population  suffers  so  severely 
as  do  the  children.  This  suffering  seems  to  be  in  inverse  proportion 
to  their  ages.  In  this  country  the  increase  in  the  rate  of  wages  has 
not  kept  pace  with  the  increase  in  the  price  of  food.  In  addition  to 
the  conservation  of  food  which  we  have  been  asked  to  practice,  the 
families  of  a  large  part  of  our  population  have  been  deprived  of  many 
types  of  nourishing  food.  This  has  l^t  its  mark  in  the  under- 
nourished bodies  of  many  of  our  children.  General  reports  throughout 
the  country  have  shown  that  undernourishment  in  children  has  in- 
creased rapidly  during  the  last  four  years.  Up  to  1914  it  had  re- 
mained practically  stationary  for  some  time.  When  we  began  to 
ship  food  abroad  and  the  prices  began  to  increase  in  this  country,  it 
was  the  children  who  were  the  first  to  feel  the  effects.  In  1914  in 
New  York  City  5  per  cent  of  the  children  of  school  age  were  under- 
nourished. In  1917,  21  per  cent  showed  such  definite  signs  of  mal- 
nutrition as  to  demand  immediate  attention.  Wherever' the  subject 
has  been  given  serious  thought,  whether  in  cities  or  rural  communi- 
ties, much  the  same  conditions  have  been  found  to  exist. 

s*Adapted  from  "Reconstruction  and  the  Child,"  Ame'^ican  Journal  of 
Public  Health,  IX  (1919),  185  ff. 


PROBLEMS  OF  ECONOMIC  INSECURITY  607 

We  are  only  beginning  to  get  reports  regarding  the  women  in 
industry  as  far  as  it  affects  infant  life.  Even  without  exact  statistics, 
however,  we  must  consider  that  many  women  have  gone  into  in- 
dustry before  marriage,  some  have  worked  during  the  period  of  preg- 
nancy, and  some  while  their  children  were  still  infants.  This  enor- 
mous change  in  the  habits  and  status  of  women  cannot  fail  to  have 
an  effect  upon  child  life.  Left  unregulated  it  may,  indeed,  be  a 
menace  to  our  future  welfare. 

The  increased  cost  of  milk  has  had  a  definitely  bad  effect  on  the 
health  of  the  child  of  pre-school  age.  We  all  acknowledge  that  milk 
is  an  essential  food  for  the  growing  child  and  that  nothing  else  can 
take  its  place,  yet  it  is  rapidly  becoming  an  almost  unobtainable  luxury 
for  the  majority  of  our  children  past  infancy. .  It  is  not  enough  to 
say  that  economic  conditions  cause  this  increase  in  price.  Children 
must  have  milk.  Unless  a  satisfactory  solution  of  this  problem  can 
be  reached  soon,  it  is  probable  that  we  must  seriously  consider  muni- 
cipal control  of  the  production  and  distribution  of  milk. 

It  would  seem  to  be  time  to  develop  a  broad  program  for  con- 
servation of  child  life  in  this  country.  It  is  realized  that  our  people 
must  be  educated  and  compulsory  education  has  become  a  part  of  the 
law  of  the  land.  So  efficient  has  been  the  school  system  that  in  the 
United  States  at  the  present  time  it  is  estimated  that  only  7  per  cent 
of  the  people  are  illiterate.  No  such  program  for  the  conservation  of 
health  has  ever  been  promulgated.  But  when  we  face  the  facts  of 
our  excessive  infant  mortality,  the  high  death-rate  of  children  under 
five  years  of  age,  the  knowledge  that  75  per  cent  of  the  children  of 
school  age  have  physical  defects  which  might  be  prevented  or  easily 
removed,  we  may  reasonably  demand  a  program  for  the  conservation 
of  children  which  is  as  universal  as  our  program  of  public  education. 
Undernourishment  is  just  as  great  a  menace  to  the  future  of  the 
country  as  illiteracy. 

The  health  and  welfare  of  children  are  the  factors  which  always 
determine  the  vigor  and  stability  of  a  race.  Yet  it  has  been  tradi- 
tional in  this  country  that  human  life  is  our  cheapest  possession. 
It  has  always  been  more  difficult  for  us  to  part  with  our  property 
than  with  our  lives.  The  small  ratio  of  our  national  and  local  budgets 
which  have  been  appropriated  to  health  work  has  been  a  disgrace. 

The  countries  of  Europe  are  dealing  with  questions  of  health  as 
a  national  problem.  Their  work  in  child  welfare,  therefore,  is  direct. 
In  England  there  is  at  least  one  public  health  visitor  or  nurse  for 
each  five  hundred  children  in  the  country.  In  France  they  are  starting 
a  nation-wide  system  of  child  conservation. 


6o8  CURRENT  ECONOMIC  PROBLEMS 

Europe  has  lost  its  child  population  through  decrease  in  the  birth- 
rate and  in  many  of  the  countries  through  an  increase  in  the  death- 
rate.  The  latter  has  been  met  in  part  by  the  extension  of  child  wel- 
fare work.  In  this  country  we  have  not  yet  had  to  face  the  tremend- 
ous loss  in  our  population  through  the  falling  birth-rate.  The  Reg- 
istrar-General of  England  estimates  that  this  reduction  in  the  birth- 
rate has  amounted  to  the  loss  of  12,500,000  potential  lives  in  Europe 
since  the  war  began.  Possibly  because  we  have  not  had  this  problem 
to  contend  with,  we  have  not  yet  awakened  to  our  continued  negli- 
gence with  regard  to  the  waste  of  life  at  its  beginning.  The  official 
figures  to  date  seem  to  show  that  the  total  number  of  men  of  our 
armies  who  were  killed  in  action  or  who  died  from  wounds  or  disease 
during  the  nineteen  months  we  participated  in  the  war  was  about 
53,000.  During  the  same  period  475,000  children  five  years  of  age 
died  in  this  country.  Yet  we  know  that  the  greater  proportion  of  this 
number  could  have  been  saved.  For  every  soldier  who  has  lost  his 
life  abroad  nine  children  under  five  years  of  age  have  lost  their 
lives  here. 

277.    The  Hazard  of  the  Coming  of  Industrialism^^ 

BY  RUTH   MC  INTIRE 

The  story  of  factory  conditions  in  Japan  reads  very  much  like  the 
descriptions  of  early  industrial  expansion  on  England,  and  for  that 
matter  in  the  United  States.  In  191 1,  Japan's  first  and  only  national 
factory  law  was  passed.  Under  its  provisions  children  under  twelve 
are  forbidden  to  work,  and  children  under  fifteen  may  not  work  later 
than  ten  at  night  or  before  four  in  the  morning,  nor  for  more  than  ten 
nights  in  succession,  nor  where  poisonous  gases  are  generated,  nor 
for  more  than  twelve  hours  a  day  except  when  "necessary"  truly  a 
mild  measure.  Yet  the  manufacturers  begged  for  a  period  of  five 
years  in  which  to  adjust  themselves  to  these  sweeping  reforms,  and  in 
1916  when  the  law  was  due  to  take  effect  the  capitalists  again  asked 
for  postponement. 

The  population  of  Japan  is  predominantly  rural.  Into  its  relatively 
peaceful,  sane  life  there  has  burst  the  industrial  wakening,  which  has 
received  even  greater  impetus  since  the  beginning  of  the  war.  Conse- 
quently the  factory  workers  of  which  the  majority  are  women  are  in 
great  part  recruited  from  the  rural  population.  It  is  common  for 
girls  to  be  contracted  for  by  their  parents  at  an  early  age.  At  twelve 
or  thirteen,  on  leaving  the  primary  school,  these  small  girls  are  sent 
into  the  large  cities,  where  they  are  barely  able  to  earn  a  living, 
s^Adapted  from  "East  Is  West,"  American  Child,  I  (1919),  34-36. 


PROBLEMS  OF  ECONOMIC  INSECURITY  609 

though  they  work  from  daybreak  until  six,  or  until  nine  or  ten  at 
night,  when  the  pressure  is  heavy.  The  cotton  mills  run  two  shifts  of 
twelve  hours  each.  The  dust,  the  heat,  and  the  lack  of  ventilation  are 
described  as  appalling.  Added  to  these  conditions  the  girls  are 
commonly  housed  in  dormitories  in  the  mill  itself  and  their  rent  and 
food  must  be  paid  to  the  mill  owners.  It  is  easy  to  understand  why  in 
one  factory  in  Osaka  there  was  reported  a  daily  accident  toll  of  50 
out  of  1,100  employees.  Out  of  the  1,350  girls  examined  and  weighed 
the  loss  of  weight  of  those  employed  on  the  night  shift  was  about  i^ 
pounds  weekly.  In  no  case  did  those  girls  regain  what  they  had  lost 
while  on  the  day  shift. 

.  Of  the  200,000  new  girls  entering  the  factories  yearly  it  is  esti- 
mated that  13,000  return  because  of  serious  illness,  chiefly  tuber- 
culosis, before  the  year  is  over.  Statements  agree  in  putting  the  aver- 
age life  of  cotton  mill  operatives  at  from  five  to  six  years  after  enter- 
ing the  mills. 

In  spite  of  these  conditions  girls  are  glad  to  enter  the  factories 
as  a  welcome  change  from  domestic  service.  Children  from  poor 
families,  ten  to  fifteen  years  old,  are  engaged  in  the  homes  of  the 
middle  and  upper  classes  as  baby-tenders — which  reminds  one  of 
the  system  prevailing  in  the  poorer  quarters  of  some  of  our  larger 
cities  where  children  are  hired  out  of  school  hours  to  tend  babies 
while  the  mother  is  at  work.  In  the  country  children  help  in  light 
farming  and  in  caring  for  the  babies,  very  much  as  in  all  rural  com- 
munities, while  the  boys  of  fifteen  and  up  help  their  parents  in  the 
fields.  Agriculture  is  so  largely  done  by  hand  that  every  possible 
worker  must  be  used. 

The  silk  industry  is  now  turning  from  an  essentially  home  in- 
dustry, in  which  the  worms  were  carefully  reared  and  fed  in  small 
crops,  to  a  factory  industry.  It  is  evident  that  in  Japan  as  here  the 
factories  bring  their  own  accompaniment  of  sweated  home  work. 
For  instance  the  manufacture  of  snap  fasteners,  which  started  in 
Tokyo  after  the  war  began,  is  partly  a  home  industry,  in  which  women 
and  children  are  employed.  In  the  factory  the  women  operate  the 
presses,  while  children  feed  the  fasteners  into  the  power  machines 
and  assemble  the  parts.  The  fasteners  are  commonly  "carded"  in 
the  homes  of  the  laborers,  who  operate  on  a  piecework  system. 

Education,  until  1908,  was  compulsory  only  from  six  to  ten  years 
of  age.  This  period  has  now  been  extended  to  cover  six  years.  Con- 
sequently the  educational  period  is  calculated  to  terminate  with  the 
age  of  entering  industry. 


6io  CURRENT  ECONOMIC  PROBLEMS 

278.     The  Hazard  of  Industry^*^ 

BY  JOHN   CURTIS  UNDERWOOD 

We  have  forgotten  how  to  sing:  our  laughter  is  a  godless  thing: 

listless  and  loud  and  shrill  and  sly. 
We  have  forgotten  how  to  smile.    Our  lips,  our  voices  too  are  vile. 

We  are  all  dead  before  we  die. 

Our  mothers'  mothers  made  us  so :  the  father  that  we  never  know  in 

blindness  and  in  wantonness 
Caused  us  to  come  to  question  you.    What  is  it  that  you  others  do, 

that  profit  so  by  our  distress? 

Yet  you  and  your  children  softly  sleep.    We  and  our  mothers  vigil 

keep.    You  cheated  us  of  all  delight, 
Ere  our  sick  spirits  came  to  birth :  you  made  our  fair  and  fruitful 

earth  a  nest  of  pestilence  and  blight. 

Your  black  machines  are  never  still,  and  hard,  relentless  as  your  will, 

they  card  us  like  the  cotton  waste. 
And  flesh  and  blood  more  cheap  than  they,  they  seize  and  eat  and 

shred  away,  to  feed  the  fever  of  your  haste. 

For  we  are  waste  and  shoddy  here,  we  know  no  God,  no  faith  but  fear, 

no  happiness,  no  hope  but  sleep. 
Half-imbecile  and  half-obscene  we  sit  and  tend  each  tense  machine, 

too  sick  to  sigh,  too  tired  to  weep, 
Until  the  tortured  end  of  day,  when  fevered  faces  turn  away,  to  see 

the  stars  from  blackness  leap. 

279.     The  Hazard  of  the  Family  Income" 

For  the  great  body  of  our  workers  the  wage  system  is  ill  adapted 
to  the  provision  of  opportunity  for  the  next  generation.  Under  it 
the  chances  of  the  child  to  develop  the  strongest  of  the  many  latent 
talents  with  which  he  is  endowed,  to  enjoy  development  in  mind  and 
body  which  will  fit  him  for  future  usefulness,  and  to  choose  wisely 
a  place  for  himself  in  the  industrial  system  is  far  smaller  than  it 
should  be.  Even  among  people  in  moderate  circumstances  the 
capacities  of  children  are  neither  fully  developed  nor  fully  utilized. 
Among  native  laborers  the  art  of  conserving  the  resources  of  child- 

'«A  poem  entitled  "Mill  Children,"  in  Processionals.  Copyright  by 
Mitchell  Kennerley,  1915. 

s^An  editorial  (1916). 


PROBLEMS  OF  ECONOMIC  INSECURITY  6ii 

hood  is  not  adequately  understood.  Among  the  foreign-born  igno- 
rance and  lack  of  means  usually  defeat  the  will  which  would  make 
adequate  provision  for  the  child's  future. 

Among  the  working  classes  parents  usually  know  little  of  the 
industrial  system  which  is  to  require  the  services  of  their  children. 
They  have  no  way  of  telling  what  are  "blind-alley"  occupations  and 
what  opportunities  lead  to  advancement.  They  cannot  determine 
what  the  influence  of  various  juvenile  occupations  are  in  developing 
the  industrial  resources  of  the  child  or  in  robbing  him  prematurely 
of  vigor  of  mind  and  body.  They  cannot  pass  intelligent  judgment 
upon  the  social  institutions,  such  as  schools,  religious  organizations, 
dancing  halls,  and  moving-picture  shows,  which  claim  the  attention  of 
the  child  for  recreation  or  culture.  Even  if  they  understood  quite 
well  the  whole  system,  industrial  and  social,  it  is  not  theirs  to  de- 
termine the  capacities  of  the  child,  or  to  formulate  a  program  which 
gives  him  the  best  preparation  for  the  highest  function  in  life  to 
which  his  capacities  entitle  him.  The  Old  World  habits  of  thought 
and  the  simple  agrarian  standards  of  parents  breaks  down  their 
authority  in  making  for  the  child  important  decisions  at  ages  at  which 
the  child  is  not  old  enough  to  decide  for  himself.  So  it  is  that 
parental  responsibility  is  impotent  under  modern  industrial  conditions 
to  make  proper  provision  for  the  child's  adult  years. 

But  means  as  well  as  ability  may  keep  the  parent  from  properly 
providing  for  his  child.  To  give  the  advantages  necessary  to  future 
usefulness  to  the  child  imposes  a  double  immediate  cost  on  the  parent. 
It  forces  upon  them  expenses  incide^jt  to  education  of  an  individual 
who  might  be  self-supporting;  it  also  imposes  the  loss  of  the  wage 
which  the  child  could  earn.  Opportunities  for  children  depend  to 
a  considerable  extent  upon  the  realization  by  parents  of  the  necessity 
of  making  provision  for  their  offspring,  and  upon  their  willingness 
to  make  the  necessary  self-sacrifices.  But  they  depend  even  more 
upon  the  financial  ability  of  the  family  to  give  children  the  necessary 
leisure,  an  opportunity  that  is  only  available  provided  that  the  father 
earns  a  sufficient  amount  or  the  mother  engages  in  outside  activities, 
usually  to  the  neglect  of  important  domestic  duties. 

In  this  connection  we  must  note  that  under  the  peculiar  arrange- 
ments of  our  social  system,  with  the  single  exception  of  the  meager 
compulsory  education  requirement,  the  responsibility  for  the  conser- 
vation of  the  resources  of  children  rests  wholly  upon  the  parents. 
Under  our  social  system  the  opportunity  of  children  to  obtain  train- 
ing in  excess  of  this  minimum  depends  upon  the  financial  ability  of 
the  parents.    Thus  a  very  slender  thread  is  depended  upon  to  con- 


6i2  CURRENT  ECONOMIC  PROBLEMS 

nect  latent  resources  with  the  opportunities  which  await  those  re- 
sources developed.  If  the  father's  income  is  not  above  the  average, 
if  the  mother,  because  of  a  large  family,  illness,  or  other  cause,  is 
not  able  to  assume  part  of  the  financial  burden,  opportunity  is  denied 
to  any  but  the  exceptional  child.  That  small  opportunity,  too,  is 
in  danger  of  being  swept  away  by  any  one  of  many  of  the  chances 
which  may  befall  one  in  our  industrial  world.  If  unemployment  be- 
falls, whether  because  of  the  father's  unreliable  habits  or  the  mere 
exigencies  of  market  conditions,  the  child's  opportunity  is  usually 
gone.  If  industrial  accident  befall  him,  if  the  processes  of  "speeding 
up"  cause  him  prematurely  to  lose  his  usefulness,  if  industrial  old- 
age  creeps  upon  him,  it  is  the  child  who  suffers.  Yes,  and  society 
suffers,  too,  through  a  failure  to  profit  by  what  the  child  might 
offer.  Surely  the  industrial  opportunity  for  the  child  should  be  made 
to  rest  upon  a  foundation  at  least  as  secure  as  that  which  mediaeval 
agriculture  or  chattel  slavery  could  offer. 

280.     The  Hazard  of  the  Courts^'^ 

A  bill  was  filed  in  the  United  States  District  Court  for  the  Western 
District  of  North  Carolina  by  a  father  in  his  own  behalf  and  as  next 
friend  of  his  two  minor  sons,  one  under  the  age  of  fourteen  years  and 
the  other  between  the  ages  of  fourteen  and  sixteen  years,  employes 
in  a  cotton  mill  at  Charlotte,  North  Carolina,  to  enjoin  the  enforce- 
ment of  the  act  of  Congress  intended  to  prohibit  interstate  commerce 
in  the  products  of  child  labor. 

The  District  Court  held  the  act  unconstitutional  and  entered  a 
decree  enjoining  its  enforcement.  This  appeal  brings  the  case  here. 
The  controlling  question  for  decision  is :  Is  it  within  the  authority 
of  Congress  in  regulating  commerce  among  the  states  to  prohibit  the 
transportation  in  interstate  commerce  of  manufactured  goods,  the 
product  of  a  factory  in  which,  within  thirty  days  previous  to  their 
removal  therefrom,  children  under  the  age  of  fourteen  have  been 
employed  or  permitted  to  work,  or  children  between  the  ages  of  four- 
teen and  sixteen  years  have  been  employed  or  permitted  to  work 
more  than  eight  hours  in  a  day,  or  more  than  six  days  in  any  week, 
or  after  the  hour  of  seven  o'clock  p.m.  or  before  the  hour  of  six 
o'clock  A.M. 

s^Adapted  from  the  opinion  of  the  court  in  Hammar  v.  Dagenhart,  247 
U.  S.  251  (1918).  By  a  vote  of  five  to  four  the  court  held  the  first  child-labor 
act  unconstitutional.  Congress  thereupon  placed  a  prohibitive  tax  upon 
products  of  child  labor  as  a  "rider"  to  the  "Revenue  Act"  of  February  24,  1919. 
The  constitutionality  of  this  act  has  not  yet  been  passed  upon  by  the  United 
States  Supreme  Court. 


PROBLEMS  OF  ECONOMIC  INSECURITY  613 

The  power  essential  to  the  passage  of  this  act,  the  government 
contends,  is  found  in  the  commerce  clause  of  the  Constitution  which 
authorizes  Congress  to  regulate  commerce  with  foreign  nations  and 
among  the  states. 

In  each  of  these  instances  (referring  to  the  cases  cited  by  the 
attorney  for  the  United  States)  the  use  of  interstate  transportation 
was  necessary  to  the  accomplishment  of  harmful  results.  This  ele- 
ment is  wanting  in  the  present  case.  The  thing  intended  to  be  ac- 
complished by  this  statute  is  the  denial  of  the  facilities  of  interstate 
commerce  to  those  manufacturers  in  the  states  who  employ  children 
within  the  prohibited  ages.  The  act  in  its  effect  does  not  regulate 
transportation  among  the  states,  but  aims  to  standardize  the  ages  at 
which  children  may  be  employed  in  mining  and  manufacturing  within 
the  states.  The  goods  shipped  are  of  themselves  harmless.  The  act 
permits  them  to  be  freely  shipped  after  thirty  days  from  the  time 
of  their  removal  from  the  factory.  When  offered  for  shipment,  and 
before  transportation  begins,  the  labor  of  their  production  is  over, 
and  the  mere  fact  that  they  were  intended  for  interstate  commerce 
transportation  does  not  make  their  production  subject  to  federal  con- 
trol under  the  commerce  power. 

Commerce  "consists  of  intercourse  and  traffic  and  includes  the 
transportation  of  persons  and  property."  The  making  of  goods  and 
the  mining  of  coal  are  not  commerce,  nor  does  the  fact  that  these 
things  are  to  be  afterward  shipped  or  used  in  interstate  commerce 
make  their  production  a  part  thereof.  Over  interstate  transportation, 
or  its  incidents,  the  regulatory  power  of  Congress  is  ample,  but  the 
production  of  arti'^'es,  intended  for  interstate  commerce,  is  a  mat- 
ter of  local  regulation. 

It  is  further  contended  that  the  authority  of  Congress  may  be 
exerted  to  control  interstate  commerce  in  the  shipment  of  child-made 
goods  because  of  the  eiTect  of  the  circulation  of  such  goods  in  other 
states  where  the  evil  of  this  class  of  labor  has  been  recognized  by  local 
legislation.  There  is  no  power  vested  in  Congress  to  require  the  states 
to  exercise  their  police  power  so  as  to  prevent  possible  unfair  com- 
petition. Many  causes  may  co-operate  to  give  one  state,  by  reason  of 
local  laws  or  conditions,  an  economic  advantage  over  others.  The 
commerce  clause  was  not  intended  to  give  Congress  a  general  author- 
ity to  equalize  such  conditions. 

In  interpreting  the  Constitution  it  must  never  be  forgotten  that 
the  nation  is  made  up  of  states  to  which  are  intrusted  the  powers  of 
local  government.  And  to  them  and  to  the  people  the  powers  not 
expressly  delegated  to  the  national  government  are  reserved.  The 
power  of  the  states  to  regulate  their  purely  internal  affairs  by  such 


6i4  CURRENT  ECONOMIC  PROBLEMS 

laws  as  seem  wise  to  the  local  authority  is  inherent  and  has  never 
been-  surrendered  to  the  general  government.  To  sustain  this  statute 
would  not  be  in  our  judgment  a  recognition  of  the  lawful  exertion  of 
the  congressional  authority  over  interstate  commerce,  but  would  sanc- 
tion an  invasion  by  the  federal  power  of  the  control  of  a  matter 
purely  local  in  its  character,  and  over  which  no  authority  has  been 
delegated  to  Congress  in  conferring  the  power  to  regulate  commerce 
among  the  states. 

We  have  neither  authority  nor  disposition  to  question  the  motives 
of  Congress  in  enacting  this  legislation.  The  purposes  intended  must 
be  attained  consistently  with  constitutional  limitations  and  not  by 
an  invasion  of  the  powers  of  the  states.  This  court  has  no  more 
important  function  than  that  which  devolves  upon  it  the  obligation  to 
preserve  inviolate  the  constitutional  limitations  upon  the  exercise  of 
authority,  federal  and  state,  to  the  end  that  each  may  continue  to  dis- 
charge, harmoniously  with  the  other,  the  duties  intrusted  to  it  by  the 
Constitution. 

In  our  view  the  necessary  effect  of  this  act  is,  by  means  of  a  pro- 
hibition against  the  movement  in  interstate  commerce  of  ordinary 
commercial  commodities,  to  regulate  the  hours  of  labor  of  children  in 
factories  and  mines  within  the  states,  a  purely  state  authority.  Thus 
the  act  in  a  twofold  sense  is  repugnant  to  the  Constitution.  It  not 
only  transcends  the  authority  delegated  to  Congress  over  commerce 
but  also  exerts  a  power  as  to  a  purely  local  matter  to  which  the  fed- 
eral authority  does  not  extend.  The  far-reaching  result  of  upholding 
the  act  cannot  be  more  plainly  indicated  than  by  pointing  out  that  if 
Congress  can  thus  regulate  matters  intrusted  to  local  authority  by 
prohibition  of  the  movement  of  commodities  in  interstate  commerce, 
all  freedom  of  commerce  will  be  at  an  end,  and  the  powers  of  the 
states  over  local  matters  may  be  eliminated,  and  thus  our  system  of 
government  be  practically  destroyed. 


XII 

THE    PROBLEMS    OF    UNIONISM    AND    THE 
WAGE    CONTRACT 

You  have  doubtless  heard  the  statement,  "In  America  there  is  no  class- 
conscious  proletariat;  for  the  American  laborer  sees  in  himself  a  capitalist 
in  embryo."  When  our  country  possessed  an  open  frontier,  undeveloped  nat- 
ural resources,  opportunities  for  the  ready  acquisition  of  property,  and  a  rising 
standard  of  living,  a  vigorous  protest  against  conventional  social  arrangements 
was  not  to  be  expected.  But  with  the  passing  of  the  frontier,  the  restriction  of 
opportunity,  and  the  increasing  tendency  toward  social  stratification,  sentiments 
are  changing.  As  laborers  are  convinced  in  increasing  numbers  that  they  are 
permanently  of  the  "proletariat,"  they  express  themselves  more  vigorously 
against  a  "system"  that  makes  inequalities  possible.  This,  however,  hardly 
threatens  a  "class  conflict"  in  the  immediate  future ;  our  class  and  group  lines 
run  in  too  many  directions  and  cut  each  other  at  too  many  angles  for  that. 

The  "social  unrest"  is  much  more  closely  associated  with  group  than 
with  class  interests.  There  are  many  groups  of  large  capitalists  and  of  skilled 
laborers.  There  exist  accordingly  many  types  of  "capitalism"  and  even  more 
of  "unionism."  Small  capitalists  and  unskilled  laborers  alike  are  without  con- 
sciously developed  group  feelings  and  vehicles  for  the  expression  of  these 
feelings.  It  is  those  who  are  best  off,  those  who  appeal  least  to  our  sympathies, 
whose  strength  lies  in  union.  However,  since  these  labor  groups  are  every- 
where in  contact  with  much  the  same  type  of  "capitalist  groups,"  they  have 
much  the  same  prejudices,  sentiments,  and  theories.  Fighting  as  they  are,  each 
for  self,  they  are  creating  a  common  body  of  labor  theory,  and  their  respective 
interests  are  impelling  them  to  a  certain  amount  of  common  activity.  The  like 
is  true  of  the  capitalists. 

A  study  of  the  appraisals  placed  upon  unionism  by  men  whose  relations 
to  it  are  very  different,  show  fundamental  differences  as  to  the  value  of  such 
an  institution.  Perhaps  nothing  connected  with  "the  labor  movement"  is 
harder  to  understand — or  more  necessary  to  an  appreciation  of  the  problems 
of  trade  unionism — than  the  theories  and  attitudes — the  viewpoints  if  you 
will — of  capitalists  and  laborers.  They  are  as  conflicting  and  contradictory 
to  an  outsider  as  they  are  obvious  and  axiomatic  to  those  who  hold  them. 
The  capitalist,  concerned  with  the  "business"  side  of  industry,  easily  acquires 
an  understanding  of  the  importance  of  basic  institutions.  He  accordingly 
thinks  in  terms  of  legality,  assumes  the  schemes  of  values  surrounding  him 
to  be  absolute,  surrounds  "property."  "contract,"  and  their  complements  with 
an  air  of  sanctity,  regards  "the  constitution"  as  supreme,  and  puts  his  full  trust 
in  the  integrity  of  the  courts.  In  determining  the  relations  of  employer  and 
employees,  he  relies  upon  the  efficacy  of  free  competition  and  individual  bar- 
gaining, insists  upon  his  right  to  prescribe  the  conditions  of  employment,  and 
believes  quite  firmly  that  identical  legal  rights  guarantee  equality  of  treatment 
to  the  two  parties. 

The  laborer,  concerned  with  the  technical  side  of  the  process,  acquires 
a  common-sense  philosophy  of  force;  he  believes  in  fatalism;  he  thinks  that 
the  employer  has  a  more  strategic  position  in  bargaining  than  he  possesses ; 
he  is  convinced  that  capital  concentrated  under  corporate  ownership  can  be 
fought  only  by  "united"  labor.  Unity  in  the  labor  group,  accordingly,  is  the 
one  thing  that  is  necessary  to  an  improvement  in  conditions.  To  secure  it  he 
thinks  it  necessary  to  insist  uncompromisingly  upon  the  "principle  of  uniform- 

6is 


6i6  CURRENT  ECONOMIC  PROBLEMS 

ity";  upon  a  control  of  apprenticeship,  of  hiring  and  discharge,  of  technique, 
of  materials— in  short  of  all  that  is  necessary  to  secure  in  the  larger  sense  the 
absolutely  necessary  "closed  shop" ;  and  particularly  upon  collective  barganimg. 
This  attitude  serves  to  make  quite  intelligible  such  peculiar  phenomena  as 
restriction  of  output,  taboos  upon  non-union  materials,  and  the  intense  hatred 

of  "scabs."  ,        . ,       ^    ,  , 

Industrial  conflict,  which  is  the  most  spectacular  side  of  the  trade-union 
movement,  is  to  be  explained  very  largely  in  terms  of  "collective  bargaining." 
The  opposing  parties  make  use  of  quite  similar  weapons :  the  strike,  for 
example,  finds  its  counterpart  in  the  lockout,  and  the  boycott  in  the  blacklist. 
Each  of  these,  curiously  enough,  resolves  itself  into  the  collective  exerciseof 
a  right  which  in  the  individual  case  is  legally  recognized.  It  is  not  surprising 
that  law,  lacking  an  adequate  social  philosophy,  and  accustomed  to  discover 
society  by  aggregating  individuals,  should  have  been  put  to  some  sore  shifts 
in  dealing  with  these  collective  weapons.  The  use  of  these  is  usually  a  part  of 
a  protracted  campaign  prosecuted  for  many  years,  using  a  varied  strategy, 
and  employing  many  different  instruments. 

In  the  ten  years  preceding  the  war  the  strategic  position  of  the  employers 
had  been  greatly  strengthened,  that  of  the  laborers  correspondingly^ weakened. 
This  is  partly  due  to  the  greater  staying  power  of  capital.  In  part  it  is  due  to 
the  close  correspondence  between  the  interests  of  the  employers  and  the  natural 
development  of  an  individualistic  social  system.  This  is  evident  in  the  under- 
mining of  the  powers  of  unionism  by  a  long  succession  of  court  decisions.  But 
to  a  considerable  extent  it  is  due  to  the  effectiveness  of  employers'  associations. 
Because  of  their  smaller  numbers,  employers  better  than  laborers  can  make 
use  of  devices  which  lack  full  legal  approval.  The  blacklist,  for  instance,  can 
be  effectively  used  where  its  very  publicity  prohibits  the  use  of  the  boycott. 
Likewise,  through  "spies,"  employers  can  get  advance  information  of  the 
strategy  of  an  anticipated  industrial  conflict.  It  is  beyond  the  power  of  unions 
to  get  any  such  information.  The  association  has,  through  careful  study, 
reduced  strike-breaking  almost  to  an  exact  science.  The  employers  have  lib- 
erally used  funds  to  "educate"  the  public  to  the  evils  of  those  practices  of  the 
unions  which  are  most  inimical  to  them.  Immigration,  too,  has  stood  them 
in  good  stead. 

Among  its  other  acts  of  commission  the  war  has  checked  this  tendency. 
It  has  even  replaced  weakness  by  strength  to  such  an  extent  as  to  give  unionism 
a  strategic  position  far  in  advance  of  the  wildest  dreams  of  a  few  years  ago. 
This  has  come  primarily,  of  course,  from  the  higher  pecuniary  and  social  value 
set  upon  labor  by  the  great  demand  for  "man  power"  and  the  consequent 
relative  dearth.  But  it  has  been  aided  by  an  increase  in  knowledge  of  labor 
aims  and  conditions  and  an  improvement  in  conditions  which  the  demand  for 
increased  production  has  engendered.  Arrested  immigration,  too,  has  made 
its  contribution  to  the  result.  As  a  consequence  organized  labor  has  greater 
control  over  the  conditions  of  the  wage  bargain  than  ever  before. 

As  yet  "unionism"  in  America  is  an  exclusive  organization.  Its  appeal  has 
been  to  the  skilled.  If  its  intent  has  been  good,  it  has  had  little  success  in 
appealing  to  the  semi-skilled  and  the  unskilled.  Despite  the  great  increase  in 
numbers  which  the  war  has  brought  to  it,  the  unions  which  make  up  the 
American  Federation  of  Labor  fall  short  of  representing  a  majority  of  Ameri- 
can workingmen.  Outside  of  its  ranks  labor  is  attempting  to  acquire  power  by 
the  use  of  such  subtle  and  harassing  methods  as  "the  intermittent  strike"  and 
"sabotage."  These  devices  of  "revolutionary  unionism"  are  making  their  way 
into  some  very  respectable  unions.  It  need  not  be  said  that  back  of  these 
methods  is  an  attitude  which  insists  upon  the  supposed  interests  of  a  small 
group  even  at  the  expense  of  society  as  a  whole.  A  more  significant  innova- 
tion is  the  attempt  of  labor  to  "go  into  politics."  This  has  been  most  evident 
in  the^crisis  which  led  to  the  passage  of  the  Adamson  Act.  Attempts  at  a  "labor 
party"  are  and  for  some  time  will  doubtless  continue  to  be  sporadic. 

pur  study  of  its  most  conspicuous  features  must  not  allow  us  to  overlook 
the  importance  of  unionism  as  an  agency  of  control.    The  information,  theories, 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        617 

and  prejudices  which  the  laborers  acquire  from  their  unions  influence  pro- 
foundly their  thought  and  action  upon  non-industrial  as  well  as  upon  industrial 
matters.  The  unions  can  eliminate  from  the  lives  of  their  members  much  of 
economic  insecurity,  can  do  much  to  establish  better  working  conditions,  and 
can  set  models  for  the  state  to  use  in  improving  the  conditions  of  unorganized 
labor.  It  is  more  than  possible  that  eventually  they  can,  through  the  trade 
agreement,  create  permanent  positions  and  equities  in  property  for  labor,  and 
that  these  will,  under  the  guise  of  having  been  established  under  free  contract, 
be  recognized  by  law.  Our  gravest  concern  is  lest,  in  seeking  the  interests  of 
the  group,  the  interests  of  society  be  completely  lost  sight  of. 

A.     GROUP  AND  CLASS  CONSCIOUSNESS 
V281.     Bourgeoisie  and  Proletariat^ 

BY  WERNER  SOMBART 

Capitalism  is  based  on  the  private  ownership  of  all  commodities, 
and  therefore  also  of  those  which  are  required  for  production — raw 
material,  machinery,  factories,  land.  Historic  development  has 
brought  it  about  that  production  in  these  days  is  on  a  large  scale; 
that  is  to  say,  it  is  carried  on  by  the  combination  of  many  laborers 
under  uniform  direction.  Thus,  a  thousand  men  are  united  to  work 
a  mine  or  a  machine  factory,  and  hundreds  to  spin  or  weave  in  some 
big  establishment.  But  the  same  development  has  also  brought  it 
about  that  those  who  work  together  in  this  way  have  not  the  same 
rights  with  regard  to  the  means  of  production.  Some  own  these 
means  of  production,  and  therefore  become  the  directing  factors  in 
the  work  of  production,  and  also  owners  of  the  commodities  pro- 
duced. The  others,  who  form  the  great  mass  of  the  workers,  are 
shut  out  of  possession  of  the  means  of  production.  Hence  it  fol- 
lows that,  in  order  to  live,  they  are  forced  to  put  their  labor  power 
at  the  disposal  of  those  who  do  possess  the  means  of  production,  in 
return  for  a  money  payment.  This  comes  about  by  way  of  a  wage 
contract,  wherein  the  laborer,  who  possesses  naught  but  his  labor, 
agrees  with  the  owner  of  the  means  of  production,  who  is  on  that 
account  the  director  of  production,  to  undertake  to  render  a  certain 
amount  of  work  in  return  for  a  certain  amount  of  pay. 

When  we  remember  that  all  production  depends  on  the  combina- 
tion of  labor  and  the  material  means  of  production,  then  the  capitalist 
system  of  production  differs  in  the  first  instance  from  other  systems 
in  that  the  two  factors  of  production  are  represented  by  two  separate 
groups,  which  must  meet  and  combine  if  a  useful  product  is  to  ensue. 
In  this  the  capitalist  system  differs,  from,  let  us  say,  the  craft  organiza- 
tion of  industry,  where  the  laborers  were  at  the  same  time  the  owners 

^Adapted  from  Socialism  and  the  Social  Movement,  pp.  3-8.  Published  by 
E.  P.  Button  &  Co.,  1908. 


6i8  CURRENT  ECONOMIC  PROBLEMS 

of  the  means  of  production.  But  it  differs  likewise  from  slavery  in 
that  in  the  capitalist  system  the  combination  of  the  two  groups  comes 
about  by  free  contract  in  what  is  known  as  the  wages  contract. 

The  capitalist  organization  of  society  is  characterized  by  the  race 
for  profit  and  by  a  peculiar  form  of  mental  activity  in  individuals 
which  I  call  "economic  rationalism."  All  economic  activities  are  at 
bottom  directed  toward  the  increase  of  the  money  which  is  put  into 
production,  or,  in  technical  language,  towards  the  profitable  invest- 
ment of  capital.  To  this  end,  all  the  thoughts  of  the  capitalists  or 
owners  of  the  means  of  production,  or  of  agents  paid  by  them,  are 
occupied  day  and  night  in  an  almost  feverish  restlessness  in  order  to 
bring  about  the  most  practical  and  rational  shaping  of  economic  and 
technical  processes. 

The  social  class  which  stands  for  the  interests  of  the  capitalist 
system  is  the  bourgeoisie,  or  middle  class.  It  is  made  up,  in  the  first 
place,  of  capitalist  undertakers,  and  in  the  second,  of  a  large  number 
of  people  whose  interests  are  similar  to  those  of  the  capitalist  under- 
takers. I  am  thinking  of  the  following  elements:  (i)  All  those  who 
are  economically  independent  (or  who  would  like  to  be  so),  and  are 
intent  on  profit-making,  and  who,  moreover,  desire  a  free  legal  system 
favorable  to  profit-making.  That  would  include  many  shopkeepers, 
property-owners,  agents,  stock-jobbers,  and  so  on,  and  also  the  more 
modern  of  peasant  proprietors.  (2)  All  those  who  are  not  eco- 
nomically independent,  but  are  associated  with  the  capitalist  under- 
taker m  his  activities,  mostly- as  his  representatives,  and  who,  as  a 
rule,  participate  in  his  economic  success.  That  would  include  paid 
directors  of  companies,  managers,  foremen  in  large  businesses,  and 
people  like  them. 

The  class  at  the  opposite  pole  to  this — the  one  cannot  be  thought 
of  without  the  other — I  have  called  the  proletariat.  In  order  to  get 
a  true  conception  of  this  class,  we  must  free  ourselves  from  the  picture 
of  a  ragged  crowd  which  the  term  brought  to  mind  before  we  read 
Karl  Marx.  The  term  "proletariat"  is  now  used  in  a  technical  sense 
to  describe  that  portion  of  the  population  which  is  in  the  service  of 
capitalist  undertakers  in  return  for  wages,  and  elements  akin  to  them. 

The  free  wage-earners  form  the  bulk  of  this  class — all  such  per- 
sons as  are  employed  in  capitalist  undertakings,  leaving  out,  of 
course,  those  mentioned  above  as  belonging  to  the  bourgeoisie  because 
Their  interests  are  bound  up  with  the  capitalist  system. 

I  have  already  pointed  out  that  in  order  to  get  a  true  conception 
of  the  proletariat  we  must  give  up  the  idea  of  a  ragged  crowd.  In- 
deed, the  life  of  the  proletarian  is  not  always  intolerable.  Absolute 
distress  is  in  no  way  a  special  characteristic  of  the  class,  though,  to  be 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        619 

sure,  there  are  within  it  innumerable  instances  of  want.  But  few 
proletarians  are  as  badly  off  as  the  Russian  peasant,  or  the  Chinese 
coolie,  or  the  Irish  tenant,  none  of  whom  belong  to  the  proletariat. 
Many  a  wage-earner,  even  in  Europe,  earns  more  than  a  university 
teacher,  and  in  America  the  average  income  of  this  class  falls  not 
much  below  the  maximum  salary  of  an  extraordinary  professor  in 
Prussia. 

f    282.     The  Historical  Basis  of  Trade-Unionism- 

BY  SIDNEY  AND  BEATRICE  WEBB 

The  trade-union  arose,  not  from  any  particular  institution,  but 
from  every  opportunity  for  the  meeting  together  of  wage-earners 
of  the  same  trade.  Adam  Smith  remarked  that  "people  of  the  same 
trade  seldom  meet  together,  even  for  merriment  and  diversion,  but 
the  conversation  ends  in  a  conspiracy  against  the  public,  or  in  some 
contrivance  to  raise  prices."  And  there  is  actual  evidence  of  the  rise 
of  one  of  the  oldest  trade-unions  out  of  a  gathering  of  the  journey- 
men "to  take  a  social  pint  of  porter  together."  More  often  it  is  a 
tumultuous  strike  out  of  which  grows  a  permanent  organization. 
Instances  are  on  record  in  which  a  number  of  laborers  who  have 
become  accustomed  to  visit  public  houses  have  become  the  nucleus  of 
organization.  More  than  once  the  journeymen  in  a  particular  trade 
declared  that,  "It  has  been  an  ancient  custom  in  the  kingdom  of  Great 
Britain  for  divers  Artists  to  meet  together  and  unite  themselves  into 
societies  to  promote  Amity  and  true  Christian  Charity,"  and  estab- 
lish a  sick  and  funeral  club,  which  invariably  has  proceeded  to  dis- 
cuss the  rate  of  wages,  and  insensibly  has  passed  into  a  trade  union 
with  friendly  benefits.  If  the  trade  is  one  in  which  the  members 
travel  the  result  has  been  a  national  trade-union. 

But  this  does  not  explain  why  the  continuous  organizations  of 
wageworkers  came  as  late  as  the  eighteenth  century?  The  essential 
cause  of  this  was  the  revolution  in  industry  which  came  at  this  time. 
When  such  unions  arose,  the  great  mass  of  the  workers  had  ceased  to 
be  independent  producers,  and  had  passed  into  the  condition  of  life- 
long wage-earners.  Such  unions  came  after  "the  definite  separation 
between  the  functions  of  the  capitalist  and  the  workman,  or  between 
the  direction  of  industrial  operations  and  their  execution  in  detail." 

It  is  often  assumed  that  the  divorce  of  the  manual  worker  from 
the  ownership  of  his  tools  resulted  from  the  introduction  of  ma- 
chinery and  the  factory  system.    Were  this  true,  we  should  not  find 

^Adapted  from  The  History  of  Trade  Unionism,  pp.  21-37.  Copyright  by 
Longmans,  Green  &  Co.,  1894. 


620  CURRENT  ECONOMIC  PROBLEMS 

trade-unions  earlier  than  factories.  Yet  such  combinations  in  Eng- 
land preceded  the  factory  system  by  half  a  century,  and  occurred  in 
trades  carried  on  exclusively  by  hand  labor.  Some  crafts  lent  them- 
selves to  an  advantageous  division  of  labor.  Among  these  there  is 
particularly  to  be  mentioned  that  of  tailoring.  Because  of  the  special 
skill  required  for  tailoring  for  rich  customers,  the  most  proficient 
tailors  were  separated  from  the  rest  of  the  journeymen,  and  became 
practically  a  separate  social  class.  This  differentiation  was  pro- 
moted by  the  increasing  need  of  capital  for  successfully  beginning 
business  in  the  better  quarters  of  the  metropolis.  By  1700  we  find 
the  typical  journeyman  tailor  in  London  a  lifelong  wageworker.  It 
is  not  surprising,  therefore,  that  one  of  the  earliest  instances  of  perma- 
nent trade-unionism  occurred  in  that  trade.  Another  instance  is  that 
of  the  woolen  workers  in  the  West  of  England.  Again,  it  is  not 
peculiar  that  in  the  year  1790  the  Sheffield  employers  found  them- 
selves obliged  to  take  concerted  action  against  the  "scissors-grinders 
and  other  workmen  who  have  entered  into  unlawful  combination  to 
raise  the  price  of  labor."  But  the  cardinal  examples  of  the  connection 
of  trade-unionism  with  the  divorce  of  the  worker  from  the  instru- 
ments of  production  is  seen  in  the  rapid  rise  of  trade  combinations  on 
the  introduction  of  the  factory  system. 

It  is  easy  to  understand  how  the  massing  together  in  factories 
of  regiments  of  men,  all  engaged  in  the  same  trade,  facilitated  and 
promoted  the  formation  of  workmen's  societies.  But  the  rise  of 
permanent  trade  combinations  is  to  be  ascribed  to  the  definite  separa- 
tion between  the  functions  of  the  capitalist  entrepreneur  and  the 
manual  worker.  It  has  become  a  commonplace  of  trade-unionism 
that  only  in  those  industries  in  which  the  worker  has  ceased  to  be 
concerned  in  the  profits  of  buying  and  selling  can  eflfective  and 
stable  trade  organizations  be  maintained. 

V  283.     The  Organization  of  the  Ill-paid  Classes^ 

BY   CHARLES   H.    COOLEY 

It  is  quite  apparent  that  an  organized  and  intelligent  class-con- 
sciousness in  the  hand-working  people  is  one  of  the  primary  needs 
of  a  democratic  society.  In  so  far  as  this  part  of  the  people  is  lacking 
in  a  knowledge  of  its  situation  and  in  the  practice  of  orderly  self- 
assertion,  a  real  freedom  will  also  be  lacking,  and  we  shall  have  some 
kind  of  subjection  in  its  place;  freedom  being  impossible  without 

^Adapted  from  Social  Organization,  pp.  284-89.  Copyright  by  Charles 
Scnbner's  Sons,  1909. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        621 

group  organization.  That  industrial  classes  exist  cannot  be  well 
denied,  and  existing  they  ought  to  be  conscious  and  self-directing. 

The  most  obvious  need  of  class-consciousness  is  for  self-assertion 
against  the  pressure  of  other  classes,  and  this  is  both  most  necessary 
and  most  difficult  with  those  who  lack  wealth  and  the  command  over 
organized  forces  which  it  implies.  In  a  free  society,  especially,  the 
Lord  helps  those  who  help  themselves ;  and  those  who  are  weak  in 
money  must  be  strong  in  union,  and  must  also  exert  themselves  to 
make  good  any  deficiency  in  leadership  that  comes  from  ability  desert- 
ing to  more  favored  classes. 

That  the  dominant  power  of  wealth  has  an  oppressive  action,  for 
the  most  part  involuntary,  upon  the  people  below,  will  hardly  be 
denied  by  any  competent  student.  The  industrial  progress  of  our 
time  is  accompanied  by  sufferings  that  are  involved  with  the  progress. 
These  sufferings  fall  mostly  upon  the  poorer  classes,  while  the  rich 
get  a  larger  share  of  the  increased  product  which  the  progress  brings. 

Labor  unions  have  arisen  out  of  the  urgent  need  of  self-defense, 
not  so  much  against  deliberate  aggression  as  against  brutal  con- 
fusion and  neglect.  The  industrial  population  has  been  tossed  about 
on  the  swirl  of  economic  change  like  so  much  sawdust  on  a  river, 
sometimes  prosperous,  sometimes  miserable,  never  secure,  and  living 
largely  under  degrading,  inhuman  conditions.  Against  this  state  of 
things  the  higher  class  of  artisans  have  made  a  partly  successful 
struggle  through  co-operation  in  associations,  which,  however,  include 
much  less  than  half  of  those  who  might  be  expected  to  take  advantage 
of  them.  That  they  are  an  effective  means  of  class  self-assertion  is 
evident  from  the  antagonism  they  have  aroused. 

Besides  their  primary  function  of  group-bargaining,  unions  are 
performing  a  variety  of  services  hardly  less  important  to  their  mem- 
bers and  to  society.  In  the  way  of  influencing  legislation  they  have 
probably  done  more  than  all  other  agencies  together  to  combat  child- 
labor,  excessive  hours,  and  other  inhuman  and  degrading  kinds  of 
work,  also  to  provide  for  safeguards  against  accident,  for  proper 
sanitation,  for  factories  and  the  like.  In  this  field  their  work  is  as 
much  defensive  as  aggressive,  since  employing  interests,  on  the  other 
side,  are  constantly  influencing  legislation  and  administration  to  their 
own  advantage. 

Their  functions  as  spheres  of  fellowship  and  self -development  is 
equally  vital  and  less  understood.  To  have  a  we-feeling,  to  live 
shoulder  to  shoulder  with  one's  fellows,  is  the  only  human  life;  we 
all  need  it  to  keep  us  from  selfishness,  sensuality,  and  despair,  and  the 
hand-worker  needs  it  even  more  than  the  rest  of  us.  Usually  with- 
out pecuniary  resources  and  insecure  of  his  job  and  his  home,  he  is, 


622  CURRENT  ECONOMIC  PROBLEMS 

in  isolation,  miserably  weak  and  in  a  way  to  be  cowed.  The  union 
makes  him  a  part  of  a  whole,  one  of  a  fellowship.  Moreover,  the  life 
of  labor  unions  and  other  class  associations,  through  the  training 
which  it  gives  in  democratic  organizations  and  discipline,  is  perhaps 
the  chief  guarantee  of  the  healthy  political  development  of  the  hand- 
working  class.  That  their  members  get  this  training  will  be  evident 
to  anyone  who  studies  their  working,  and  it  is  not  apparent  that  they 
would  get  it  in  any  other  way. 

In  general  no  sort  of  persons  mean  better  than  hand-laboring 
men.  They  are  simple,  honest  people,  as  a  rule,  with  that  bent  toward 
integrity  which  is  fostered  by  working  in  wood  and  iron  and  often 
lost  in  the  subtleties  of  business.  Moreover,  their  experience  is  such 
as  to  develop  a  sense  of  the  brotherhood  of  man  and  a  desire  to  realize 
it  in  institutions.  Not  having  enjoyed  the  artificial  support  of  ac- 
cumulated property,  they  have  the  more  reason  to  know  the  de- 
pendence of  each  on  his  fellows.  Occasionally  outbreaks  of  violence 
alarm  us  and  call  for  prompt  enforcement  of  law,  but  are  not  a 
serious  menace  to  society,  because  general  sentiment  and  all  estab- 
lished interests  are  against  them ;  while  the  subtle,  respectable,  sys- 
tematic corruption  by  the  rich  and  powerful  threatens  the  very  being 
of  democracy. 

The  most  deplorable  fact  about  labor  unions  is  that  they  embrace 
so  small  a  proportion  of  those  who  need  their  benefits.  How  far 
into  the  shifting  masses  of  unskilled  labor  effective  organization  can 
extend  only  time  will  show. 

Y  284.     Types  of  Unionism* 

BY  ROBERT  F.  HOXIE 

A  penetrating  study  of  the  union  situation  past  and  present  seems 
to  warrant  the  recognition  of  functional  types  quite  distinct  in  their 
general  characteristics.  It  is  true  that  these  functional  types  do  not 
in  practice  represent  exactly  and  exclusively  the  ideals  and  activities 
of  any  particular  union  organization  or  group.  That  is  to  say,  no 
union  organization  functions  strictly  and  consistently  according  to 
type.  Yet  as  representing  fairly  distinct  alternative  programs  of 
union  action  and  as  guides  to  the  essential  character  and  significance 
of  the  diverse  organizations  and  groups  included  in  the  heterogeneous 
union  complex,  these  functional  types  apparently  do  exist  and  are 
of  the  most  vital  concern  to  the  student  of  unionism.  There  are 
seemingly  four  of  these  distinct  types,  two  of  which  present  dual 
variations. 

^Adapted  from  "Trade-Unionism  in  the  United  States:  General  Char- 
acter and  Types,"  Journal  of  Political  Economy,  XXII  (1914),  211-16. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        623 

The  first  and  perhaps  most  clearly  recognizable  functional  type 
may  be  termed  business  unionism.  Business  unionism  appears  most 
characteristically  in  the  programs  of  local  and  national  craft  and 
compound  craft  organizations.  It  is  essentially  trade-conscious  rather 
than  class-conscious.  That  is  to  say,  it  expresses  the  viewpoint  and 
interests  of  the  workers  in  a  craft  or  industry  rather  than  those  of 
the  working  class  as  a  whole.  It  aims  chiefly  at  more  here  and  now 
for  the  organized  workers  of  the  craft  or  industry,  in  terms  mainly  of 
higher  wages,  shorter  hours,  and  better  working  conditions,  regard- 
less for  the  most  part  of  the  welfare  of  the  workers  outside  the  par- 
ticular organic  group,  and  regardless  in  general  of  political  and  social 
considerations  except  in  so  far  as  these  bear  directly  upon  its  own 
economic  ends.  It  is  conservative  in  the  sense  that  it  professes  belief 
in  natural  rights  and  accepts  as  inevitable,  if  not  as  just,  the  existing 
capitalistic  organization  and  the  wage  system  as  well  as  existing  prop- 
erty rights  and  the  binding  force  of  contract.  It  regards  unionism 
mainly  as  a  bargaining  institution  and  seeks  its  ends  chiefly  through 
collective  bargaining  supported  by  such  methods  as  experience  from 
time  to  time  indicates  to  be  effective  in  sustaining  and  increasing  its 
bargaining  power.  Thus  it  is  likely  to  be  exclusive,  that  is,  to  limit  its 
membership  by  means  of  the  apprenticeship  system  and  high  initiation 
fees  and  dues,  to  the  more  skilled  workers  in  the  craft  or  industry  or 
even  to  a  portion  of  these.  In  method,  business  unionism  is  pre- 
vailingly temperate  and  economic.  It  favors  voluntary  arbitration, 
deprecates  strikes,  and  avoids  political  action,  but  it  will  refuse  arbi- 
tration and  resort  to  strikes  and  politics  when  such  action  seems  best 
calculated  to  support  its  bargaining  efforts  and  increase  its  bargain- 
ing power.  This  type  of  unionism  is  perhaps  best  represented  in  the 
programs  of  the  railway  brotherhoods. 

The  second  union  functional  type  seems  best  designated  J)y  the 
terms  friendly  or  uplift  unionism.  Uplift  unionism,  as  its  name  indi- 
cates, is  characteristically  idealistic  in  its  viewpoint.  It  may  be  trade- 
conscious  or  broadly  class-conscious,  and  at  times  even  claims  to  think 
and  act  in  the  interest  of  society  as  a  whole.  Essentially  it  is  con- 
servative and  law-abiding.  It  aspires  chiefly  to  elevate  the  moral, 
intellectual,  and  social  life  of  the  worker,  to  improve  the  conditions 
under  which  he  works,  to  raise  his  material  standards  of  living,  give 
him  a  sense  of  personal  worth  and  dignity,  secure  for  him  the  leisure 
for  culture,  and  insure  him  and  his  family  against  the  loss  of  a  decent 
livelihood  by  reason  of  unemployment,  accident,  disease,  or  old  age. 
In  method,  this  type  of  unionism  employs  collective  bargaining  but 
stresses  mutual  insurance,  and  drifts  easily  into  political  action  and 
the  advocacy  of  co-operative  enterprises,  profit-sharing,  and  other 


r^ 


624  CURRENT  ECONOMIC  PROBLEMS 

idealistic  plans  for  social  regeneration.  The  nearest  approach  in 
practice  to  uplift  unionism  is  perhaps  to  be  found  in  the  program  of 
the  Knights  of  Labor. 

As  a  third  distinct  functional  type,  we  have  what  most  appropri- 
ately may  be  called  revolutionary  unionism.  Revolutionary  union- 
ism, as  the  term  implies,  is  extremely  radical  both  in  viewpoint  and 
in  action.  It  is  distinctly  class-conscious  rather  than  trade-conscious. 
That  is  to  say,  it  asserts  the  complete  harmony  of  interests  of  all 
wage  workers  as  against  the  representatives  of  the  employing  class 
and  seeks  to  unite  the  former,  skilled  and  unskilled  together,  into  one 
homogeneous  fighting  organization.  It  repudiates,  or  tends  to  re- 
pudiate, the  existing  institutional  order  and  especially  individual 
ownership  of  productive  means,  and  the  wage  system.  It  looks  upon 
the  prevailing  codes  of  right  and  rights,  moral  and  legal,  as  in  general 
fabrications  of  the  employing  class  designed  to  secure  the  subjection 
and  to  further  the  exploitation  of  the  workers.  In  government  it 
aspires  to  be  democratic,  striving  to  make  literal  application  of  the 
phrase  vox  populi,  vox  Dei. 

Of  this  revolutionary  type  of  unionism  there  are  apparently  two 
distinct  varieties.  The  first  finds  its  ultimate  ideal  in  the  socialistic 
state  and  its  ultimate  means  in  invoking  class  politcal  action.  For 
the  present  it  does  not  entirely  repudiate  collective  bargaining  or  the 
binding  force  of  contract,  but  it  regards  these  as  temporary  expedients. 
It  would  not  now  amalgamate  unionist  and  socialist  organizations, 
but  would  have  them  practically  identical  in  membership  and  entirely 
harmonious  in  action.  In  short,  it  looks  upon  unionism  and  socialism 
as  the  two  wings  of  the  working-class  movement.  The  second  variety 
repudiates  altogether  sociaHsm,  political  action,  collective  bargaining, 
and  contract.  SociaHsm  is  to  it  but  another  form  of  oppression, 
political  action  a  practical  delusion,  collective  bargaining  and  contract 
schemes  of  the  oppressor  for  preventing  the  united  and  immediate 
action  of  the  workers.  It  looks  forward  to  a  society  based  upon  free 
industrial  association,  and  finds  its  legitimate  means  in  agitation 
rather  than  in  methods  which  look  to  immediate  betterment.  Direct 
action  and  sabotage  are  its  accredited  weapons,  and  violence  its 
habitual  resort.  These  varieties  of  the  revolutionary  type  may  be 
termed  respectively  socialistic  and  quasi-anarchistic  unionism.  The 
former  is  perhaps  most  nearly  represented  in  the  United  States  by 
the  Western  Federation  of  Miners,  the  latter  by  the  Industrial  Work- 
ers of  the  World. 

Finally  in  the  union  complex  it  seems  possible  to  distinguish  a 
mode  of  action  sufficiently  definite  in  its  character  and  genesis  to 
warrant  the  designation  predatory  unionism.     This  type,  if  it  be 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        625 

truly  such,  cannot  be  set  apart  on  the  basis  of  any  ultimate  social 
ideals  or  theory.  It  may  be  essentially  conservative  or  radical,  trade- 
conscious  or  class-conscious.  It  appears  to  aim  solely  at  immediate 
ends,  and  its  methods  are  wholly  pragmatic.  In  short,  its  distin- 
guishing characteristic  is  the  ruthless  pursuit  of  the  thing  in  hand 
by  whatever  means  seem  most  appropriate  at  the  time  regardless 
of  ethical  and  legal  codes  or  the  effect  upon  those  outside  its  own 
membership.  It  may  employ  business,  friendly,  or  revolutionary 
methods.  Generally  its  operations  are  secret  and  apparently  it  sticks 
at  nothing. 

Of  this  assumed  union  type  also  there  appears  to  be  two  varieties. 
The  first  may  be  termed  hold-up  unionism.  This  variety  is  usually 
to  be  found  in  large  industrial  centers  masquerading  as  business 
unionism.  In  outward  appearance  it  is  conservative ;  it  professes  a 
belief  in  harmony  of  interests  between  employer  and  employee;  it 
claims  to  respect  the  force  of  contract ;  it  operates  openly  through  col- 
lective bargaining,  and  professes  regard  for  law  and  order.  In  reality 
it  has  no  abiding  principles  and  no  real  concern  for  the  rights  or  wel- 
fare of  outsiders.  Prevailingly  it  is  exclusive  and  monopolistic.  Gen- 
erally it  is  boss-ridden  and  corrupt,  the  membership  for  the  most  part 
being  content  to  foUow  blindly  the  instructions  of  the  leaders  so  long 
as  they  "deliver  the  goods."  Frequently  it  enters  with  the  employers 
of  the  group  into  a  double-sided  monopoly  intended  to  eliminate  both 
capitalistic  and  labor  competition  and  to  squeeze  the  consuming  pub- 
lic. With  the  favored  employers  it  bargains  not  only  for  the  sale  of 
its  labor  but  for  the  destruction  of  the  business  of  rival  employers 
and  the  exclusion  of  rival  workmen  from  the  craft  or  industry.  On 
the  whole  its  methods  are  a  mixture  of  open  bargaining  coupled  with 
secret  bribery  and  violence.  This  variety  of  unionism  has  been 
exemplified  most  frequently  among  the  building  trades  organizations 
under  the  leadership  of  men  like  the  late  notorious  "Skinny"  Madden. 

The  second  variety  of  predatory  labor  organization  may  be  called, 
for  want  of  a  better  name,  guerilla  unionism.  This  variety  resembles 
the  first  in  the  absence  of  fixed  principles  and  in  the  ruthless  pursuit 
of  immediate  ends  by  means  of  secret  and  violent  methods.  It  is  to  be 
distinguished  from  hold-up  unionism,  however,  by  the  fact  that  it 
operates  always  directly  against  its  employers,  never  in  combination 
with  them,  and  that  it  cannot  be  bought  off.  It  is  secret,  violent,  and 
ruthless,  seemingly  because  it  despairs  of  attaining  what  it  considers 
to  be  legitimate  ends  by  business,  uplift,  or  revolutionary  methods. 
This  union  variant  has  been  illustrated  recently  in  the  campaign  of 
destruction  carried  on  by  the  Bridge  and  Structural  Iron  Workers, 


626  ,      CURRENT  ECONOMIC  PROBLEMS 

285.     The  Extent  of  Trade-Unionism^ 

BY  LEO  WOLMAN 

The  problem  of  determining  the  extent  of  trade-unionism  in  a 
country  can  be  attacked  first  by  registering  the  absolute  membership 
of  labor  organizations  and  then  by  calculating  the  ratio  of  the  mem- 
bership to  the  industrial  population  of  the  country.  Because  of  the 
present  disorganization  in  the  collection  of  this  form  of  labor  sta- 
tistics in  the  United  States,  the  first  step  necessitates  laborious  com- 
pilation from  a  large  number  of  scattered  sources.  The  material 
in  the  Census  of  Occupations  of  19 lo  makes  a  rough  estimate  of  the 
size  of  the  working  class  feasible. 

The  total  membership  ^of  trade-unions  in  the  United  States  in 
1910  was  2,1 16,317 ;  in  the  same  year  the  total  number  of  persons  gain- 
fully employed  in  industry  was  38,134,712.  The  members  of  trade- 
unions,  therefore,  constituted  in  the  last  census  year  5.5  per  cent 
of  the  industrial  population  of  the  United  States.  This  percentage, 
however,  appreciably  underestimates  the  strength  of  the  trade-union 
movement  because  of  the  inclusion  in  the  aggregate  of  persons  gain- 
fully engaged  in  industry  of  members  of  the  employing  and  salaried 
classes.  These  groups  numbered  10,939,808.  Accordingly  the  wage- 
earning  group  in  19K  can  be  said  to  have  numbered  27,194,904  per- 
sons ;  and  of  this  numbi  r  y.y  per  cent  were  members  of  labor  organi- 
zations. 

Adherents  of  the  labor  movement  would  maintain  that  this  last 
index,  including  as  it  does  agricultural  laborers,  domestic  servants, 
and  clerks,  was  still  not  fairly  indicative  of  the  strength  of  trade- 
unionism.  They  would  use  as  a  basis  for  the  calculation  of  the  per- 
centage of  organization  that  group  of  wage-earners  which  the  modern 
trade-union  makes  definite  and  sustained  efforts  to  organize.  Fur- 
thermore practically  every  trade-union  has  established  a  wage  limit 
below  which  it  will  not  admit  workmen.  The  average  lower-age 
limit  may  be  roughly  stated  at  twenty  years.  When  all  persons  en- 
gaged in  industry  as  agricultural  laborers,  in  domestic  and  personal 
service,  in  clerical  occupations,  and  all  persons  below  the  age  of 
twenty  be  combined  and  the  total  for  this  group  be  subtracted  from 
the  larger  total  a  resulting  group  of  11,490,944  persons,  who  may  be 
characterized  as  constituting  a  potential  trade-union  membership,  is 
obtained.  With  this  as  a  basis  the  degree  of  organization  is  found 
to  be  18.4  per  cent.  Accordingly,  the  most  conservative  survey  of  the 
situation  would  indicate  that  in  the  United  States  in  1910,  92.3  per 
cent  of  the  wage-earners  were  unorganized  ;  whereas  the  more  liberal 

^Adapted  from  an  article  with  the  foregoing  caption  in  the  Annals  of  the 
American  Academy  of  Political  and  Social  Science,  LXIX,  118-26.  Copyright, 
1917. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        627 

estimate  would  show  that  81.6  per  cent  of  those  persons  who  are  sus- 
ceptible of  organization  were  without  the  trade-union. 

The  foregoing  statement  must  be  qualified  in  one  important  re- 
spect. A  large  factor  in  the  relative  extent  of  trade-unionism  is  the 
territorial  distribution  of  the  working  force  of  the  nation.  The  in- 
fluence upon  the  growth  of  labor  organizations  of  the  urbanization 
and  concentration  of  industry  is  well  known.  It  is  the  prevalence  of 
thinly  settled  communities  and  work  in  small  estabHshments  which 
explains  the  surprisingly  low  percentage  of  organization.  If,  there- 
fore, it  were  possible  to  calculate  the  extent  of  organization  among 
workers  living  in  cities  of  10,000  and  over,  the  available  data  on  the 
subject  lead  one  to  believe  that  the  percentage  would  be  much  higher 
than  for  the  country  as  a  whole. 

Trade-unionism  has  in  this  country  made  little  progress  in  organ- 
izing woman  labor.  The  temporary  character  of  the  labor  of  women, 
their  youth,  and  the  fact  that  in  the  great  majority  of  instances  their 
wages  are  designed  to  supplement  the  family  income  have  all  consti- 
tuted serious  obstacles  to  their  organization.  Accordingly,  of  the 
8,075,000  women  "gainfully  employed"  in  the  United  States  in  1910, 
73,800  or  only  0.9  per  cent  were  members  of  labor  organizations.  If 
deductions,  similar  to  those  made  above,  are  made  of  the  women 
engaged  in  employing  and  salaried  positions,  in  agriculture,  in  do- 
mestic and  personal  service,  in  professional  service,  and  as  clerical 
workers,  a  residuum  of  1,819,741  women,  having  an  organization  of 
only  4.1  per  cent,  is  obtained.  It  is  probable  that  since  1910  the  pro- 
portion of  organized  female  labor  has  increased  rapidly. 

A  summary  of  the  situation  in  1910  would  indicate  that  the  small 
percentage  of  organizations  is  due  primarily  to  four  factors:  (i) 
The  great  bulk  of  the  unorganized  workers  live  in  small  towns  and 
rural  districts  where  their  inaccessibility  and  dispersion  make  organi- 
zation both  difficult  and,  if  not  undesirable,  at  least  not  pressing.  (2) 
Of  almost  equal  importance  as  a  problem  of  organization  is  the 
unskilled  worker.  By  reason  of  the  large  supply  of  unskilled  labor 
and  the  ease  with  which  it  m.ay  be  replaced,  organization  of  the 
unskilled  has,  up  to  the  present  at  least,  made  little  progress.  (3)  A 
somewhat  greater  success  in  organizing  the  unskilled  laborers  seems 
to  have  been  attained  by  the  use  of  the  industrial  form  of  organiza- 
tion than  by  the  trade-union.  It  should  be  noted,  however,  that, 
although  the  majority  of  American  unions  are  nominally  occupational 
organizations,  many  are  rapidly  assuming  the  character  of  industrial 
unions.  (4)  Finally,  the  concentration  of  ownership  combined  with 
a  hostility  to  labor  organizations  has  constituted  in  most  cases  an 
insurmountable  barrier  to  the  labor  organizer. 


628  CURRENT  ECONOMIC  PROBLEMS 

'  B.     VIEWPOINTS  AND  UNIONISM 
286.     The  Viewpoint  of  the  Trade-Unionists" 

BY  ROBERT  F.  HOXIE 

Among  the  main  charges  brought  against  the  unionist  by  the 
employer  are  these :  first,  that  he  refuses  to  recognize  the  generally 
conceded  rights  of  the  employing  class ;  secondly,  that  he  does  not 
recognize  the  sacredness  of  contract ;  thirdly,  that  while  he  is  strug- 
gling to  obtain  higher  wages  and  shorter  hours  of  work,  he  per- 
sistently attempts  to  reduce  the  efficiency  of  labor  and  the  extent 
of  the  output.  Assuming  these  charges  to  be  substantially  correct, 
let  us  in  the  case  of  each  seek  without  prejudice  to  discover  the 
real  grounds  of  the  laborer's  attitude  and  action. 

I.  The  "rights"  which  the  employer  claims,  and  which  the 
unionist  is  supposed  to  deny,  may  perhaps  be  summarily  expressed 
in  the  phrase,  "the  right  of  the  employer  to  manage  his  own  busi- 
ness." To  the  employer  it  is  a  common-sense  proposition  that  his 
business  is  his  own.  To  him  this  is  not  a  subject  of  argument.  It 
is  a  plain  matter  of  fact  and  carries  with  it  the  obvious  rights  of 
management  unhampered  by  the  authority  of  outside  individuals. 
But  to  the  laborer  it  is  different. 

The  laborer,  like  all  the  rest  of  us,  is  the  product  of  heredity 
and  environment.  That  is  to  say,  he  is  not  rational  in  the  sense 
that  his  response  to  any  given  mental  stimulus  is  invariable.  On 
the  contrary,  like  the  rest  of  us,  he  is  a  bundle  of  notions,  preju- 
dices, beliefs,  unconscious  preconceptions  and  postulates,  the  pro- 
duct of  his  peculiar  heredity  and  environment.  These  unconscious 
and  subconscious  psychic  elements  necessarily  mix  with  and  color 
his  immediate  activity.  What  is  or  has  been  outside  his  ancestral 
and  personal  environment  must  be  either  altogether  incomprehen- 
sible to  him,  or  else  must  be  conceived  as  quite  like  or  analogous 
to  that  which  has  already  been  mentally  assimilated.  He  cannot 
comprehend  what  he  has  not  experienced. 

Now,  it  is  well  known  that  the  environment  of  the  laborer 
under  the  modern  capitalistic  system  has  tended  to  become  predom- 
inantly one  of  physical  force.  He  has  been  practically  cut  off  from 
all  knowledge  of  market  and  managerial  activities.  The  ideals,  mo- 
tives, and  cares  of  property-ownership  are  becoming  foreign  to 
him.  More  and  more,  in  his  world,  spiritual  forces  are  giving  way 
to  the  apparent  government  and  sanction  of  blind  physical  causa- 
tion.     In  the   factory   and   the   mine   spiritual,   ethical,   customary, 

"Adapted  from  "The  Trade-Union  Point  of  View,"  Journal  of  Political 
Economy.  XV  (1907),  345-56. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        629 

and  legal  forces  and  authorities  are  altogether  in'  the  background. 
Everything  to  the  worker,  even  his  own  activity,  is  the  outcome 
of  physical  force,  apparently  undirected  and  unchecked  by  the 
spiritual  element.  The  blast  shatters  the  rock,  and  whatever  of 
flesh  and  blood  is  in  range  is  also  torn  in  pieces.  The  presence 
and  the  majesty  of  the  law  and  contract  are  altogether  ineffective 
in  the  face  of  physical  forces  let  loose  by  the  explosion.  In  like 
manner  the  knife  cuts,  the  weight  crushes,  the  wheel  mangles  the 
man  and  the  material  with  equal  inevitableness.  No  sanction,  re- 
ligious, moral,  customary,  or  legal,  is  there.  Even  outside  the  strictly 
mechanical  occupations  the  machine  and  the  machine  process  are 
coming  to  dominate  the  worker,  and  the  growth  in  size  of  the  indus- 
trial unit  renders  his  economic  relationships  ever  more  impersonal 
— withdraws  farther  from  his  knowledge  the  directing  and  con- 
trolling spiritual  forces.  The  laborer  thus  environed  inevitably 
tends  to  look  upon  physical  force  as  the  only  efficient  cause  and  the 
only  legitimizing  sanction.  He  tends  to  become  mentally  blind  to 
spiritual,  legal,  contractual,  and  customary  forces  and  their  effects. 

To  the  laborer,  as  the  product  of  this  environment,  the  pro- 
prietary and  managerial  claims  of  the  employer  tend  to  become,  of 
necessity,  simply  incomprehensible.  The  only  kind  of  production 
which  he  can  recognize  is  the  material  outcome  of  physical  force — 
the  physical  good.  Value  unattached  to  and  incommensurable  with 
the  physical  product  or  means  of  production  is  to  him  merely  an  in- 
vention of  the  employing  class  to  cover  up  unjust  appropriation. 
He  knows  and  can  know  nothing  about  the  capitalized  value  of 
managerial  ability  or  market  connections.  To  him,  then,  the  im- 
portant point  is :  By  what  physical  force  are  these  things  made 
what  they  are?  It  is  a  matter  of  simple  observation  that  the  em- 
ployer exerts  no  direct  or  appreciable  physical  force  in  connection 
with  the  productive  process.  Therefore,  in  the  eyes  of  the  laborer, 
he  simply  cannot  have  any  natural  rights  of  proprietorship  and 
management  based  on  productive  activity. 

In  the  same  way  all  other  grounds  on  which  ownership  and  the 
managerial  rights  of  the  employer  are  based  have  become  incon- 
clusive to  the  laborer.  Appropriation,  gift,  inheritance,  saving,  con- 
tract, in  themselves  do  not  produce  any  physical  effect  on  the  only 
goods  which  he  can  recognize.  Therefore  they  cannot  be  used  to 
prove  property  in  any  just  or  natural  sense.  They  hold  in  practice 
simply  because  back  of  them  is  the  physical  force  of  the  police 
and  army  established  and  maintained  by  the  middle  class  to  protect 
its  proprietary  usurpations.  Thus  the  whole  claim  of  the  em- 
ployer to  the  right  to  manage  his  own  business  to  suit  himself 


630  CURRENT  ECONOMIC  PROBLEMS 

has  become  and  is  becoming  in  a  way  incomprehensible  to  the  laborer 
on  grounds  of  natural  equity.  At  the  same  time,  by  virtue  of  habit 
and  the  sanction  of  physical  force  as  a  productive  agent,  he  sees  him- 
self ever  more  clearly  the  rightful  proprietor  of  his  job  and  of  the 
products  of  it.  All  this  is  the  natural  and  inevitable  outcome  of  the 
conditions  under  which  he  lives  and  toils. 

2.  The  unionist  laborer  does  not  recognize  the  sacredness  of 
contract.  This  is,  if  anything,  a  more  serious  charge  than  the  pre- 
ceding one. 

As  a  matter  of  fact,  the  laborer  is  so  circumstanced  that  obli- 
gations of  contract  with  the  employer  must  appear  secondary  in  im- 
portance to  his  obligations  to  fellow-workers.  This  is  not  difficult 
to  show.  Ever  since  the  establishment  of  the  money-wage  system, 
the  everyday  experience  of  the  laborer  has  been  teaching  him  the 
supreme  importance  of  mutuality  in  his  relations  with  his  immediate 
fellow-workers.  The  money  payment,  related  not  to  the  physical 
result  of  his  efforts,  but  to  its  economic  importance,  has  been  blot- 
ting out  for  him  any  direct  connection  between  effort  and  reward. 
Experience  has  taught  him  to  look  upon  his  labor  as  one  thing  in 
its  effects  and  another  thing  in  its  reward.  As  a  thing  to  be  re- 
warded he  has  learned  to  consider  it  a  commodity  in  the  market. 
As  such  he  knows  that  it  is  paid  for  at  competitive  rates.  He  has 
learned  that,  if  he  undercuts  his  fellow,  prompt  retaliation  follows, 
to  the  detriment  of  both,  and  he  has  learned  that  combination  with 
his  fellow  results  in  better  immediate  conditions  for  both. 

The  worker  does  not,  of  course,  look  far  beyond  the  immediate 
results.  In  severing  the  obvious  connection  between  his  task  and 
the  complete  product,  in  removing  from  him  all  knowledge  of  the 
general  conduct  and  condition  of  the  business,  in  paying  to  him 
a  fixed  wage  regardless  of  the  outcome  of  the  particular  venture, 
and  in  paying  him  a  wage  never  much  in  excess  of  his  habitual 
standard  of  living,  the  factory  and  wage  system  have  accustomed 
him  to  a  hand-to-mouth  existence,  have  barred  him  from  all  the 
training  effects  of  property-ownership,  and  have  atrophied  his 
faculties  of  responsibility  and  foresight.  Moreover,  it  is  not  to  be 
expected  that  today's  empty  stomach  will  be  comforted  by  tomor- 
row's hypothetical  bread,  least  of  all  by  bread  which  is  likely  to 
comfort  the  stomach  of  another.  Is  it  any  wonder,  then,  that  the 
laborer  does  not  and  that  he  cannot  follow  the  economist  in  his 
complicated  arguments  to  prove  that,  in  the  long  run  and  on  the 
whole,  the  keenest  competition  among  laborers  brings  the  highest 
rewards  ? 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        631 

Proneness  to  breach  of  contract,  therefore,  is  seen  to  be  a  na- 
tural and  evitable  outcome  of  his  hfe  and  working  conditions. 

3.  The  third  charge  against  the  unionist  which  we  have  under- 
taken to  examine  states  that  while  he  is  struggling  for  increase 
of  wages  he  is  at  the  same  time  attempting  to  reduce  the  efficiency  of 
labor  and  the  amount  of  the  output.  In  other  words,  while  he  is  call- 
ing upon  the  employer  for  more  of  the  means  of  life  he  is  doing  much 
to  block  the  efforts  of  the  employer  to  increase  those  means. 

There  is  no  doubt  that  this  charge  is  to  a  great  extent  true.  In 
reasoning  upon  this  matter  the  employer,  viewing  competitive  so- 
ciety as  a  whole,  assumes  that  actual  or  prospective  increase  in  the 
goods'  output  means  the  bidding-up  of  wages  by  employers  anxious 
to  invest  profitably  increasing  social  income.  It  follows  that  in  com- 
petitive society  laborers  as  a  whole  stand  to  gain  with  improvements 
in  industrial  effort  and  process.  In  the  case  of  the  individual  com- 
petitive establishment  it  is  clear  that  the  maximum  income  is  ordin- 
arily to  be  sought  in  the  highest  possible  efficiency,  resulting  in  in- 
creased industrial  output.  At  least  this  is  true  where  there  are  numer- 
ous establishments  of  fairly  equal  capacity  producing  competitively 
from  the  same  market.  Under  such  circumstances  the  increased 
output  of  any  one  establishment  due  to  "speeding  up"  will  ordinarily 
have  but  a  slight,  if  any,  appreciable  effect  on  price.  Each  individual 
entrepreneur,  therefore,  is  justified  in  assuming  a  fixed  price  for  his 
product  and  in  reckoning  on  increase  of  income  from  increase  of 
efficiency  and  industrial  product.  Apparently  it  rarely  occurs  to  the 
employer  that  this  analysis  is  not  complete.  Having  assumed  that 
definite  laws  determine  the  manner  in  which  income  is  shared  among 
the  productive  factors,  he  apparently  concludes,  somewhat  naively, 
that  just  as  the  laborers  in  society  will  in  the  aggregate  profit  by 
increase  in  the  social  income,  so  also  will  the  laborers  in  any  individual 
establishment  profit  by  increase  in  its  income. 

To  this  mode  of  reasoning,  and  to  the  conclusions  reached 
through  it,  the  unionist  takes  very  decided  exceptions.  To  the 
statement  that  labor  as  a  whole  stands  to  gain  through  any  increase 
in  the  social  dividend  he  returns  the  obvious  answer  that  labor  as  a 
whole  is  a  mere  academic  conception ;  that  labor  as  a  whole  may 
gain  while  the  individual  laborer  starves.  His  concern  is  with  his 
own  wage-rate  and  that  of  his  immediate  fellow-workers.  He  has 
learned  the  lesson  of  co-operation  within  his  trade,  but  he  is  not 
yet  class-conscious.  In  answer  to  the  argument  based  on  the  in- 
dividual competitive  establishment  he  asserts  that  the  conditions 
which  determine  the  income  of  the  establishment  are  not  the  same 
as  those  which  govern  the  wage-rate.    Consequently,  increase  in  the 


632  CURRENT  ECONOMIC  PROBLEMS 

income  of  the  establishment  is  no  guarantee  of  increase  of  the  wage- 
rate  of  the  worker  in  it.  Conversely,  increase  in  the  wage-rate  may 
occur  without  increase  in  the  income  of  the  establishment.  Indeed,  in 
consequence  of  this  non-identity  of  the  conditions  governing  estab- 
lishment income  and  wage-rate,  increase  in  the  gross  income  of  the 
establishment  is  often  accompanied  by  decrease  in  the  wage-rate,  and 
the  wage-rate  is  often  increased  by  means  which  positively  decrease 
the  gross  income  of  the  establishment. 

The  laborer's  statements  in  this  instance  are  without  doubt  well 
founded.  The  clue  to  the  whole  situation  is,  of  course,  found  in  the 
fact  that  the  wage-rate  of  any  class  of  laborers  is  not  determined  by 
the  conditions  which  exist  in  the  particular  establishment  in  which 
they  work,  but  by  the  conditions  which  prevail  in  their  trade  or  "non- 
competing  group."  With  this  commonplace  economic  argument  in 
mind,  the  reasonableness  of  the  unionist's  opposition  to  speeding  up, 
and  of  his  persistent  efforts  to  hamper  production,  at  once  appears. 

287.     Articles  of  Faith 

a)     An  Economic  Creed '' 

The  National  Association  of  Manufacturers  of  the  United  States 
of  America  does  hereby  declare  that  the  following  principles  shall 
govern  the  Association  in  its  work  in  connection  with  the  problems 
of  labor : 

1.  Fair  dealing  is  the  fundamental  and  basic  principle  on  which 
relations  between  employes  and  employers  should  rest. 

2.  The  National  Association  of  Manufacturers  is  not  opposed 
to  organizations  of  labor  as  such,  but  it  is  unalterably  opposed  to 
boycotts,  black-lists  and  other  illegal  acts  of  interference  with  the 
personal  liberty  of  employer  and  employe. 

3.  No  person  should  be  refused  employment  or  in  any  way  dis- 
criminated against  on  account  of  membership  or  non-membership 
in  any  labor  organization,  and  there  should  be  no  discriminating 
against  or  interference  with  any  employe  who  is  not  a  member  of  a 
labor  organization  by  members  of  such  organizations. 

4.  With  due  regard  to  contracts,  it  is  the  right  of  the  employe 
to  leave  his  employment  whenever  he  sees  fit,  and  it  is  the  right  of 
the  employer  to  discharge  any  employe  when  he  sees  fit. 

5.  Employers  must  be  free  to  employ  their  work  people  at  wages 
mutually  satisfactory,  without  interference  or  dictation  on  the  part 
of  individuals  or  organizations  not  directly  parties  to  such  contracts. 

7  Resolutions  adopted  at  the  Eighth  Annual  Convention  of  the  National 
Association  of  Manufacturers,  New  Orleans,  April,  1903. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        633 

6.  Employers  must  be  unmolested  and  unhampered  in  the  man- 
agement of  their  business,  in  determining  the  amount  and  quality  of 
their  product,  and  in  the  use  of  any  methods  or  systems  of  pay  which 
are  just  and  equitable. 

7.  In  the  interest  of  employes  and  employers  of  the  country, 
no  limitation  should  be  placed  upon  the  opportunities  of  any  person 
to  learn  any  trade  to  which  he  or  she  may  be  adapted. 

8.  The  National  Association  of  Manufacturers  disapproves  abso- 
lutely of  strikes  and  lockouts,  and  favors  an  equitable  adjustment  of 
all  differences  between  employers  and  employes  by  any  amicable 
method  that  will  preserve  the  rights  of  both  parties. 

'  9.  Employes  have  the  right  to  contract  for  their  services  in  a 
collective  capacity,  but  any  contract  that  contains  a  stipulation  that 
employment  should  be  denied  to  men  not  parties  to  the  contract 
is  an  invasion  of  the  constitutional  rights  of  the  American  work- 
man, is  against  public  policy,  and  is  in  violation  of  the  conspiracy 
laws.  This  Association  declares  its  unalterable  antagonism  to  the 
closed  shop  and  insists  that  the  doors  of  no  industry  be  closed  against 
American  workmen  because  of  their  membership  or  non-membership 
in  any  labor  organization. 

10.  The  National  Association  of  Manufacturers  pledges  itself  to 
oppose  any  and  all  legislation  not  in  accord  with  the  foregoing  declara- 
tion. 

b)     A  Political  Creed  ^ 

Whereas,  The  National  Association  of  Manufacturers,  in  con- 
vention assembled  in  New  Orleans,  in  1903,  adopted,  declared  and 
promulgated  certain  principles  governing  the  work  of  the  associa- 
tion in  connection  with  problems  of  labor;  and 

Whereas,  The  past  decade  has  demonstrated  the  truth  of  these 
declared  principles ;  and 

Whereas,  During  the  past  ten  years  new  and  different  problems 
have  also  emerged,  affecting  our  governmental,  economic  and  indus- 
trial society,  upon  which  we  deem  it  our  duty  at  this  time  to  express 
our  attitude  and  stand ;  therefore 

Resolved,  That  in  addition  to  the  principles  heretofore  enunciated 
and  declared  at  our  convention  in  New  Orleans  in  1903,  we,  in  con- 
vention assembled,  declare  and  promulgate,  in  addition,  the  following 
declaration  of  principles: 

First.  We  hold  that  the  inherent  powers  of  our  courts  of  equity 
shall  not  be  abridged  in  the  issuance  of  injunctions  in  labor  disputes. 

s  Resolutions  adopted  at  the  Eighteenth  Annual  Convention  of  the  Na- 
tional Association  of  Manufacturers,  Detroit,  May,  1913. 


634  CURRENT  ECONOMIC  PROBLEMS 

Second.  We  hold  that  the  power  vested  in  our  courts  to  punish 
for  contempt  of  court  should  not  be  abridged  by  the  granting  of 
jury  trial  for  contempt. 

Third.  We  protest  against  class  legislation,  whether  enacted  by 
state  legislatures  or  congress,  and  we  assert  that  all  forms  of  class 
legislation  are  un-American  and  detrimental  to  our  common  good. 

Fourth.  We  pledge  our  loyalty  to  our  judiciary,  upon  the  main- 
tenance of  which,  unswerved  by  passing  clamor,  rests  the  perpetua- 
tion of  our  laws,  our  institutions  and  our  society. 

Fifth.  We  favor  the  further  enactment  of  equitable,  beneficial, 
and  simplified  workingmen's-  compensation  legislation. 

Sixth.  We  denounce  the  subserviency  of  representatives  of  the 
whole  people  to  the  dictation  of  any  class  legislation. 

Seventh.  We  affirm,  in  the  light  of  proven  facts,  that  any  com- 
promise, toleration,  or  identification  with  the  leaders  of  criminal 
unionism  will  stultify  our  liberties  and  weaken  respect  for  our  laws 
and  their  just  enforcement. 

Eighth.  We  affirm  our  approval  of  the  enactment  of  wise  and 
just  laws,  necessary  to  improve  conditions  of  labor. 

Ninth.  We  affirm  that  our  tested,  self-controlled,  representative 
democracy  is  adequate,  under  our  constitutional  guarantees,  to 
effectuate  the  real  needs  and  purposes  of  our  national  life. 

Tenth.  We  pledge  ourself  toward  the  accomplishment  of  the 
spirit  and  purpose  of  the  foregoing. 


c)     An  Industrial  Creed  ^ 

BY   JOHN  D.   ROCKEFELLER,   JR. 

Might  not  the  parties  to  industry  subscribe  to  an  industrial  creed 
somewhat  as  follows : 

1.  I  believe  that  labor  and  capital  are  partners,  not  enemies  ;  that 
their  interests  are  common,  not  opposed ;  and  that  neither  can  attain 
the  fullest  measure  of  prosperity  at  the  expense  of  the  other,  but  only 
in  association  with  the  other. 

2.  I  believe  that  the  community  is  an  essential  party  to  industry 
and  that  it  should  have  adequate  representation  with  the  other  parties. 

3.  I  believe  that  the  purpose  of  industry  is  quite  as  much  to 
advance  social  well-being  as  material  prosperity ;  that,  in  the  pursuit 

^  From  a  speech  entitled  "Representation  in  Industry"  delivered  before  the 
War  Emergency  and  Reconstruction  Conference  of  the  Chamber  of  Commerce 
of  the  United  States,  at  Atlantic  City,  New  Jersey,  December  5,  1918.  This 
"creed"  was  officially  indorsed  by  the  Conference. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        635 

of  that  purpose,  the  interests  of  the  community  should  be  carefully 
considered,  the  well-being  of  employees  fully  guarded,  management 
adequately  recognized  and  capital  justly  compensated,  and  that  fail- 
ure in  any  of  these  particulars  means  loss  to  all  four  parties. 

4.  I  believe  that  every  man  is  entitled  to  an  opportunity  to  earn 
a  living,  to  fair  wages,  to  reasonable  hours  of  work  and  proper  work- 
ing conditions,  to  a  decent  home,  to  the  opportunity  to  play,  to  learn, 
to  worship  and  to  love,  as  well  as  to  toil,  and  that  the  responsibility 
rests  as  heavily  upon  industry  as  upon  government  or  society,  to  see 
that  these  conditions  and  opportunities  prevail. 

5.  I  believe  that  diligence,  initiative  and  efficiency,  wherever 
found,  should  be  encouraged  and  adequately  rewarded,  and  that  in- 
dolence, indifference  and  restriction  of  production  should  be  dis- 
countenanced. 

6.  I  believe  that  the  provision  of  adequate  means  of  uncovering 
grievances  and  promptly  adjusting  them,  is  of  fundamental  importance 
to  the  successful  conduct  of  industry. 

7.  I  believe  that  the  most  potent  measure  in  bringing  about  in- 
dustrial harmony  and  prosperity  is  adequate  representation  of  the 
parties  in  interest ;  that  existing  forms  of.  representation  should  be 
carefully  studied  and  availed  of  in  so  far  as  they  may  be  found  to 
have  merit  and  are  adaptable  to  conditions  peculiar  to  the  various 
industries. 

8.  I  believe  that  the  most  effective  structure  of  representation  is 
that  which  is  built  from  the  bottom  up ;  which  includes  all  employees, 
which  starts  with  the  election  of  representatives  and  the  formation 
of  joint  committees  in  each  industrial  plant,  proceeds  to  the  forma- 
tion of  joint  district  councils  and  annual  joint  conferences  in  a  single 
industrial  corporation,  and  admits  of  extension  to  all  corporations  in 
the  same  industry,  as  well  as  to  all  industries  in  a  community,  in  a 
nation,  and  in  the  various  nations. 

9.  I  believe  that  the  application  of  right  principles  never  fails  to 
effect  right  relations  ;  that  "the  letter  killeth  but  the  spirit  giveth  life" ; 
that  forms  are  wholly  secondary,  while  attitude  and  spirit  are  all 
important ;  and  that  only  as  the  parties  in  industry  are  animated  by 
the  spirit  of  fair  play,  justice  to  all  and  brotherhood,  will  any  plan 
which  they  may  mutually  work  out  succeed. 

10.  I  believe  that  that  man  renders  the  greatest  social  service 
who  so  co-operates  in  the  organization  of  industry  as  to  afford  to  the 
largest  number  of  men  the  greatest  opportunity  for  self -development 
and  the  enjoyment  of  those  benefits  which  their  united  efforts  add  to 
the  wealth  of  civilization. 


636  CURRENT  ECONOMIC  PROBLEMS 

V  288.     The  Purposes  of  Trade-Unionism^° 

BY  JOHN   MITCHELL 

In  its  fundamental  principle  trade-unionism  is  plain  and  simple. 
Trade-unionism  starts  from  a  recognition  of  the  fact  that  under 
normal  conditions  the  individual,  unorganized  workman  cannot  bar- 
gain advantageously  with  the  employer  for  the  sale  of  his  labor.  Since 
he  has  no  money  in  reserve  and  must  sell  his  labor  immediately,  since 
he  has  no  knowledge  of  the  market  and  no  skill  in  bargaining,  since, 
finally,  he  has  only  his  own  labor  to  sell,  while  the  employer  engages 
hundreds  or  thousands  of  men,  and  can  easily  do  without  the  services 
of  any  particular  individual,  the  workingman,  if  bargaining  on  his 
own  account  and  for  himself  alone,  is  at  an  enormous  disadvantage. 
Trade-unionism  recognizes  the  fact  that  under  such  conditions  labor 
becomes  more  and  more  degenerate,  because  the  labor  which  the 
workman  sells  is  a  thing  of  his  very  life  and  soul  and  being.  In  the 
individual  contract  between  the  rich  employer  and  the  poor  laborer, 
the  laborer  will  secure  the  worst  of  it.  The  individual  contract  means 
that  the  worst  and  lowest  man's  condition  in  the  industry  will  be  that 
which  the  best  man  must  accept.  From  first  to  last,  beginning  to  end, 
always  and  everywhere,  trade-unionism  stands  opposed  to  the  indi- 
vidual contract.  There  can  be  no  concession  or  yielding  upon  this 
point.  There  can  be  no  permanent  prosperity  of  the  working  classes, 
no  consecutive  improvements  in  conditions,  until  the  principle  is 
firmly  and  fully  established,  that  in  industrial  Hfe,  the  settlement  of, 
wages,  the  hours  of  labor,  and  all  conditions  of  work,  must  be  made 
between  employers  and  workingmen  collectively  and  not  individually. 

V  Trade-unionism  thus  recognizes  that  the  destruction  of  the  work- 

ingman is  the  individual  bargain,  and  the  salvation  of  the  working- 
man  is  the  joint,  united,  or  collective  bargain.    To  carry  out  a  joint 

0^  bargain,  however,  it  is  necessary  to  establish  a  minimum  of  wages 

•^  and  conditions  which  will  apply  to  all.    By  this  it  is  not  meant  that 

the  wages  of  all  shall  be  the  same,  but  merely  that  equal  pay  shall  be 
given  for  equal  work.  If  some  are  so  willing  to  be  over-rushed  as  to 
do  more  than  a  fair  day's  work  for  a  fair  day's  wage,  or  are  willing 
to  allow  themselves  to  be  forced  into  patronizing  truck  stores,  to  sub- 
mit to  arbitrary  fines  or  unreasonable  deductions,  whereas  others 
would  rebel  at  these  impositions,  it  would  result  that  in  the  competi- 
tion among  the  men  to  retain  their  positions,  those  who  were  most 
pliant  and  lowest  spirited  would  secure  the  work,  and  the  wages, 
hours  of  labor,  and  conditions  of  employment  would  be  set  or  ac- 

i^Adapted  from  Organized  Labor,  pp.  2-1 1.     Copyright  by  the  American 
Book  and  Bible  House,  1903. 


>■ 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        637 

cepted  by  the  poorest,  most  cringing,  and  least  independent  of  work- 
ers. If  the  trade-union  did  not  insist  upon  enforcing  common  rules 
providing  for  equal  pay  for  equal  work  and  definite  conditions  of 
safety  and  health  for  all  workers  in  the  trade,  the  result  would  be 
that  all  pretense  of  a  joint  bargain  would  disappear,  and  the  em- 
ployers would  be  free  constantly  to  make  individual  contracts  with 
the  various  members  of  the  union. 

The  trade-union  does  not  stand  for  equal  earnings  for  all  work- 
men. It  does  not  object  to  one  man's  earning  twice  as  much  as  the 
man  working  by  his  side,  provided  both  men  have  equal  rates  of  " 

pay,  equal  hours  of  work,  equal  opportunities  of  securing  work,  -r^ 
and  equal  conditions  of  employment.  What  the  union  insists  upon  is 
that  certain  minimum  requirements  be  fulfilled  for  the  health,  com- 
fort, and  safety  of  all,  in  order  that  the  workingmen  shall  not  be 
obliged  to  compete  for  jobs  by  surrendering  their  claims  to  a  reason- 
onable  amount  of  protection  for  their  health,  and  for  their  life  and 
limb. 

The  trade-union  thus  stands  for  freedom  of  contract  on  the  part 
of  workingmen — the  freedom  or  right  to  contract  collectively.  The 
trade-union  also  stands  for  definiteness  of  the  labor  contract.  The 
workingman  agrees  to  work  at  a  wage  offered  him  by  his  employer, 
but  frequently  nothing  is  said  as  to  hours  of  labor,  periods  for 
meals  and  rest,  intensity  of  work,  conditions  of  the  workshop,  pro- 
tection of  the  workmen  against  filthy  surroundings  or  unguarded 
machinery,  character  of  his  fellow-workmen,  liability  of  the  em- 
ployer for  accident,  nor  any  of  the  thousand  conditions  which 
affect  the  welfare  of  the  workman  and  the  gain  of  both  employer 
and  employe.  In  the  absence  of  an  agreement  with  the  union  it 
is  in  the  power  of  the  employer  to  make  such  rules  absolutely,  or 
to  change  or  amend  them  at  such  times  as  he  thinks  proper. 

The  right  to  bargain  collectively  necessarily  involves  the  right 
to  representation.  Experience  and  reason  both  show  that  a  man, 
who  is  dependent  upon  the  good  will  of  an  employer,  is  in  no  po- 
sition to  negotiate  with  him.  Workingmen  should  have  the  right 
to  be  represented  by  whomsoever  they  wish.  The  denial  of  the 
their  representatives,  the  men  cannot  enjoy  the  full  benefit  of  col- 
right  of  representation  is  tyranny.  Without  the  right  to  choose 
lective  bargaining;  and  without  the  right  of  collective  bargaining, 
the  door  is  open  to  the  evils  of  the  individual  contract.  To  avoid 
these  calamities  the  workmen  demand  "the  recognition  of  the  union." 


638  CURRENT  ECONOMIC  PROBLEMS 

C.     THE  THEORY  OF  UNIONISM 
289.     The  Principle  of  Uniformity^  ^ 


/c 


BY  ROBERT  F.  HOXIE 


The  key  to  the  understanding  of  union  rules  and  actions  is  to  be 
found  in  the  fundamental  principles  and  theories  of  their  program. 
If  you  understand  these  thoroughly  and  the  policies  to  which  they 
give  rise,  you  can  generally  explain  any  given  rule  or  act  without 
difficulty ;  and  without  that  understanding  you  are  almost  certain  to 
go  astray.  In  the  space  available  it  is  barely  possible  to  illustrate 
in  a  general  way  these  theories. 

Let  us,  then,  by  way  of  illustration,  take  one  of  the  fundamental 
principles  of  business  unionism,  the  principle  of  uniformity  or 
standardization,  and  use  it  as  a  partial  explanation  of  union  poli- 
cies, demands,  and  methods.  This  principle  requires  that  all  the 
men  doing  the  same  work  use  the  same  kind  of  tools  and  materials, 
work  normally  the  same  length  of  time,  and  at  the  same  speed,  turn 
out  the  same  quantity  and  quality  of  goods,  and  receive  the  same 
rate  of  wages.  The  union  argument  on  which  the  principle  rests 
runs  somewhat  as  follows: 

1.  Wages  and  conditions  of  employment  are  determined  by 
the  relative  bargaining  strength  of  the  workers  and  employers  of  the 
industrial  group. 

2.  Under  competitive  conditions  the  bargaining  strength  of  the 
employer  is  greater  than  that  of  the  individual  laborer,  because  of 
(a)  the  superior  bargaining  knowledge,  skill,  and  waiting  power  of 
the  employer;  (b)  the  smaller  object  which  he  has  at  stake — ^pe- 
cuniary profits  versus  life ;  (c)  the  presence  of  an  actual  or  potential 
oversupply  of  labor;  (d)  the  increase  in  bargaining  power  on  the 
part  of  the  employer  in  inverse  ratio  to  his  industrial  and  financial 
strength ;  (e)  the  limitation  of  the  bargaining  strength  of  the  labor 
group  to  the  competitive  strength  of  its  weakest  member. 

3.  The  full  bargaining  strength  of  the  employer  is  bound  to  be 
exercised  against  the  workers  because  under  competitive  conditions 
the  pressure  of  the  consuming  public  for  cheap  goods  is  transmitted 
through  the  retailer  and  the  wholesaler  to  the  most  unscrupulous 
employer,  who  sets  the  pace;  while  under  monopolistic  conditions 
the  relations  of  the  employer  and  the  worker  are  impersonal. 

i^Adapted  from  an  unpublished  lecture  entitled  "The  Trade-Union  Pro- 
gram," delivered  at  the  University  of  Michigan,  May  17,  1914.  The  statements 
in  this  paper  are  general  and  admit  of  many  exceptions.  They  constitute  a 
theoretical  statement  of  the  tendencies  underlying  union  activities  rather  than 
a  generalization  from  such  activities.  They  are  not  clearly  understood  even  by 
all  unionists. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        639 

4.  Therefore,  allowing  the  employer  to  pit  his  bargaining 
strength  against  the  bargaining  strength  of  each  worker,  thus  fixing 
their  different  rates  of  work,  wages,  etc.,  means  the  progressive 
deterioration  of  the  wages  and  conditions  of  employment  of  the 
group. 

5.  The  only  way  to  prevent  this  deterioration  is  to  rule  out  com- 
petition by  establishing  and  maintaining  the  principle  of  uniformity 
or  standardization,  i.e.,  to  require  for  all  the  men  doing  the  same 
work  the  use  of  the  same  kinds  of  tools  and  materials,  the  same 
working  time,  the  same  speed,  the  same  quality  of  work,  and  the 
same  output. 

Let  us  see  what  light  this  policy  throws  upon  the  policies,  de- 
mands, methods,  and  attitudes  found  in  the  union  program.  The 
main  purpose  of  this  principle,  as  we  have  seen,  is  to  rule  out  com- 
petition. But  competition  is  possible  in  regard  to  the  wage  rate, 
hours  of  labor,  or  the  exertion  and  output  of  the  individual.  To 
prevent  the  first  the  establishment  of  a  standard  rate  of  wages  at  a 
fixed  minimum  is  necessary.  The  prevention  of  the  second  requires 
the  fixing  of  a  normal  day  or  week  as  a  maximum.  The  third,  in 
like  manner,  necessitates  uniformity  in  the  conditions  and  rate  of 
work.  It  is  obvious  that  these  conditions  working  together  make 
the  standard  rate  a  practical  maximum  as  well  as  a  minimum.  Hence 
there  arises  the  tendency  toward  dead-line  mediocrity. 

Competition,  however,  is  possible  not  only  in  regard  to  the  wage 
rate,  the  hours,  and  the  exertion  or  output,  but  also  in  regard  to  the 
safety  and  sanitation,  the  comfort  and  convenience  of  the  shop;  the 
times  of  beginning  and  ending  work ;  the  arrangement  of  shifts ;  the 
time,  place,  mode,  and  character  of  pay ;  the  materials  and  tools 
used ;  and  all  the  minor  details  of  the  conditions  of  work  and  pay. 
Hence,  to  secure  uniformity,  there  arises  the  necessity  of  minute 
specifications  of  standards  in  regard  to  all  the  incidents  of  work 
and  pay,  from  which  no  deviation  can  normally  be  allowed.  This 
explains  a  multitude  of  petty  and  harassing  restrictions,  of  which 
employers  complain,  the  validity  of  which  rests,  not  on  their  im- 
mediate character  and  effects,  but  on  the  validity  of  the  general 
principle  of  uniformity. 

A  large  part  of  the  trade-union  program  is  thus  seen  to  be  a 
direct  effort  to  establish  specific  standards  incidental  to  the  prin- 
ciple of  uniformity.  Another  large  portion  is  in  the  interest  of  en- 
forcement of  conditions  essential  to  their  existence. 

Let  us  first  consider  the  latter.  It  is  evident  that  these  stand- 
ards cannot  exist  if  they  are  violated  with  impunity ;  still  successful 
enterprise  demands  flexibility.     Hence  there  has  grown  up  a  long 


640  CURRENT  ECONOMIC  PROBLEMS 

list  of  irregularities  and  violations  permitted  but  charged  with  pen- 
alties. These  have  the  double  object  of  stopping  underbidding  and 
of  preventing  the  irregular  practices  from  becoming  regularly  estab- 
lished. For  example,  overtime,  the  doing  of  extraordinary  kinds  of 
work,  and  the  doing  of  work  in  irregular  ways  are  allowed,  but  only 
on  condition  of  extra  pay. 

These  standards,  moreover,  are  hard  to  establish  and  maintain 
in  a  thoroughly  dynamic  industrial  state,  where  new  trades  are 
evolving,  and  new  processes  are  coming  in  constantly.  This  in  part 
explains  the  undoubted  tendency  of  unions  to  restrict  new  trades, 
new  machinery,  new  methods,  and  new  processes  in  industry — in 
short,  industrial  progress. 

If  we  turn  to  the  enforcement  of  these  standards,  we  shall  find 
that  another  large  block  of  union  policies  and  demands  are,  in  part 
at  least,  in  the  interests  of  the  principle  of  uniformity,  and  are  valid 
if  it  is  valid.  The  enforcement  of  these  standards  means  the  common 
rule.  But  to  secure  this  you  must  have  collective  bargaining,  or 
legislation.  Collective  bargaining  implies  recognition  of  the  union 
and  all  the  complex  machinery  for  the  making  and  enforcement  of 
contracts. 

Moreover,  you  cannot  enforce  these  standards  unless  you  control 
the  workers  or  the  working  personnel.  This,  in  part,  explains  ap- 
prenticeship regulations,  and  to  the  unionist  calls  absolutely  for  the 
closed  shop  and  the  control  of  hiring  and  discharge  of  men.  It 
is  evident  that  if  you  cannot  control  the  men  you  cannot  cut  out 
underbidding  in  its  manifold  guise.  This  is  especially  true,  since  the 
employer  is  always  supposed  to  be  trying  to  induce  it  by  swifts, 
bell-horses,  secret  bonuses,  frightening  the  men,  etc. 

To  enforce  uniformity  you  must  also  have  control  over  the  out- 
put of  the  individual  and  you  must  control  the  processes  of  produc- 
tion. You  must  prevent  the  use  of  methods  of  stimulation,  such  as 
bonus  systems,  etc.,  by  the  employer.  Moreover,  you  must  stop  up 
every  minutest  loophole  for  the  evasion  of  the  principle  by  the 
employer.  Hence  you  must  watch  him  carefully;  you  must  have 
walking  delegates  on  the  job.  You  must  carefully  delimit  the  field 
of  work,  and  prevent  reclassification,  so  that  the  employer  cannot 
create  exceptions  by  the  use  of  new  men  or  new  work.  Here  again 
we  find  explanation  of  a  great  number  of  harassing  detailed  de- 
mands and  rules  which  the  unions  endeavor  to  enforce. 

It  follows,  then,  that  a  large  portion  of  the  more  specific  part  of 
the  trade-union  program  is  implied  in  the  principle  of  uniformity 
and  flows  directly  from  the  effort  to  establish  and  enforce  it. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        641 
/290.     Collective  Bargaining  and  the  Trade  Agreement^^ 

BY  JOHN  R.  COMMONS 

Philanthropists  have  long  been  dreaming  of  the  time  when  cap- 
ital and  labor  should  lay  aside  the  strike  and  boycott  and  should  re- 
sort to  arbitration.     By  arbitration  they  understand  the  submission 
of  differences  to  a  disinterested  third  party.    But  the  philanthropists 
have  overlooked  a  point.     Arbitration  is  never  accepted  until  each         ^ 
party  to  a  dispute  is  equally  afraid  of  the  other;  and  when  they 
have  reached  that  point,  they  can  adopt  something  better  than  arbi-      pT 
tration, — namely,  negotiation.    Arbitration  is  impossible  without  or-   V  ^ 
ganization,  and  two  equally  powerful  organizations  can  negotiate  as'v 
well  as  arbitrate.     This  higher  form  of  industrial  peace — negoti- 
ation— has  now  reached  a  formal  stage  in  a  half  dozen  large  in- 
dustries in  the  United  States,  which,  owing  to  its  remarkable  like- 
ness to  parliamentary  government  in  the  country  of  its  origin,  Eng- 
land, may  well  be  called  constitutional  government  in  industry. 

The  bituminous  mine  operators  and  the  bituminous  mine  workers 
of  the  four  great  states  of  Illinois,  Indiana,  Ohio  and  Pennsylvania 
have  such  a  constitution.  The  annual  interstate  conference  of  the 
bituminous  coal  industry  is  the  most  picturesque  and  inspiring  event 
in  the  modern  world  of  business.  Here  is  an  industry  where,  for 
many  years,  industrial  war  was  chronic,  bloodshed  frequent,  distrust, 
hatred,  and  poverty  universal.  Today  the  leaders  of  the  two  sides 
come  together  for  a  two  weeks'  parliament,  face  to  face,  with  plain 
speaking,  without  politics,  religion,  or  demagogy;  and  there  they 
legislate  for  an  industry  that  sends  upon  the  market  annually  $200,- 
000,000  of  product. 

The  most  comforting  feature  of  such  negotiations  is  the  matter- 
of-fact  way  in  which  each  side  takes  the  other.  There  is  none  of 
that  old-time  hypocrisy  on  the  part  of  the  employers,  that  their 
great  interest  in  life  is  to  shower  blessings  upon  their  hands;  and 
there  is  none  of  that  ranting  demagogy  on  the  part  of  the  work- 
men about  the  dignity  of  Ubor  and  the  iniquity  of  capital.  On  the 
contrary,  each  side  frankly  admits  that  its  ruling  motive  is  self- 
interest  ;  that  it  is  trying  to  get  as  much  as  it  can  and  to  give  as 
little  as  it  must;  and  that  the  only  sanction  which  compels  them  to 
come  together,  and  to  stay  together  until  they  reach  a  unanimous 
vote,  is  the  positive  knowledge  that  otherwise  the  mines  will  shut 
down  and  neither  the  miner  will  earn  wages  nor  the  operator  reap 
profits.     It  is  simply  wholesome  fear  that  backs  their  discussions; 

i^Adapted  from  "A  New  Way  of  Settling  Labor  Disputes,"  American 
Review  of  Reviews,  XXIII,  328-33.    Copyright,  1901. 


642  CURRENT  ECONOMIC  PROBLEMS 

the  capitalist  knows  that  there  are  no  other  laborers  in  the  world 
whom  he  can  import  as  "scabs"  to  take  the  places  of  those  whose 
representatives  face  him  in  this  conference  and  this  scale  com- 
mittee, and  he  knows,  too,  from  a  severe  experience,  that  every  one 
of  these  110,000  miners  will  obey  as  one  man  the  voice  of  these 
their  chosen  representatives.  The  miners  know,  also,  that  these 
capitalists  with  whom  they  are  negotiating  are  the  very  ones  who 
control  their  only  opportunities  for  earning  the  wages  that  feed 
themselves  and  their  families.  Consequently,  everybody  knows  that 
an  agreement  must  be  reached  before  adjournment,  or  else  the  in- 
dustry will  be  reduced  to  anarchy  and  their  wages  and  profits,  to 
say  nothing  of  lives,  will  be  destroyed. 

In  every  trade  agreement  there  are  usually  two  large  and  dis- 
tinct questions  on  which  the  parties  differ,  namely,  wages  and  meth- 
ods of  managing  employees.  The  labor  side  wants  higher  wages 
(including  short  hours)  and  restrictions  on  bosses  and  foremen. 
The  employer  side  wants  low  wages  and  a  free  hand  for  the  boss. 
Each  side  thereupon  comes  to  the  joint  conference  with  demands 
more  extreme  than  it  expects  to  see  granted.  At  the  conference  of 
1900  the  operators  offered  an  advance  of  9  cents  per  ton  and  the 
miners  demanded  an  advance  of  20  cents.  The  operators  wished  to 
retain  the  system  of  paying  for  the  screened  coal  only,  and  not  for 
the  slack  and  waste ;  but  the  miners  demanded  payment  on  the  basis 
of  the  "run-of-the-mine,"  i.e.  of  all  coal  brought  to  the  surface, 
before  it  is  run  over  the  screens.  The  miners  asked  also  7  cents 
differential  between  pick  and  machine  mining,  but  the  operators 
wanted  12  cents  differential. 

These  opposing  propositions  had  been  formulated  in  separate 
conventions  and  conferences  by  the  opposing  sides.  The  operators* 
position  was  presented  to  the  joint  conference  and  received  the 
unanimous  "aye"  of  the  operators  and  the  unanimous  "no"  of  the 
miners.  The  miners'  proposition  was  then  presented,  and  received 
Jie  unanimous  "aye"  of  the  miners  and  the  unanimous  "no"  of  the 
operators.  The  two  sides  then  began  their  parrying.  Mr.  Mitchell 
accused  the  operators  of  "joking."  The  operators  accused  the  miners 
of  absurdity.  Several  days  were  spent  in  these  tilts.  Finally  con- 
cessions were  made  on  both  sides.  Certain  matters  were  left  un- 
decided or  referred  back  to  the  state  conferences.  The  committee 
reported  a  unanimous  agreement,  and  the  joint  conference  adopted 
it  unanimously.  It  gave  an  advance  of  14  cents  in  some  districts, 
and  9  cents  in  others.  It  permitted  the  "mine-run"  standard  in  cer- 
tain districts,  and  the  "screened"  standard  in  other  districts,  and  a 


PROBLEMS  OP  UNIONISM  AND  WAGE  CONTRACT        643 

"double  standard"  in  yet  a  third  group  of  districts,  but  regulated 
the  size  of  the  screen  and  fixed  a  wide  differential  between  "mine- 
run"  and  a  "regulation  screen."  Similar  compromises  were  made  on 
the  machine  scale,  day  labor,  and  all  along  the  line.  Nobody  wa? 
satisfied,  yet  everybody  was  satisfied.  It  was  the  best  they  could  do, 
and  it  saved  the  business  from  paralysis.  "A  failure  to  agree,"  said 
President  Mitchell  in  his  closing  speech,  "would  not  only  have 
ruined  the  homes  of  the  miners,  but  would  have  ruined  the  business 
of  the  operators."  And  though  the  miners  did  not  get  what  they 
expected,  yet,  said  Mitchell,  "there  has  never  been  a  time  in  the 
history  of  mining,  even  within  the  recollection  of  the  oldest  one 
among  you,  when  an  advance  so  great  as  this,  and  applied  to  su 
great  a  number  of  men,  was  secured." 

The  success  of  each  conference  depends  directly  upon  the  en- 
forcement of  the  legislation  of  the  preceding  conference.  Curiously 
enough,  this  enforcement  falls  solely  upon  the  miners'  organizatioTi. 
The  operators,  indeed,  have  their  several  state  associations,  but  no 
national  nor  interstate  association  like  that  of  the  miners.  More- 
over, the  operators  are  loosely  organized.  They  can  bring  only 
moral  suasion  to  bear  upon  the  recalcitrant  operator  who  rebelr 
at  their  national  decrees.  But  the  miners  can  do  more ;  they  not 
only  can  suspend  their  own  local  unions  which  violate  the  agree- 
ment, but  they  can  shut  down  the  mine  of  the  rebellious  operator 
and  drive  him  out  of  business.  The  operators  understand  this,  and 
they  know  that  their  own  protection  against  the  cutthroat  operator 
depends  solely  on  the  miners  union.  President  Mitchell,  of  the 
union,  at  the  close  of  the  Indianapolis  conference,  significantly  ac- 
cepted his  office  of  joint  executive  in  what  might  be  called  his  in- 
augural. He  said,  "I  will  give  notice  to  the  operators  now  tha; 
when  they  go  home,  unless  they  keep  the  agreement  inviolate,  we 
will  call  the  men  out;  and  I  will  serve  notice  on  the  miners  thai, 
unless  they  keep  the  laws  of  the  organization,  we  will  suspend  thern 
from  the  organization." 

In  trade  agreements  the  employer  must  recognize  the  union. 
Employers  are  willing  to  pay  high  wages  if  all  their  competitors, 
pay  the  same  wages.  It  is  not  high  wages  that  they  dread,  but  secret  ^  t 
and  unfair  cutting  of  wages.  This  is  also  exactly  what  the  laborers  /^ 
resist.  The  joint  state  or  national  agreements  place  all  competitors', 
on  the  same  basis  in  the  same  market.  Indeed,  in  the  coal  trade 
the  scale  is  nicely  adjusted  so  that  the  districts  with  the  better  quality 
of  coal  and  the  lower  railway  charges  are  required  to  pay  enough 
higher  wages  than  other  districts  to  counterbalance  their  superior 
natural  advantages.    On  this  basis,  so  far  as  the  union  enforces  the 


644         CURRENT  ECONOMIC  PROBLEMS 

agreement,  every  operator  knows  exactly  what  his  competitor's  coal 
is  costing;  there  is  no  secret  cutting;  and  the  trade  is  not  brought 
down  to  the  level  of  the  few  unscrupulous  and  oppressive  operators 
who  grind  down  their  laborers.  For  this  reason  the  bulk  of  em- 
ployers who  have  had  experience  with  these  joint  agreements  are 
heartily  in  favor  of  them. 

The  most  important  result  of  these  trade  agreements  is  the  new 
feeling  of  equality  and  mutual  respect  which  springs  up  in  both  em- 
ployer and  employee.  After  all  has  been  said  in  press  and  pulpit 
about  the  "dignity  of  labor,"  the  only  "dignity"  that  really  commands 
respect  is  the  bald  necessity  of  dealing  with  labor  on  equal  terms. 
With  scarcely  an  exception  the  capitalist  officials  who  make  these 
agreements  with  the  labor  officials  of  tht  vC  powerful  unions  testify 
to  their  shrewdness,  their  firmness,  their  temperance,  their  integrity, 
and  their  faithfulness  to  contracts.  Magnificent  generalship  is  shown 
in  combining  under  one  leadership  the  miscellaneous  races,  religions, 
and  politics  that  compose  the  miners  of  America.  The  labor  move- 
ment of  no  other  country  has  faced  such  a  problem. 

-|/291.     The  Economics  of  the  Closed  Shop^^ 

BY  FRANK  T.  STOCKTON 

In  recent  popular  discussions  of  the  closed  shop  much  emphasis 
has  been  put  upon  its  uneconomical  character.  The  charge  is  made 
that  the  demand  for  the  exclusive  employment  of  union  men,  by 
interfering  with  the  right  of  an  employer  to  "run  his  own  business," 
makes  high  efficiency  impossible.  This  argument  is  based  on  the 
fact  that  the  employer,  under  the  competitive  system,  is  alone  re- 
sponsible for  the  successful  conduct  of  business  undertakings.  If 
he  fails  to  produce  as  well  and  as  cheaply  as  others  do,  the  loss  is 
his.  It  is  necessary,  therefore,  for  the  most  economic  conduct  of 
business  that  the  employer  "should  have  power  to  order  his  own 
affairs."  He  "should  not  be  influenced  by  any  other  consideration 
in  the  hiring  of  men  than  the  ability,  fitness  or  loyalty  of  the  appli- 
cant." At  the  same  time  he  should  be  free  to  reward  exceptional 
workmen  and  to  discharge  those  who  are  inefficient  or  insubordi- 
nate. He  should  be  the  sole  judge  as  to  the  kind  of  machinery, 
tools  and  material  to  be  used.  Only  in  this  way,  it  is  argued,  can 
the  employer  secure  that  "effective  discipline"  which  is  essential  in 
bringing  about  the  "highest  measure  of  success  in  industry." 

i^Adapted  from  The  Closed  Shop  in  American  Trade-Unions,  pp.  165-75. 
Copyright  by  the  Johns  Hopkins  Press,  191 1. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        645 

The  "essence"  of  the  open  shop  is  that  the  employer  is  entirely 
free  "to  hire  and  discharge."    The  closed  shop,  on  the  other  hand,  ^ 

denies  him  the  "right  to  hire  and  discharge."    If  the  employer  wishes        .^ 
to  hire  competent  non-union  men,  he  is  prevented  from  procuring  .    v 
their  services  if  they  cannot  or  will  not  obtain  union  membership. 

The  employer  complains  that  under  the  closed  shop,  instead  of 
being  able  to  secure  workmen  regardless  of  whether  they  are  union 
or  non-union,  white  or  black,  Catholic  or  Protestant,  Jew  or  Gen- 
tile, he  is  compelled  to  draw  from  a  definitely  fixed  labor  market.  ^ 
Very  often,  too,  this  market  is  severely  limited  by  the  refusal  of       ^ 
the  unions  on  one  ground  or  another  to  admit  competent  workmen,  jr"    Q 
to  membership.    He  cannot  hire  members  of  other  unions  who  are  ^      H 
competent  to  do  the  work  because  this  will  at  once  involve  him  in 
a  jurisdictional  dispute.     One  trial  is  enough  to  demonstrate  the    , 
fact  that  members  of  rival  unions  tolerate  each  others'  presence  less  ' 
than  they  do  that  of  non-unionists.     There  is  then  no  practicable 
way  in  which  he  can  secure  additional  help  when  his  work  increases 
except  by  bidding  for  workmen  against  other  union  employers.     It 
is  also  said  that  the  closed  shop  serves  to  prevent  the  discharge  of 
inefficient  employees. 

Another  evil  attributed  to  the  closed  shop  is  that  it  establishes  a         y 
minimum  wage  which  becomes  virtually  also  a  maximum  wage,     j* 
This  is  said  to  produce  a  disastrous  "dead  level"  of  efficiency  through-    r^ 
out  an  establishment  and  to  discourage  effort.     Accordingly  union  T      ^ 
control  is  declared  to  be  "absolute  death  to  individual  effort  and      jT 
ambition,"  and  to  cause  the  degeneration  of  "mental  and  moral  fiber."  ^      y 
Restriction  of  output  is  the  direct  result  of  such  conditions.    Espe-        pJ» 
cially  harmful  does  the  closed  shop  become,  in  the  opinion  of  its    ,-<. 
opponents,  when  a  union  requires  foremen  to  obey  its  rules  and 
to    serve    the    union  rather  than  the  employers.     All  closed-shop 
unions,   it  is   represented,   "define  the   workman's   rights  but  say 
nothing  of  his  duties.    They  destroy  shop  discipline  and  put  nothing 
in  its  place." 

To  these  indictments  the  advocates  of  the  closed  shop  have  made 
vigorous  rejoinder.  They  assert  that  while  the  unions  do  not  allow 
employers  to  "victimize"  their  members,  they  do  not  interfere  other- 
wise with  the  "right  to  hire  and  discharge"  as  long  as  all  persons 
who  are  hired  become  union  members.  It  is  also  flatly  denied  that 
the  minimum  wage  is  usually  the  maximum,  and  that  production 
is  restricted  in  closed  shops. 

The  reconciliation  of  these  conflicting  statements  of  facts  is  pos- 
sible. The  opponents  of  the  closed  shop  in  discussing  its  economic 
effects  always  assume  that  the  closed  shop  is  everywhere  the  same, 


646  CURRENT  ECONOMIC  PROBLEMS 

and  take  as  typical  those  unions  in  which  the  restrictions  on  employ- 
ment are  most  severe.  The  advocates  of  the  closed  shop  assume  as 
typical  those  unions  in  which  the  restrictions  are  mildest.  It  will 
be  noted  that  in  this  respect  the  unions  vary  widely.  In  the  majority 
of  closed-shop  unions,  however,  the  employer  is  allowed  to  hire  non- 
unionists  when  competent  unionists  are  not  available,  or  even  in 
many  unions  when  they  are  available.  It  is  also  customary  to  allow 
such  non-unionists  to  work  a  certain  period  in  a  shop  before  being 
required  to  join  the  union.  There  is  little  basis  for  the  claim,  there- 
fore, that  employers  are  restricted  to  hiring  union  men  only.  It  is 
true  that  "scabs"  and  members  of  rival  unions  are  rarely  allowed  to 
work.  "Scabs,"  however,  form  but  a  small  part  of  the  men  in  any 
trade,  and  agreements  between  rival  unions  have  now  to  some  extent 
solved  the  problem  of  jurisdictional  disputes. 

If  the  union  itself  is  closed,  union  employers  have  no  means  of 
obtaining  additional  help  when  their  business  increases.  The  closed 
union,  however,  although  it  is  usually  found  with  the  closed  shop,  is 
not  identical  with  it.  To  say  that  no  more  members  shall  be  admitted 
to  a  union  is  an  entirely  different  thing  from  saying  that  union  men 
shall  not  work  with  non-unionists. 

All  unions  that  have  advanced  beyond  the  most  rudimentary 
stage  enforce  a  minimum  wage.  The  tendency  to  uniformity  and  a 
"dead  level"  growing  out  of  the  existence  of  the  minimum  wage  can 
only  be  connected  with  the  closed  shop  through  some  restriction  on 
the  right  to  hire  and  discharge.  If  the  union  has  a  compulsory  wait- 
ing list,  it  is  easy  to  see  how  the  minimum  wage  may  become  the 
maximum  wage.  However,  compulsory  waiting  lists  are  established 
in  very  few  unions.  Similarly,  restriction  of -output  is  connected 
with  the  closed  shop  only  through  the  waiting  list.  A  great  part  of 
closed-shop  unions  do  not  have  waiting  lists. 

It  is  also  charged  that  the  joint  and  extended  closed  shops  lead 
to  demands  upon  employers.  When  satisfactory  conditions  have 
been  obtained  in  one  trade,  the  men  may  be  called  out  on  strike  be- 
cause "unfair"  material  is  used,  or  because  the  open  shop  exists  in 
an  allied  trade.  Grievances  "manufactured  outside  the  shop"  are 
thus  said  to  be  constantly  arising.  Complaint  is  also  made  that  the 
closed  shop  is  responsible  for  many  unnecessary  shop  rules  which 
virtually  deprive  the  employer  of  control  over  his  business.  One 
writer  has  gone  so  far  as  to  say  that  "the  amount  of  restriction  which 
it  may  be  expected  to  find  in  'closed  shops'  will  certainly  amount  to 
one-third  of  what  the  output  should  amount  to."  Statements  have 
frequently  been  made  that  the  open  shop  has  brought  business  pros- 
perity to  different  communities. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        647 

Taking  up  the  last  of  these  contentions  first,  the  unions  allege 
that  closed-shop  agreements  are  of  distinct  advantage  to  employers. 
In  open  shops  of  most  trades  the  employer  is  said  to  be  constantly 
harassed  with  complaints  from  individuals.  In  closed  shops  all 
grievances  must  first  be  referred  to  the  union,  which  acts  upon  many 
of  them  unfavorably.  It  is  equally  undeniable  that  most  unions 
which  have  opportunity  to  enforce  the  extended  or  the  joint  closed 
shop  have  not  hesitated  at  times  to  strike  even  when  all  their  de- 
mands in  the  particular  shop  have  been  satisfied. 

The  unions  have  also  denied  in  a  general  way  that  their  shop 
rules  have  been  unduly  restrictive.  As  a  matter  of  fact,  the  great 
open-shop  movement  which  began  in  1901  was  caused  primarily  by 
the  rapid  increase  in  rules  regulating  the  number  of  apprentices,  the 
kind  of  machinery  that  should  be  used,  the  method  of  shop  manage- 
ment, and  the  like.  The  connection  between  the  closed  shop  and 
arbitrary  shop  rules  is  close,  but  the  two  are  not  identical.  Arbitrary 
rules  can  rarely  be  enforced  except  in  closed  shops.  If  the  union 
is  strong  enough  to  secure  the  one,  it  can,  if  it  sees  fit,  enforce  the 
other.  Obviously,  however,  a  dosed-shop  union  need  not,  and 
many  of  them  do  not,  have  hurtful  shop  rules. 

The  defenders  of  the  closed  shop  have  tried  to  show  that  the 
closed  shop  is  an  advantage  to  an  employer.  In  the  first  place,  they 
claim  that  the  closed  shop  protects  fair-minded  employers  from 
"cut-throat  competition."  If  an  industry  is  thoroughly  unionized, 
every  manufacturer  or  contractor  can  tell  precisely  what  his  com- 
petitors are  paying  in  wages.  As  wages  form  the  largest  item  in  the 
average  employer's  expense  account,  it  therefore  becomes  possible 
for  him  to  "figure  intelligently  on  his  work,"  something  which  he 
"could  never  feel  certain  of  were  the  open  shop  to  prevail."  The 
same  shop  rules  also  apply  in  all  union  establishments.  Under  the 
open  shop  not  nearly  the  same  uniformity  in  competitive  conditions 
can  be  secured.  The  closed  shop  is  a  device  absolutely  essential  to 
the  rigid  and  wide  enforcement  of  union  rules. 

Secondly,  those  who  uphold  the  closed  shop  affirm  that  it  tends 
to  create  a  greater  esprit  de  corps  among  the  men  than  the  open 
shop  does.  Union  and  non-union  men  represent  two  diametrically 
opposed  ideas.  The  first  stand  for  collective,  the  second  for  indi- 
vidual action.  Consequently,  there  is  constant  conflict  between  the 
two  in  the  endeavor  to  obtain  control  over  a  shop.  Because  his  men 
do  not  co-operate,  the  employer  is  likely  to  lose  money.  Therefore 
as  a  business  necessity  open  shops  must  become  either  union  or  non- 
union. That  there  should  be  ill-feeling  between  union  and  non- 
union men  is  easily  understood  when  we  consider  why  unions  desire 


648  CURRENT  ECONOMIC  PROBLEMS 

the  closed  shop.  Non-union  men  are  the  economic  enemies  of 
unionists  as  long  as  employers  resort  to  individual  bargaining  or 
express  a  dislike  for  full  union  control.  In  particular,  efforts  are 
put  forth  to  make  the  employment  of  "scabs"  unprofitable. 

Finally,  unionists  say  that  the  closed  shop  is  advantageous  to 
employers  because  in  many  unions  it  carries  with  it  the  privilege  of 
using  a  label  that  has  a  distinct  market  value.  No  union  solicits 
work  for  an  open  shop.  A  label,  however,  is  an  advantage  to  an 
employer  only  under  certain  conditions.  It  can  be  used  to  best 
advantage  on  articles  largely  purchased  by  the  laboring  classes.  That 
a  label  increases  sales  on  such  goods  is  evidenced  by  the  fact  that 
manufacturers,  solely  for  the  purpose  of  obtaining  the  use  of  the 
label,  have  often  asked  that  their  establishments  be  unionized.  The 
labor  journals  not  infrequently  contain  statements  from  employers 
that  the  closed  shop  is  a  "good  business  proposition."  But  the  label 
rarely  effects  an  increase  in  the  demand  for  expensive  goods  or  for 
articles  sold  to  women.  It  is  evident,  therefore,  that  the  number  of 
employers  who  can  find  an  advantage  in  the  use  of  the  labels  is  small 
relative  to  the  total  number  of  employers. 

To  sum  up  the  arguments  against  the  closed  shop  on  the  ground 
that  it  affects  unfavorably  the  economic  conduct  of  industry,  it  may 
be  said  that  the  crux  of  the  question  is  whether  or  not  the  "right  to 
hire  and  discharge"  is  unduly  restricted  under  the  closed  shop.  The 
employer  may  enjoy  the  use  of  a  valuable  label  and  may  be  placed 
on  a  "fair  competitive  basis"  with  other  employers.  Individually  the 
employer  may  reap  a  gain.  But  in  the  long  run  industry  will  be 
carried  on  less  efficiently  if  by  waiting  lists  or  other  restrictive 
devices  the  union  interferes  with  the  employer's  hiring  and  discharg- 
ing his  working  force  in  accordance  with  his  best  judgment. 

->>/292.     The  Ethics  of  the  Closed  Shop^* 

BY  JAMES  H.  TUFTS 

In  certain  industries  in  which  the  workmen  are  well  organized 
they  have  made  contracts  with  employers  which  provide  that  only 
union  men  shall  be  employed.  The  psychological  motive  for  the  de- 
mand for  the  closed  shop  is  natural  enough ;  the  union  has  succeeded 
in  gaining  certain  advantages  in  hours  or  wages  or  both ;  this  has 
required  some  expense  and  perhaps  some  risk.  It  is  natural  to 
feel  that  those  who  get  the  advantage  should  share  the  expense  and 
effort,  and  failing  this,  should  not  be  admitted  to  the  shop.     If  the 

1* Adapted  from  Ethics,  by  John  Dewey  and  James  H.  Tufts,  pp.  559-61. 
Copyright  by  Henry  Holt  &  Co.,  1909. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        649 

argument  stopped  here  it  would  be  insufficient  for  a  moral  justifica- 
tion for  two  reasons.  First,  joining  a  union  involves  much  more 
than  payment  of  dues.  It  means  control  by  the  union  in  ways  which 
may  interfere  with  obligations  to  family,  or  even  to  the  social  order. 
Hence,  to  exclude  a  fellow  workman  from  the  opportunity  to  work 
because  he — perhaps  for  conscientious  reasons — would  not  belong  to 
the  union,  could  not  be  justified  unless  the  union  could  make  it  ap- 
pear  that  it  was  maintaining  a  social  and  not  merely  a  group  inter- 
est. Second,  in  some  cases  unions  have  sought  to  limit  output  In 
so  far  as  this  is  done,  not  for  reasons  of  health,  but  to  raise  prices, 
the  union  is  opposing  the  interest  of  consumers.  Here  again  the 
union  must  exhibit  a  social  justification  if  it  is  to  gain  social  approval. 

On  the  other  hand,  it  may  be  noted  that  the  individualist  who 
believes  in  the  competitive  struggle  as  a  moral  process  has  no  ground 
on  which  to  declare  for  "open  shop."  Exactly  the  same  principle 
which  would  permit  combination  in  capital  and  place  no  limit  on 
competitive  pressure,  provided  it  is  all  done  through  free  contracts, 
can  raise  no  objection  against  combinations  of  laborers  making  the 
best  contracts  possible.  When  a  syndicate  of  capitalists  has  made 
a  highly  favorable  contract  or  successfully  underwritten  a  large 
issue  of  stock,  it  is  not  customary  under  the  principle  of  "open 
shop"  to  give  a  share  in  the  contract  to  all  who  ask  for  it,  or  to  let 
the  whole  public  in  "on  the  ground  floor."  Nor  are  capitalists  ac- 
customed to  leave  a  part  of  the  market  to  be  supplied  by  some  com- 
petitor for  fear  such  competitor  may  suffer  if  he  does  not  have 
business.  When  the  capitalist  argues  for  the  open  shop  upon  the 
ground  of  freedom  and  democracy,  it  seems  like  the  case  of  the 
mote  and  the  beam. 

An  analogy  with  a  political  problem  may  aid :  Has  a  nation  the 
right  to  exclude  (or  tax  heavily)  goods  or  persons  from  other  coun- 
tries ?  May  it  maintain  a  "closed  shop"  ?  The  policy  of  the  Amer- 
ican colonists  and  of  the  United  States  has  varied.  The  Puritans 
maintained  a  "closed  shop"  on  religious  lines.  They  came  to  this 
country  to  maintain  a  certain  religion  and  polity.  They  expelled 
several  men  who  did  not  agree  with  them.  The  United  States  ex- 
cludes Chinese  laborers,  and  imposes  a  tariff  which  in  many  cases 
is  intended  to  be  prohibitive  against  the  products  of  other  countries. 
This  is  done  avowedly  to  protect  the  laborer,  and  in  so  far  as  it  is 
effective  it  closes  the  shop.  The  maxim,  "This  is  a  white  man's 
country,"  is  a  similar  "closed  shop"  utterance.  On  moral  grounds 
the  non-union  man  is  in  the  same  category  as  the  man  of  alien  race 
or  country.  What,  if  anything,  can  justify  a  nation  or  group  from 
excluding  others  from  its  benefits  ?    Clearly  the  only  conditions  are 


650  CURRENT  ECONOMIC  PROBLEMS 

(i)  that  the  group  or  nation  is  existing  for  some  morally  justifiable 
end,  whicn  (2)  would  be  endangered  by  the  admission  of  the  out- 
siders. A  colony  established  to  work  out  religious  or  political  lib- 
erty would  be  justified  in  excluding  a  multitude  who  sought  to  en- 
ter it  and  then  subvert  these  principles.  If  a  union  is  working  for  a 
morally  valuable  end,  e.g.,  a  certain  standard  of  living  which  is 
morally  desirable,  and  if  this  were  threatened  by  the  admission  of 
non-union  men,  the  closed  shop  would  seem  to  be  justified.  If  the 
purpose  were  merely  to  secure  certain  advantages  to  a  small  group, 
and  if  the  open  shop  would  not  lower  the  standard  but  merely  extend 
its  range  of  benefits,  it  is  hard  to  see  why  the  closed  shop  is  not  a 
selfish  principle — though  no  more  selfish  than  the  grounds  on  which 
tihe  tariff  is  usually  advocated  . 

D.    THE  WEAPONS  OF  INDUSTRIAL  CONFLICT 
/    293.     The  Fun::tion  of  the  Strike  in  Collective  Bargainings^ 

BY  JOHN  MITCHELL 

The  normal  condition  of  industry  is  peace.  The  average  work- 
ingman,  engaged  in  industries  in  which  strikes  occur,  loses  less  than 
a  day  a  year  in  this  manner.  A  strike  lasts  upon  the  average  about 
twenty-three  days,  but  the  average  employer  carries  on  his  business 
for  thirty  years  without  a  strike.  The  average  lockout  lasts  ninety- 
seven  days,  but  of  a  thousand  establishments,  less  than  two  declare 
a  lockout  in  the  course  of  a  year. 

A  strike  is  simply  a  method  of  bargaining.  If  the  grocers  of  a 
city  would  refuse  to  sell  tTieir  sugar  for  less  than  seven  cents  a 
pound  and  the  customers  would  refuse  to  pay  more  than  six,  exactly 
the  same  thing  would  occur  as  happens  in  an  ordinary  strike.  A 
strike  does  not  necessarily  involve  any  form  of  bitterness ;  it  merely 
represents  a  difference  between  what  the  buyer  of  labor  is  willing 
to  offer,  and  what  the  seller  of  labor  is  willing  to  accept.  Until  the 
buyer  and  seller  of  an  ordinary  commodity  agree  as  to  price  and 
conditions  no  sale  can  be  effected.  Until  the  wages  and  conditions 
of  work  are  agreed  upon  and  acceded  to  by  both  employer  and  work- 
man, the  industry  must  stop. 

Strikes  thus  result  from  a  failure  to  make  a  bargain  or  contract 
by  men  who  are  free  to  contract.  Strikes  cannot  exist  before  free- 
dom of  contract  is  accorded.  The  present  conception  of  a  strike  is 
that  of  workmen  and  employers  exercising  their  undoubted  right  to 

i^Adapted  from  Organised  Labor,  pp.  299-306.  Copyright  by  the  American 
Book  and  Bible  House,  1903. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        651 

refuse  to  enter  into  contracts  where  the  conditions  are  not  satis^ 
factory  to  them. 

it  is  frequently  stated  that  trade-unions  desire  strikes  because 
they  are  organized  for  that  purpose.  This  is  not  true.  The  trade 
union  is  organized  for  the  purpose  of  securing  better  conditions  of 
Hfe  and  labor  for  its  members,  and,  when  necessary,  a  strike  is  re- 
sorted to  as  a  means  to  that  end.  The  same  conditions  which  cause 
the  creation  of  trade-unions  are  equally  answerable  for  the  constant 
demand  for  improved  conditions  for  the  working  dass,  which  demand 
frequently  voices  itself  in  strikes. 

Strikes  are  to  be  avoided  in  all  cases  where  the  object  desired  can 
be  obtained  by  peaceful  negotiation.  There  is  nothing  immoral, 
however,  in  the  workingman's  striking,  just  as  there  is  nothing  im- 
moral in  his  wanting  higher  wages. 


294.     The  Utility  of  the  Strike" 

BY  FRANK  JULIAN  WARNE 

A  Strike  is  simply  a  piece  of  industrial  machinery,  if  it  may  be  so 
termed,  which  the  organization  of  the  trade-union  provides  for 
the  attainment  of  well-defined  and  laudable  objects.  Its  operation 
does  not  necessarily  mean  the  violation  of  law,  or  the  destruction 
of  property,  or  the  taking  of  human  life.  All  these,  where  in  evi- 
dence, are  unforseen  incidents  to  the  conduct  of  a  great  strike  for 
any  long  period,  and  are  the  manifestations  of  aroused  human 
passion  and  class  hatred.  No  one  would  question  the  use  of  a 
revolver  in  the  hands  of  a  husband  defending  his  wife  and  children 
and  home  from  the  violation  of  its  sanctity, by  outlaws,  but  most  of 
us  would  condemn  the  employment  of  the  same  weapon  in  the  hands 
of  the  outlaws  for  the  accomplishment  of  their  designs.  Yet  the 
weapon  in  both  cases  is  a  revolver.  So  it  is  with  the  strike,  it  is 
simply  a  weapon  for  the  attaining  of  certain  well-defined  ends. 
In  the  hands  of  men  defending  their  standard  of  living  from  the 
cupidity  and  inhumanity  of  particular  members  of  the  employing 
class,  the  strike  is  of  the  very  greatest  social  value.  But  like  the 
revolver,  it  can  be  misused,  as  in  the  case  of  self-seeking  individuals 
masquerading  under  trade-union  principles,  but  because  of  that 
misuse  the  weapon  should  not  be  condemned.  It  is  no  more  possible 
for  the  trade  union  to  prevent  the  strike  from  falling  into  the  hands 
of  those  who  misuse  it,  than  it  is  for  the  law  to  prevent  revolvers 
from  coming  into  the  possession  of  outlaws.     The  strike  has  per- 

i^Adapted  from  The  Coal-Mine  Workers,  pp.  154-58.  Copyright  by  Long- 
mans, Green  &  Co.,  1905. 


652  CURRENT  ECONOMIC  PROBLEMS 

formed  and  will  continue  to  perform  a  most  useful  function  in  the 
progress  of  the  trade-union  movement,  and  consequently  in  the  on- 
ward march  of  American  civilization. 

It  is  true  that  the  course  of  the  labor  movement  has  been  marked 
by  the  taking  of  human  life  and  the  destruction  of  property,  just  as 
has  been  the  case  in  the  creation  of  the  state  and  the  establishment 
of  the  church.  The  why  and  the  wherefore  are  easily  to  be  eX' 
plained  in  the  theory  of  the  adjustment  of  the  principles  of  new 
institutions  to  those  created  for  society  by  older  established  ones. 
This  is  not  said  as  an  apology  for  the  taking  of  human  life  in  strikes. 
No  one  regrets  this  manifestation  of  the  progress  of  the  trade 
union  more  than  does  the  writer,  and  yet  if  he  had  to  choose  be- 
tween preserving  the  lives  that  have  been  so  lost  and  retaining  the 
trade-union  as  an  institution,  it  would  not  be  in  favor  of  the  former. 
This  decision  would  be  made  in  the  firm  belief  that  in  the  attainment 
of  its  objects — in  throwing  more  safeguards  around  the  working- 
man,  especially  in  hazardous  employments,  in  securing  better  sani- 
tary arrangements  in  factories  and  mills,  in  preventing  the  employ- 
ment of  children  at  tender  ages,  in  securing  higher  wages,  in  reducing 
the  hours  of  employment,  in  raising  the  standard  of  living,  and  in 
innumerable  other  ways — in  these  directions  the  trade-union  is  saving 
for  society  more  lives  than  have  been  taken  in  all  the  industrial 
conflicts  of  which  history  gives  any  record. 

The  strike  justifies  itself  either  as  a  weapon  of  offense  or  defense 
in  the  protection,  as  a  last  recourse,  of  the  standard  of  living  of  the 
American  workingman.  It  is,  economically,  simply  the  refusal  of  a 
number  of  workingmen,  usually  organized  in  an  association,  to  sell 
their  labor  for  less  than  a  stipulated  price  or  to  work  under  other 
than  specified  conditions  of  employment,  coupled  with  the  refusal 
of  the  purchaser  of  that  labor — the  employer — to  accede  to  the  de- 
mands. 


-V 


295.     The  Striker  and  the  Worker" 

BY   SOLON   LAUER 


I  am  perfectly  willing  that  you  should  quit  your  job,  whenever 
you  do  not  like  it.  You  may  quit  individually,  or  you  may  all  quit 
by  agreement.  It  may  cause  your  employers  and  us,  the  public,  much 
inconvenience  and  expense;  but  I  do  not  see  how  we  can  refuse 
you  that  right  if  you  choose  to  exercise  it. 

But  there  your  rights  cease.  If,  now,  your  employers  can  find 
other  men  to  take  your  places,  why  shall  they  not  do  so  ?    Have  not 

i^From  Social  Laws,  pp.  189-90.  Published  by  the  Nike  Publishing  Co., 
1901. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        653 

these  men  as  good  a  right  to  work  as  you  have  to  refuse  to  work? 
And  will  you  march  upon  them  with  stones  and  clubs,  and  assault 
them  with  dynamite,  in  order  that  you  may  carry  your  point  with 
your  employers  ?  When  you  play  the  dog  in  the  manger,  my  broth- 
ers, there  is  nothing  for  it  but  to  beat  you  into  submission.  Eternal 
justice,  seated  calm  and  impassive  above  all  our  petty  quarrels,  de- 
mands it.  If  the  machinery  of  .justice  be  not  wholly  wrecked  and 
ruined  here  below,  it  must  be  set  in  motion  against  your  selfish  plot. 
This  is  not  my  affair.  I  can  get  on  without  your  cars.  Legs 
were  before  electrics.  If  there  were  nothing  but  my  interests  in- 
volved, or  those  of  my  neighbors,  you  and  your  employer  should  sit 
growling  at  one  another,  or  fly  at  each  other's  throat,  until  one  or 
other  were  wholly  vanquished  and  demolished.  But  there  are  the 
rights  of  man  to  be  considered ;  yea,  the  rights  of  the  workingman, 
which  ought  to  be  most  dear  to  your  hearts.  You  do  not  want  these 
jobs  on  the  present  terms.  These  men  do  want  them,  having  until 
now  none  at  all,  or  worse  ones.  Shall  their  rights  be  ignored  and 
violated,  that  you  "may  carry  your  point? 

-^     296.     Wanted— Jobs  Breaking  Strikes" 

We  break  strikes — also  handle  labor  troubles  in  all  their  phases. 
We  are  prepared  to  place  secret  operatives  who  are  skilled  mechan- 
ics in  any  shop,  mill  or  factory,  to  discover  whether  organization  is 
being  done,  material  wasted  or  stolen,  negligence  on  the  part  of  em- 
ployees,  etc.   etc We  guard  property   during  strikes, 

employ  non-union  men  to  fill  the  places  of  strikers,  fit  up  and  maintain 
boarding-houses  for  them,  etc.  Branches  in  all  parts  of  the  country. 
Write  for  references  and  terms.  The  Joy  Detective  Agency,  In- 
corporated, Cleveland,  Ohio. 

-y^    297.     The  Efficacy  of  Secret  Service^^ 

Secret  service  properly  applied  with  the  right  men  correctly 
placed  can  be  made  extremely  profitable  when  conditions  are  studied 
and  co-operation  given.  Such  service  is  our  specialty,  and  for  that 
reason  we  maintain  practical  men  of  all  trades  and  occupations,  both 
union  and  non-union.  In  their  daily  reports  they  suggest  improve- 
ments and  new  ideas ;  also  detail  the  agitating,  dishonest,  non-pro- 
ducing, and  retarding  conditions. 

i^Adapted  from  an  advertisement  appearing  in  American  Industries, 
August  15,  1907. 

i^This  letter  is  alleged  to  have  been  sent  out  by  the  William  J.  Burns 
Detective  Agency.  Quoted  from  Laidler,  Boycotts  and  the  Labor  Struggle, 
P-295. 


654         CURRENT  ECONOMIC  PROBLEMS 

Our  operative,  when  engaged  by  you,  is,  to  everyone  but  your- 
self, merely  an  employee  in  your  establishment,  and  whatever  he 
receives  as  wages  is  credited  as  part  payment  for  his  detective  serv- 
ice. Daily  typewritten  reports  are  mailed  to  our  clients.  These 
operatives  are  continually  under  direct  supervision  of  the  manage- 
ment of  this  agency. 

Within  the  heart  of  your  business  is  where  we  operate,  down  in 
the  dark  corners,  and  in  out-of-the-way  places  that  cannot  be  seen 
from  your  office  or  through  your  superintendent  or  foreman. 

If  it  is  of  interest  to  you  to  know  today  what  occurred  in  your 
plant  yesterday,  and  be  in  a  position  to  correct  these  faults  tomor- 
row, we  would  be  pleased  to  take  the  matter  up  with  you  further,  and 
respectfully  ask  an  interview  for  one  of  our  representatives. 

— ,/    298.     The  Boycott  of  the  Butterick  Company^" 

BY  A.  J.  PORTENAR 

It  was  my  fortune  to  take  a  very  active  part  in  the  boycott  insti- 
tuted against  the  products  of  the  Butterick  Company  by  Typographi- 
cal Union  No.  6  in  1906,  and  later  carried  on  by  the  International 
Typographical  Union.  This  boycott  was,  I  verily  believe,  better 
organized,  more  determined,  and  more  damaging  to  the  parties  it 
was  aimed  at  than  any  other  I  have  knowledge  of,  not  excepting  that 
against  the  Buck  Stove  and  Range  Company,  which  is  more  widely 
known  only  because  of  the  adventitious  circumstances  that  brought 
the  highest  officials  of  the  American  Federation  of  Labor  into  court. 
Not  only  in  the  United  States  and  Canada,  but  in  Cuba,  Germany, 
and  Australia,  the  International  Typographical  Union  cut  into  the 
sales  and  captured  the  customers  of  the  Butterick  Company.  Wher- 
ever a  typographical  union  was  organized,  there,  in  greater  or  less 
degree,  the  boycott  was  pushed.  The  expected  court  proceedings 
were  in  evidence  at  all  times.  There  were  arrests,  injunctions,  actions 
for  criminal  contempt.  In  short  I  doubt  if  a  more  thorough  trial  of 
the  efficiency  of  the  boycott  has  ever  been  made. 

What  about  results?  That  the  Butterick  people  were  consider- 
ably damaged  they  themselves  admitted.  Eventually  the  Butterick 
house  was  unionized  again,  but  it  is  not  possible  for  us  to  say  to  what 
extent  the  boycott  was  responsible  for  that  consummation.  It  is  with- 
in my  knowledge,  however,  that  it  had  been  decreasing  in  intensity  for 
two  years  before  an  agreement  with  the  company  was  reached,  in 

20Adapted  from  Organised  Labor,  pp.  90-92.  Copyright  by  the  Macmillan 
Co.,  1912. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        655 

191 1,  and  that  at  the  time  of  the  settlement  the  boycott  was  practically- 
dormant. 

I  was  very  active  in  this  matter,  and  from  the  experience  thus 
gained  I  have  reached  definite  conclusions.  We  expended  a  large 
amount  of  money;  how  large  I  do  not  know.  There  was  a  con- 
tinuous distribution  of  printed  matter  and  of  comparatively  expen- 
sive novelties  bearing  appropriate  inscriptions.  There  were  speakers 
sent  to  tour  the  country.  There  was  an  organizer  whose  sole  duty 
it  was  to  further  the  boycott.  *  There  was  a  prominent  lawyer 
engaged  by  the  year.  So  far  as  money  could  compass  our  object, 
we  were  not  niggardly.  But  money  is  only  one  of  the  essential 
factors  a  union  needs  in  the  conduct  of  an  affair  of  this  kind.  Far 
more  than  money,  it  must  have  the  enthusiastic  devotion  of  its 
members  to  the  continuous,  laborious,  and  unpleasant  work  needful 
to  make  the  expenditure  of  money  effective.  This,  with  a  few 
exceptions,  I  found  it  impossible  to  get.  Even  these  few,  in  the 
course  of  time,  finding  themselves  unsupported  by  the  great  majority, 
began  to  get  lukewarm,  and  at  last  ceased  to  labor  in  a  field,  so  vast 
and  so  deserted.  It  was  not  that  we  had  no  success ;  the  Butterick 
Company  is  the  best  witness  to  the  contrary.  But  it  is  scarcely 
believable  how  unremittingly  we  had  to  labor  to  save  what  we  had 
done  one  day  from  becoming  useless  the  next.  This  fact  eventually 
led  to  the  abandonment  of  the  boycott  and  the  slow  recovery  by  the 
Butterick  Company  of  the  ground  it  had  lost.  Therefore  my  opinion 
is  that  no  boycott  can  completely  and  permanently  accomplish  the 
result  sought,  and  very  few  will  do  nearly  so  much  in  that  direction 
as  the  one  here  spoken  of,  which  finally  became  a  failure. 

->|   299.     Ostracism  as  an  Industrial  Weapon-^ 

BY  FRANK  JULIAN  WARNE 

In  controlling  the  ordinary  supply  of  labor  in  the  industry,  com- 
mittees of  union  men  visit  personally  every  man  employed  who  has 
not  already  been  captured  by  the  organizers,  and  his  position  is 
definitely  ascertained.  This  is  one  of  the  most  important  uses  of 
picketing,  by  means  of  which  men  are  met  on  their  way  to  and  from 
work.  To  the  employees  continuing  at  work  the  pickets  at  first  have 
recourse  to  the  powers  of  friendly  and  peaceable  persuasion,  but  if 
these  fail  to  induce  the  men  to  join  the  union,  or,  if  not  this,  at  least 
to  remain  away  from  the  work,  then  upon  the  non-union  men  are 

2iAdapted  from  The  Coal-Mine  Workers,  pp.  160-65.  Copyright  by  Long- 
mans, Green  &  Co.,  1905. 


•vV 


656  CURRENT  ECONOMIC  PROBLEMS 

brought  to  bear  social  forces  verging  upon  lawlessness,  and  over- 
stepping the  safeguards  the  state  has  thrown  around  individual 
liberty,  which  only  a  strong  public  sympathy  with  the  cause  of  the 
union  will  support.  The  most  important  of  these  social  forces  is 
ostracism. 

Ostracism  is  a  stronger  social  force  in  maintaining  a  high  stand- 
ard of  personal  conduct  than  most  of  us  realize.  It  means  banish- 
ment or  exclusion  from  social  intercourse  or  favor,  and  is  usually 
employed  by  a  particular  group  against  members  of  its  own  class  or 
craft.  Its  most  effective  weapon  is  some  term  of  reproach  coined  for 
the  purpose.  Lawyers,  for  example,  who  do  not  come  up  to  the 
standard  set  for  that  profession  by  its  dominant  group,  are  ostracized 
and  termed  "shysters."  So  it  is  with  the  medical  profession ;  physi- 
cians engaged  in  questionable  practices  which  the  dominant  group 
denounce  are  ostracized  by  the  more  reputable  practitioners  with  the 
reproachful  term  "quack."  The  same  social  force  is  at  work  among 
the  industrial  classes.  Union  men  set  a  standard  as  to  wages  and 
conditions  of  employment  in  a  particular  industry,  and  those  work- 
ingmen  who  fall  below  that  measurement,  in  offering  their  labor  for 
a  less  price,  are  ostracized  and  denounced  as  "scabs."  Whether  the 
group  be  doctors  or  lawyers  or  workingmen,  whatever  it  adopts  as 
the  standard  of  measuring  conduct  along  particular  lines  is  sooner 
or  later  taken  up  by  the  broader  social  grouping  in  the  community 
and  accepted  as  its  standard  of  judgment.  This  is  particularly  and 
strikingly  true  of  a  community  closely  identified  with  an  industry  the 
livelihood  of  whose  members  depends  upon  the  industry's  activities 
and  in  which  a  dominant  group  (usually  members  of  a  trade-union) 
creates  the  industrial  standard.  This  explains  the  attitude  of  hos- 
tility an  industrial  community  exercises  towards  the  "scab."  It  ex- 
plains, also,  perhaps,  how  men  far  removed  from  the  influence  of 
the  working  classes  can  look  upon  the  "scab"  as  a  hero. 

The  social  force  of  ostracism,  put  into  operation  by  the  working 
of  the  trade-unions,  is  directed,  and  particularly  so  in  strike  times, 
not  only  against  the  "scab"  himself,  but  also  along  all  those  channels 
of  social  relations  affecting  him  and  which  might  have  influence 
upon  him  in  bringing  about  action  conformable  to  the  standard  of 
the  dominant  group.  The  strength  of  this  weapon  in  the  strike  of 
the  anthracite-mine  employees  in  1902  caused  union  men  and  their 
families  to  refuse  to  associate  with  the  workingman  who  continued 
his  employment  in  the  mines ;  it  expelled  a  prominent  and  other-wise 
highly  respected  citizen  from  a  benevolent  society  which  had  for 
its  object  the  assisting  of  sick  members  and  the  defraying  of  a  part 
of  the  funeral  expenses  of  those  who  died,  and  of  which  he  had  been 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        657 

a  member  in  good  standing  for  more  than  twenty-seven  years ;  it 
caused  children  of  striking  mine  workers  not  only  to  refuse  to  at- 
tend school  of  a  woman  teacher  whose  aged  father  was  a  watch- 
man at  one  of  the  mines,  but  they  also  demanded  that  she  be  dis- 
charged. Children  of  union  miners  would  not  attend  Sunday-school 
with  their  former  playmates  whose  relatives  continued  at  work ; 
members  of  the  Lacemakers'  Union  employed  at  a  silk-mill  refused 
Ao  work  alongside  girls  whose  fathers  and  brothers  would  not  strike ; 
clerks  were  dismissed  from  stores  and  business  establishments  be- 
cause they  were  related  to  men  who  continued  at  work  in  the  mines ; 
even  promises  of  marriage  were  broken  through  relatives  of  one  or 
the  other  of  the  contracting  parties  being  non-union  workers.  The 
"scab"  was  not  infrequently  held  up  in  public  scorn  and  ridicule  by 
the  publication  of  his  name  in  the  "unfair  list"  of  the  newspapers 
in  the  mining  towns  as  being  "unfit  to  associate  with  honorable 
men ;"  he  was  represented  by  name  on  signs  attached  to  effigies 
dangling  from  electric  light,  telegraph,  and  telephone  poles  and  wires 
and  from  trees  in  front  of  his  home  and  along  the  highways  and 
streets ;  a  grave  in  his  yard  with  his  name  placed  upon  the  board 
at  the  head  to  represent  a  tombstone  not  infrequently  confronted 
him;  the  sign  of  "the  skull  and  cross-bones"  was  painted  on  his 
house,  and  in  innumerable  other  ways,  conceivable  only  by  work- 
ingmen  whose  imaginative  faculties  have  been  aroused  by  the  desire 
for  persecution  of  others  who  oppose  a  cause  which  is  so  vital  to 
their  home  and  family,  was  created  a  public  sentiment  against  the 
non-union  employee. 

/  300.     The  Scab" 

BY    DYER    D.    LUM 

The  non-unionist  is  but  an  indirect  enemy;  in  withholding  his 
aid  he  by  so  much  weakens  the  common  line  of  defense.  Though 
often  his  acts  may  directly,  without  conscious  effort,  aid  the  enemy, 
he  need  not  be  a  traitor  to  his  fellow  toilers.  Every  great  move- 
ment has  some  object  of  superlative  loathing;  its  Judas  Iscariots, 
its  Benedict  Arnolds,  its  Pigotts,  its  paid  spies  and  informers,  its 
Pinkerton  thugs — men  deaf  to  all  honor,  blind  to  mutual  interest, 
dead  to  all  but  the  miserable  cravings  of  their  shriveled  souls.  In 
the  industrial  conflict  the  instinct  of  workers  has  significantly  termed 
its  type  of  this  species  "scab !"  Loud  have  been  the  appeals  for  sym- 
pathy with  the  workman  who  falls  out  from  the  line  to  better  his  con- 
dition, or  relieve  the  distress  of  a  starving  wife  and  family.     But 

22Adapted  from  Philosophy  of  Trade  Unions,  pp.  13-14.     Published  by 
American  Federation  of  Labor,  1892. 


658  CURRENT  ECONOMIC  PROBLEMS 

to  prevent  just  such  contingencies  is  the  mission  of  the  union.  One 
who  is  forced  to  the  necessity  of  wage  labor  and  refuses  to  share 
the  common  danger,  but  either  openly  or  stealthily  goes  over  to  the 
enemy  to  accept  his  terms,  is  a  deserter.  By  his  act  he  has  sundered 
the  social  bonds  of  mutual  interest  which  united  him  to  us,  has 
served  notice  that  he  asks  no  aid,  expects  no  sympathy,  seeks  no 
quarter.     At  his  acted  word  we  take  him. 

The  time  has  passed  for  circumlocution  in  handling  this  subject: 
If  trade-unionism  has  a  logical  ground  for  existence,  if  organized 
resistance  is  preferable  to  slavish  submission,  if  the  social  ties  which 
unite  us  in  mutual  alliance  are  of  higher  validity  than  the  selfish 
cravings  of  an  unsocial  nature,  the  relation  between  the  trade- 
union  and  its  sycophantic  enemy,  the  "scab,"  is  that  existing  be- 
tween the  patriot  and  the  paid  informer.  No  sentimentalism  will 
attenuate,  no  olive  branch  will  be  extended ;  no  tears  will  be  shed 
over  whatever  misfortune  befalls  him,  nor  aught  but  utter  loathing 
be  felt  for  him.  He  stands  forth  by  his  own  act  recreant  to  duty. 
He  is  bankrupt  in  honor,  infidel  to  faith,  destitute  of  social  sym- 
pathy, and  a  self-elected  target.  We  here  but  express  clearly  what 
workingmen  feel  in  every  industrial  crisis,  and  we  deliberately  ex- 
press it  that  at  all  times  such  men  be  regarded  as  possible  "inform- 
ers" and  traitors. 

But  let  us  hear  his  defense.  We  are  told  that  trade-unionism 
is  an  encroachment  upon  individual  right,  that  the  toiler,  whether 
union  or  non-union,  has  the  privilege  to  sell  his  labor  as  best  suits 
himself.  To  this  we  reply:  (i)  The  toiler  does  not  enter  the 
market  under  equal  conditions.  (2)  Monopoly  over  land,  the  source 
of  wealth,  and  over  exchange,  its  medium  of  distribution,  gives  to 
the  capitalist  an  economic  advantage  in  the  struggle.  (3)  The  legal- 
ization of  privilege  forces  upon  the  unprivileged  the  necessity  of 
combination  in  order  to  sustain  themselves.  (4)  The  logic  of  events 
has  settled  the  line  of  action;  it  lies  neither  in  the  prayer-meeting 
nor  in  the  polling-booth,  but  in  mutual  accord  of  action  and  de- 
termined self-help. 

Industrial  combination,  under  such  circumstances,  is  as  neces- 
sary for  the  exploited  toiler,  as  military  organization  for  an  invaded 
people.  We  are  in  a  state  of  industrial  war.  Every  appeal  to  legis- 
lation to  do  aught  but  undo  is  as  futile  as  sending  a  flag  of  truce  to 
the  enemy  for  munitions  of  war.  The  growth  of  solidarity  evi- 
denced in  wider  federation,  in  leading  the  broader  views  of  the  issue, 
and  deeper  sense  of  interrelations,  can  but  intensify  this  feeling  to- 
ward the  "scab." 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        659 

Unions  have  already  demonstrated  their  power  to  rise  above  the 
subsistence  level,  v^^here  otherwise  they  would  be.  It  is  our  duty, 
not  only  to  ourselves,  but  to  our  families,  to  enlarge  the  scope  of 
union  among  our  fellow  craftsmen.  Our  task  is  to  be  true  to  the 
need  of  the  hour  in  order  to  be  the  better  fitted  for  the  unknown 
needs  of  the  struggle  tomorrow.  The  lines  are  being  closer  drawn, 
and  the  exigencies  of  the  situation  demand  concert  of  action,  both 
against  the  combined  enemy  and  the  traitor  who  would  betray  our 
cause  by  a  shot  from  the  rear.  In  such  a  struggle  for  a  higher 
civilization — a  struggle  forced  upon  us — the  industrial  recreant  is  a 
social  traitor. 

Out  of  conflict  all  progress  has  come.  The  history  of  the  labor 
movement,  its  increasing  self-reliance,  its  growing  indifference  to 
"labor  politicians,"  its  development  of  sturdy  independence  and 
manhood,  all  alike  indicate  change  in  its  methods  among  future  pos- 
sibilities. But  with  all  this,  and  its  accompanying  wider  sympathy 
and  extension  of  mutual  ties,  the  feeling  of  loathing  toward  the 
"scab"  has  intensified. 

To  sum  up,  to  assert  egoism  against  mutual  interests  is  unsocial 
and  hence  a  denial  of  the  mutual  basis  upon  which  equitable  rela- 
tions alone  can  exist.  Thus  the  "scab"  is  not  merely  unsocial,  but  by 
his  acted  word  virtually  places  himself  with  the  industrial  invaders 
and  becomes  an  enemy.  Equal  freedom  cannot  be  strained  to  mean 
a  denial  of  mutual  interests.  Social  evolution  is  not  a  mere  theory, 
but  a  record  of  facts,  and  no  fact  is  more  strongly  brought  out  than 
that  progress  has  resulted  only  in  so  far  as  mutual  interests  have 
been  recognized.    We  do  not  institute  them,  they  compel  us. 

Therefore,  primarily  as  human  beings,  become  so  by  social  evo- 
lution, and  by  the  social  environment  in  which  the  present  struggle 
is  conditioned,  and  recognizing  as  the  goal  of  industrial  advance  the 
mutuality  of  interests  involved  in  the  assertion  of  equal  freedom,  in 
strict  accord  with  all  sociological  deductions,  and  with  the  utmost 
submission  to  the  higher  law  permeating  social  growth,  we  rever- 
ently raise  our  hats  to  say  prayerfully :    "To  hell  with  the  'scab' !" 

E.     UNIONISM  IN  WAR  TIME 

301.     The  Challenge  to  American  Labor 

a)    Great  Britain  ^^ 

The  British  trade-union  movement,  having  first  decided  to  support 
^he  war,  immediately  applied  itself  to  the  ways  and  means  by  which 

23A  statement  by  Hon.  James  H.  Thomas,  general  secretary,  National 
Union  of  Railway  Men  of  Great  Britain  and  Ireland. 


66o  CURRENT  ECONOMIC  PROBLEMS 

it  could  best  do  it,  and  the  first  thing  we  did  was  to  declare  there 
should  exist  during  the  period  of  the  war  an  industrial  truce.  That 
is  to  say,  that  with  the  war  raging  as  it  was  it  would  be  madness  an^ 
folly  to  have  side  by  side  with  that  war  raging  an  industrial  war  in  our 
own  country,  and  we  entered  into  an  agreement  with  the  employers 
whereby  they,  on  the  one  hand,  agreed  that  they  would  not  interfere 
with  or  reduce  the  conditions  prevalent  at  the  time,  in  return  for 
which  we,  on  the  other  hand,  agreed  that  we  should  not  attempt  to 
set  up  any  new  standard  conditions,  and  that  truce  was  practically 
agreed  to  by  the  whole  of  the  organized  workers  of  Great  Britain. 

b)    France  ^* 

To  do  a  good  day's  work  is  no  longer  enough ;  one  must  do  all 
there  is  to  be  done.  The  worker's  efifort  is  on  the  same  plane  of 
necessity  as  military  effort.  During  the  Battle  of  Verdun,  at  a 
certain  forge  for  "155"  shells,  the  man's  day  passed  at  one  bound  to 
eighteen  hours,  and  to  such  speed  that  the  proportion  of  sick  and 
exhausted  reached  11  per  cent.  The  soul  of  his  labor  lifts  the  work- 
man above  fatigue,  and  social  equity  is  dominated  by  the  duty  to 
keep  for  France  her  just  place  in  the  world.  France  has  been  con- 
strained to  an  experience  which  has  revealed  her  to  herself.  She  will 
know  how  to  make  her  force  endure  by  maintaining  in  industry  the 
power  invented  for  battle. 

c)    Italy '^ 

The  response  of  Italian  labor,  both  field  and  factory,  to  the 
emergency  of  war  and  the  necessity  of  industrial  mobilization  has 
been  splendid.  Our  munition  works  and  transportation  systems,  for 
example,  are  all  under  full  military  discipline  and  every  man  em- 
ployed in  such  an  industry  is  rated  as  a  soldier.  But  he  gets  the  pay  of 
a  mechanic  that  prevails  in  that  industry.  It  seems  unjust,  I  know, 
that  a  soldier  whose  work  it  is  to  fight  at  the  front  receives  about 
five  cents  a  day,  while  the  soldier  whose  training  fits  him  for  shop 
work  may  get  five  dollars,  but  there  seems  no  other  way.  We  have 
had  no  strikes,  no  labor  troubles  of  any  sort,  since  the  war  began, 
and  we  do  not  fear  any. 

302.     A  Declaration  of  Principles'''' 

The  American  Alliance  for  Labor  and  Democracy  in  its  first  na- 
tional conference  declares  its  unswerving  adherence  to  the  cause  of 

24A  statement  by  the  New  Republic,  July  21,  1917-. 

2''A  statement  by  Dr.  Francesco  Saverio  Nitti. 

26Adopted  unanimously  by  the  American  Alliance  for  Labor  and  Democ- 
racy at  its  first  national  conference  at  Minneapolis,  September  5-7,  1917. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        66 1 

democracy,  now  assailed  by  the  forces  of  autocracy  and  militarism. 
As  labor  unionists,  social  reformers,  and  Socialists  we  pledge  our 
loyal  support  and  service  to  the  United  States  Government  and  its 
Allies  in  the  present  world-conflict. 

We  declare  that  the  one  overshadowing  issue  is  the  preservation 
of  democracy.  Either  democracy  will  endure  and  men  will  be  free, 
or  autocracy  will  triumph  and  the  race  will  be  enslaved.  On  this 
prime  issue  we  take  our  stand.  We  declare  that  the  great  war  must 
be  fought  to  a  decisive  result;  that  until  autocracy  is  defeated  there 
can  be  no  hope  of  an  honorable  peace,  and  that  to  compromise  the 
issue  is  only  to  sow  the  seed  for  bloodier  and  more  devastating  wars 
in  the  future. 

We  declare  our  abhorrence  of  war  and  our  devotion  to  the  cause 
of  peace.  But  we  recognize  that  there  are  evils  greater  and  more 
intolerable  than  those  of  war.  We  declare  that  war  waged  for  evil 
ends  must  be  met  by  war  waged  for  altruistic  ends.  A  peace  bought 
by  the  surrender  of  every  principle  vital  to  democracy  is  no  peace,  but 
shameful  servility.  Our  nation  has  not  sought  this  war.  As  a  people, 
we  desired  peace  for  its  own  sake,  and  we  held  fast  to  our  traditional 
principle  of  keeping  aloof  from  the  political  affairs  of  Europe.  Our 
President,  with  a  forbearance  and  a  patience  which  some  of  us 
thought  extreme,  exhausted  every  honorable  means  in  behalf  of 
peace;  and  the  declaration  of  war  came  only  after  many  months 
of  futile  efforts  to  avoid  a  conflict.  This  war,  so  relentlessly  forced 
upon  us,  must  now  be  made  the  means  of  insuring  a  world-wide  and 
permanent  peace. 

We  declare  that  in  this  crisis  the  one  fundamental  need  is  unity 
of  action.  The  successful  prosecution  of  the  war  requires  that  all 
the  energies  of  our  people  be  concentrated  to  a  common  purpose. 
After  more  than  two  years  of  exhaustive  deliberation,  in  which  every 
phase  of  our  relation  to  the  great  world-problem  has  been  thoroughly 
debated,  the  constitutional  representatives  of  the  people  declared  the 
nation's  will.  Loyalty  to  the  people  demands  that  all  acquiesce  in 
that  decision  and  render  the  government  every  service  in  their  power. 

We  strongly  denounce  the  words  and  actions  of  those  enemies  of 
the  Republic  who,  falsely  assuming  to  speak  in  the  name  of  labor  and 
democracy,  are  now  ceaselessly  striving  to  obstruct  the  operations 
of  the  government's  purposes.  In  traducing  the  character  of  the 
President  and  of  his  advisers,  in  stealthily  attempting  to  incite  sedi- 
tion, and  in  openly  or  impliedly  counseling  resistance  to  the  enforce- 
ment of  laws  enacted  for  the  national  defense,  they  abuse  the  rights 
of  free  speech,  free  assemblage,  and  a  free  press.  In  the  name  of 
liberty  they  encourage  anarchy,  in  the  name  of  democracy  they  strive 


662  CURRENT  ECONOMIC  PROBLEMS 

to  defeat  the  will  of  the  majority,  and  in  the  name  of  humanity  they 
render  every  possible  comfort  to  the  brutal  Prussian  autocracy.  If 
the  sinister  counsels  of  these  persons  were  followed,  labor  would  be 
reduced  to  subjection  and  democracy  would  be  obliterated  from  the 
earth.  We  declare  that  the  betrayal  of  one's  fellow-workers  during  a 
strike  finds  its  exact  counterpart  in  the  betrayal  of  one's  fellow- 
citizens  in  time  of  war,  and  that  both  are  offenses  which  deserve  the 
detestation  of  mankind. 

This  war,  which  on  our  part  is  waged  for  the  preservation  of 
democracy,  has  already  set  in  motion  vast  forces  for  the  furtherance 
and  extension  of  democracy.  Revolutionary  changes  have  been  made 
. — changes  which  reveal  the  power  and  determination  of  a  democratic 
people  to  control  its  own  economic  life  for  the  common  good.  We 
declare  that  peace  shall  not  be  another  name  for  reaction,  but  that 
the  gains  thus  far  made  for  labor  should  be  maintained  in  perpetuity. 

We  declare  that  industrial  enterprises  should  be  the  servants  and 
not  the  masters  of  the  people;  and  that  in  cases  where  differences 
between  owners  and  workers  threaten  a  discontinuance  of  production 
necessary  for  the  war,  the  government  should  assume  complete  con- 
trol of  such  industries  and  operate  them  for  the  exclusive  benefit  of 
the  people. 

We  declare  that  the  government  should  take  prompt  action  with 
regard  to  the  speculative  interests  which,  especially  during  the  war, 
have  done  so  much  to  enhance  prices  of  the  necessaries  of  life.  To 
increase  the  food  supply  and  to  lower  prices  the  government  should 
commandeer  all  land  necessary  for  public  purposes  and  should  tax 
idle  land  in  private  possession  on  its  full  rental  value. 

We  declare  that  the  right  of  the  wage-earners  to  collective  action 
is  the  fundamental  condition  which  gives  opportunity  for  economic 
freedom  and  makes  possible  the  betterment  of  the  workers'  condition. 
The  recognition  already  given  to  this  principle  should  be  extended 
and  made  the  basis  of  all  relationships,  direct  or  indirect,  between  the 
government  and  wage-earners  engaged  in  activities  connected  with 
the  war. 

We  declare  that  the  wage-earners  must  have  a  voice  in  determin- 
ing the  conditions  under  which  they  are  to  give  service,  and  that  the 
voluntary  institutions  that  have  organized  the  industrial,  commercial, 
and  transportation  workers  in  time  of  peace  shall  be  unhampered  in 
the  exercise  of  their  recognized  function  during  the  war — that  labor 
shall  be  adequately  represented  in  all  the  councils  authorized  to 
conduct  the  war  and  in  the  commission  selected  to  negotiate  terms 
of  peace. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT       663 

Believing  that  the  material  interests  of  the  nation's  soldiers  and 
sailors  and  of  their  dependents  should  be  withdrawn  from  the  realm 
of  charity  and  chance,  and  that  health  and  life  should  be  fully 
insured,  we  indorse  the  soldiers  and  sailors'  insurance  bill  now  before 
Congress. 

We  declare  for  universal  equal  suffrage. 

Fully  realizing  that  the  perpetuity  of  demoratic  institutions  is 
involved  in  freedom  of  speech,  of  the  press,  and  of  assemblage,  we 
declare  that  these  essential  rights  must  be  guarded  with  zealous  care 
lest  all  other  rights  be  lost.  We  declare,  however,  that  where  expres- 
sions are  used  which  are  obstructive  to  the  government  in  its  conduct 
of  the  war,  or  are  clearly  capable  of  giving  aid  or  comfort  to  the 
nation's  foes,  the  offenders  should  be  reprimanded  by  the  constituted 
authorities  in  accordance  with  established  law. 

Inspired  by  the  ideals  of  liberty  and  justice  herein  declared  as  a 
fundamental  basis  for  national  policies  the,  American  Alliance  for 
Labor  and  Democracy  makes  its  appeal  to  the  working  men  and 
women  of  the  United  States,  and  calls  upon  them  to  unite  in  unani- 
mous support  of  the  President  and  the  nation  for  the  prosecution  of 
the  war  and  the  preservation  of  democracy. 

303.     A  War-Time  Labor  Policy" 

The  commission  of  representatives  of  employers  and  workers, 
selected  in  accord  with  the  suggestion  of  your  letter  of  January  28, 
1918,  to  aid  in  the  formulation,  in  the  present  emergency,  of  a  na- 
tional labor  program,  present  to  you,  as  a  result  of  their  conferences, 
the  following: 

(a)  That  there  be  created,  for  the  period  of  the  war,  a  National 
War  Labor  Board  of  the  same  number  and  to  be  selected  in  the  same 
manner  and  by  the  same  agencies  as  the  commission  making  this 
recommendation. 

(b)  That  the  functions  and  powers  of  the  National  Board  shall 
be  as  follows : 

1.  To  bring  about  a  settlement,  by  mediation  and  conciliation,  of 
every  controversy  arising  between  employers  and  workers  in  the  field 
of  production  necessary  for  the  effective  conduct  of  the  war. 

2.  To  do  the  same  thing  in  similar  controversies  in  other  fields 
of  national  activity,  delays  and  obstructions  in  which  may,  in  the 
opinion  of  the  National  Board,  affect  detrimentally  such  production. 

s^A  report  made  to  the  Secretary  of  Labor,  March  29,  1918,  by  the  War 
Labor  Conference  Board. 

Ed.  Note. — This  is  the  basis  of  our  national  labor  policy  and  is  compara- 
ble "so  far  as  American  conditions  make  it  comparable"  with  the  English 
Treasury  Agreement,  later  embodied  in  the  Munitions  Bill. 


664  CURRENT  ECONOMIC  PROBLEMS 

3.  To  provide  such  machinery  by  direct  appointment,  or  other- 
wise, for  selection  of  committees  or  boards  to  sit  in  various  parts  of 
the  country  where  controversies  arise,  to  secure  settlement  by  local 
mediation  and  conciliation. 

4.  To  summon  the  parties  to  the  controversy  for  hearing  and 
action  by  the  National  Board  in  case  of  failure  to  secure  settlement  by 
local  mediation  and  conciliation. 

(c)  If  the  sincere  and  determined  effort  of  the  National  Board 
shall  fail  to  bring  about  a  voluntary  settlement,  and  the  members  of 
the  Board  shall  be  unable  unanimously  to  agree  upon  a  decision,  then 
and  in  that  case,  and  only  as  a  last  resort,  an  umpire  appointed  in 
the  manner  provided  in  the  next  paragraph  shall  hear  and  finally 
decide  the  controversy  under  simple  rules  of  procedure  prescribed  by 
the  National  Board. 

{d)  The  members  of  the  National  Board  shall  choose  the  umpire 
by  unanimous  vote.  Failing  such  choice,  the  name  of  the  umpire 
shall  be  drawn  by  lot  from  a  list  of  ten  suitable  and  disinterested 
persons  to  be  nominated  for  the  purpose  by  the  President  of  the 
United  States. 

{e)  The  National  Board  shall  hold  its  regular  meetings  in  the 
city  of  Washington,  with  power  to  meet  at  any  other  place  conve- 
nient for  the  Board  and  the  occasion. 

(/)  The  National  Board  may  alter  its  methods  and  practice  in 
settlement  of  controversies  hereunder,  from  time  to  time  as  experi- 
ence may  suggest. 

{g)  The  National  Board  shall  refuse  to  take  cognizance  of  a  con- 
troversy between  employer  and  workers  in  any  field  of  industrial  or 
other  activity  where  there  is  by  agreement  or  federal  law  a  means 
of  settlement  which  has  not  been  invoked. 

{h)  The  place  of  each  member  of  the  National  Board  unavoid- 
ably detained  from  attending  one  or  more  of  its  sessions  may  be 
filled  by  a  substitute  to  be  named  by  such  member  as  his  regular  sub- 
stitute. The  substitute  shall  have  the  same  representative  character 
as  his  principal. 

(i)  The  National  Board  shall  have  power  to  appoint  a  secretary^ 
and  to  create  such  other  clerical  organization  under  it  as  may  be  in  its 
judgment  necessary  for  the  discharge  of  its  duties. 

(;")  The  National  Board  may  apply  to  the  Secretary  of  Labor  for 
authority  to  use  the  machinery  of  the  Department  in  its  work  of 
conciliation  and  mediation. 

{k)  The  action  of  the  National  Board  may  be  invoked  in  respect 
to  controversies  within  its  jurisdiction  by  the  Secretary  of  Labor  or 
by  either  side  in  a  controversy  or  its  duly  authorized  representative. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        665 

The  Board,  after  summary  consideration,  may  refuse  further  hearing 
if  the  case  is  not  of  such  character  or  importance  as  to  justify  it. 

(/)  In  the  appointment  of  committees  of  its  own  members  to  act 
for  the  Board  in  general  or  local  matters,  and  in  the  creation  of  local 
committees,  the  employers  and  the  workers  shall  be  equally  rep- 
resented. 

(w)  The  representatives  of  the  public  on  the  Board  shall  preside 
alternately  at  successive  sessions  of  the  Board  or  as  agreed  upon. 

(m)  The  Board  in  its  mediating  and  conciliatory  action,  and  the 
umpire  in  his  consideration  of  a  controversy,  shall  be  governed  by  the 
following  principles : 

PRINCIPLES  AND  POLICIES  TO  GOVERN    RELATIONS   BETWEEN   WORKERS 

AND  EMPLOYERS  IN  WAR  INDUSTRIES  FOR  THE 

DURATION  OF  THE  WAR 

There  should  be  no  strikes  or  lockouts  during  the  war. 
Right  to  organize. — i.  The  right  of  workers  to  organize  in  trade- 
unions  and  to  bargain  collectively,  through  chosen  representatives,  is 
recognized  and  affirmed.    This  right  shall  not  be  denied,  abridged,  or 
interfered  with  by  the  employers  in  any  manner  whatsoever. 

2.  The  right  of  employers  to  organize  in  associations  or  groups 
and  to  bargain  collectively,  through  chosen  representatives,  is  recog- 
nized and  affirmed.  This  right  shall  not  be  denied,  abridged,  or  inter- 
fered with  by  the  workers  in  any  manner  whatsoever. 

3.  Employers  should  not  discharge  workers  for  membership  in 
trade-unions,  nor  for  legitimate  trade-union  activities. 

4.  The  workers,  in  the  exercise  of  their  right  to  organize,  shall 
not  use  coercive  measures  of  any  kind  to  induce  persons  to  join  their 
organizations,  nor  to  induce  employers  to  bargain  or  deal  therewith. 

Existing  conditions. — i.  In  establishments  where  the  union  shop 
exists  the  same  shall  continue  and  the  union  standards  as  to  wages, 
hours  of  labor,  and  other  conditions  of  employment  shall  be  main- 
tained. 

2.  In  establishments  where  union  and  non-union  men  and  women 
now  work  together,  and  the  employer  meets  only  with  employees  or 
representatives  engaged  in  said  establishments,  the  continuance  of 
such  condition  shall  not  be  deemed  a  grievance.  This  declaration, 
however,  is  not  intended  in  any  manner  to  deny  the  right,  or  dis- 
courage the  practice,  of  the  formation  of  labor  unions,  or  the  joining 
of  the  same  by  the  workers  in  said  establishments,  as  guaranteed  in 
the  last  paragraph,  nor  to  prevent  the  War  Labor  Board  from  urging, 
or  any  umpire  from  granting,  under  the  machinery  herein  provided, 


666  CURRENT  ECONOMIC  PROBLEMS 

improvement  of  their  situation  in  the  matter  of  wages,  hours  of  labor, 
or  other  conditions,  as  shall  be  found  desirable  from  time  to  time. 

3.  Established  safeguards  and  regulations  for  the  protection  of 
the  health  and  safety  of  workers  shall  not  be  relaxed. 

Women  in  industry. — If  it  shall  become  necessary  to  employ 
women  on  work  ordinarily  performed  by  men,  they  must  be  allowed 
equal  pay  for  equal  work  and  must  not  be  allotted  tasks  dispropor- 
tionate to  their  strength. 

Hours  of  labor. — The  basic  eight-hour  dayls  recognized  as  apply- 
ing in  all  cases  in  which  existing  law  requires  it.  In  all  other  cases 
the  question  of  hours  of  labor  shall  be  settled  with  due  regard  to  gov- 
ernmental necessities  and  the  welfare,  health,  and  proper  comfort 
of  the  workers. 

Maximum  production  — The  maximum  production  of  all  war 
industries  should  be  maintained  and  methods  of  work  and  operation 
on  the  part  of  employers  or  workers  which  operate  to  delay  or  limit 
production,  or  which  have  a  tendency  to  increase  artificially  the  cost 
thereof,  should  be  discouraged. 

Mobilisation  of  labor. — For  the  purpose  of  mobilizing  the  labor 
supply  with  a  view  to  its  rapid  and  effective  distribution,  a  permanent 
list  of  the  number  of  skilled  and  other  workers  available  in  different 
parts  of  the  nation  shall  be  kept  on  file  by  the  Department  of  Labor, 
the  information  to  be  constantly  furnished,  (i)  by  trade-unions; 
(2)  by  state  employment  bureaus  and  federal  agencies  of  like  char- 
acter; (3)  by  the  managers  and  operators  of  industrial  establish- 
ments throughout  the  country.  These  agencies  should  be  given 
opportunity  to  aid  in  the  distribution  of  labor,  as  necessity  demands. 

Custom  of  localities. — In  fixing  wages,  hours,  and  conditions  of 
labor  regard  should  always  be  had  to  the  labor  standards,  wage  scales, 
and  other  conditions  prevailing  in  the  localities  affected. 

The  living  zvage. — i.  The  right  of  all  workers,  including  common 
laborers,  to  a  living  wage  is  hereby  declared. 

2.  In  fixing  wages,  minimum  rates  of  pay  shall  be  established 
which  will  insure  the  subsistence  of  the  worker  and  his  family  in 
health  and  reasonable  comfort. 


7: 


F.     WOMAN'S  INVASION 

304.     Replacement  of  Men  by  Women^^ 

The  phrase  "women  in  industry"  was  used  so  often  during  the 
war  that  it  has  become  the  part  of  wisdom  to  remind  ourselves  that 

28Adapted  from  "The  Industrial  Replacement  of  Men  by  Women,"  which 
is  Bulletin  No.  93,  issued  by  the  Department  of  Labor  of  the  State  of  New 
York  (1919). 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        667 

women  are  not  new  to  industry.  Women  have  always  been  an  inte- 
gral part  of  the  factory  system.  Before  the  war  300,000  women 
turned  the  wheels  of  production  in  the  state  of  New  York.  Some 
industries  are  known  as  women's  industries  because  their  hands  hold 
the  tools  and  operate  the  machines.  Women  are  the  backbone  of 
garment-making,  knit  goods  manufacture,  candy-making,  and  the 
paper  trades.  They  fill  the  ranks  of  the  unskilled  and  semi-skilled 
in  large  plants  with  standardized  products  and  in  small  low-grade 
workshops  in  large  cities.  Yet  their  coming  into  industry  in  larger 
numbers  during  the  war  caused  employers,  government,  and  brother- 
workers  alike  to  recognize  a  new  phase  in  industrial  development. 

As  matters  stand  to  date  the  facts  concerning  the  capacity  of 
women  who  have  replaced  men  are  not  known.  We  know  only 
that  they  have  taken  men's  places  during  a  period  of  great  stress. 
The  significant  questions  concerning  their  precise  degree  of  success 
on  certain  processes  in  terms  of  production  and  steadiness  remain 
to  be  answered.  The  scientific  apportionment  of  women's  wages 
in  relation  to  their  output  and  the  wages  of  men  that  they  replaced 
remains  to  be  made.  The  effect  of  the  unrestricted  introduction  of 
unskilled  labor  into  the  ranks  of  the  skillecllias  not  been  estimated. 
The  possibility  of  women's  permanence  in  their  new  work  has  not 
yet  been  considered  nor  its  causes  analyzed.  Administrative  prob- 
lems in  shop  arrangement  and  trade-union  policy  limiting  the  success 
of  women  have  not  been  solved. 

The  extent  and  character  of  the  replacement  of  men  by  women 
was  governed  in  every  country  by  the  length  of  the  war  period.  This 
indicates  the  difference  in  replacement  as  it  occurred  in  Great  Britain 
and  in  this  country.  In  both  there  was  the  same  sudden  demand  for 
enormous  quantities  of  war  materials  complicated  by  the  departure 
of  skilled  male  labor  to  war.  Great  Britain  had  four  years  in  which 
to  solve  the  problem  and  this  country  only  nineteen  months.  Great 
Britain  had  time  in  which  to  build  new  factories,  planned  and 
equipped  for  women,  to  shift  women  workers  from  plant  to  plant 
to  obtain  for  them  the  most  suitable  work;  and  to  build  machinery 
and  rearrange  processes  so  that  the  most  productive  combination  of 
male  and  female  labor  could  be  made.  In  the  United  States,  on  the 
other  hand,  this  same  demand  pushed  women  into  the  plants  and 
into  men's  places  without  any  changes  in  machines  or  rearrangement 
in  process. 

This  difference  between  the  experience  of  Great  Britain  and  the 
United  States  illustrates  the  distinction  between  two  words  which 
the  war  has  brought  into  use.  The  words  are  "replacement"  and 
"dilution."     Both  occur  in  industry  as  the  result  of  an  emergency 


>J 


X 


668  CURRENT  ECONOMIC  PROBLEMS 

when  an  increase  in  the  existing  labor  supply  must  be  instantly  se- 
cured. Dilution  implies  the  thinning  out  or  spreading  of  the  func- 
tions of  skilled  workmen  among  those  that  are  less  skilled  with  or 
without  division  of  process  or  change  in  machine.  Replacement, 
on  the  other  hand,  is  a  specific  form  of  dilution  in  which  the  less 
.skilled,  usually  a  woman,  takes  the  place  of  the  more  skilled,  usually 
a  man,  without  division  of  process  or  change  of  machine. 

In  New  York  state  dilution  has  occurred  in  its  elementary  form 
of  replacement.  Where  exceptions  to  this  rule  have  taken  place  they 
are  instructive  of  what  would  have  been  the  case  had  we  remained 
at  war  a  longer  time,  or  what  may  be  the  case  in  after  years  when 
women  are  more  widely  used  industrially.  Division  of  process  has 
taken  place  in  only  a  few  plants,  through  substitution  of  power  ma- 
chinery for  tools,  and  the  use  of  porters  to  do  heavy  lifting.  Where 
such  changes  are  made,  the  result  is  not  an  increase  in  the  number 
of  employees,  but  merely  a  higher  degree  of  specialization- 

The  amount  and  character  of  replacement  was  dictated  not  only 
by  the  pressure  of  war  contracts  but  also  by  local  plant  and  labor 
conditions.  At  first  women  filled  those  vacancies  where  the  work 
was  light,  less  skilled  and  repetitive.  Heavy  or  skilled  work  was 
attempted  only  after  a  considerable  time  had  elapsed,  or  in  response 
to  unusual  demands.  Those  communities  have  been  most  successful 
in  replacement  in  which  the  principal  industry  has  offered  work:  of 
a  light  nature  and  was  one  in  which  untrained  women  could  be  easily 
absorbed.  Such  a  town  was  Rochester,  where  in  optical  and  instru- 
ment-making women  could  perform  hght  machine  and  bench  work 
after  a  minimum  of  training ;  or  Schenectady,  where  much  machine 
work  on  small  electrical  fittings  had  always  been  done.  Replace- 
ment has  come  easier  to  employers  and  women  in  those  towns  where 
women's  industries  had  been  located  and  some  body  of  knowledge 
concerning  the  methods  of  handling  the  problem  was  already  in 
existence. 

The  following  typical  instances  indicate  the  extent  and  variety  of 
tasks  upon  which  men  have  been  replaced  by  women :  Turning, 
sawing,  and  coloring  buttons ;  feeding  paper ;  engraving ;  assembling, 
inspecting,  packing,  and  shipping  metal  products ;  operating  punch 
presses,  drills,  lathes,  milling  machines ;  screw  machines ;  finishing 
and  cutting  leather ;  operating  sewing  machines ;  assembling  elec- 
trical supplies  ;  packing  cartons  of  food  products  ;  operating  diamond 
drills  and  polishing  and  grinding  lenses ;  repairing  watches ;  acting 
as  laboratory  assistants  in  chemical  industries ;  rethreading  bolts  and 
nuts ;  operating  cranes  and  hammers  in  railroad  repair  shops ;  weigh- 
ing, examining,  and  shipping  ammunition;  upholstering  vehicles; 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        669 

and  installing  telephones.  These  instances  could  be  multiplied  many 
times  over. 

Most  of  the  processes  undertaken  by  the  first  women  supplanting 
men  required  no  previous  industrial  experience.  As  time  went  on 
training  schools  became  necessary  adjuncts  to  the  large  plants.  The 
organization  and  theory  of  industrial  education  upon  which  these 
schools  were  founded  is  an  important  topic  of  current  discussion. 
During  the  war  their  aim  was  to  turn  out  specialists  as  quickly  as 
possible.  Since  the  war  the  opinion  has  been  growing  that  women 
showing  ability  should  be  trained  for  the  more  skilled  trades.  In 
view  of  the  novel  questions  presented  a  proper  scheme  of  industrial 
training  can  be  established  only  by  a  process  of  trial  and  error  in 
each  trade.  Yet  it  is  clear  that  if  women  are  to  enter  machine  trades 
they  must  be  given  special  training  to  make  up  for  the  advantage 
which  the  boy  has  in  having  learned  to  handle  tools  while  a  child. 

The  whole  story  of  women's  wage  status  in  patriotic  service  is 
told  when  two  comparisons  are  made :  ( i )  The  comparison  of  her 
flat  wage  rate  with  the  government's  estimate  of  the  cost  of  sub- 
sistence for  a  woman  who  has  no  one  but  herself  to  support ;  and 
(2)  the  comparison  of  her  wage  rate  with  the  rate  received  by  the 
male  worker  she  replaces. 

A  glance  at  the  flat  wage  rate  received  by  women  indicates  that 
war  has  not  improved  women's  wage  status  as  much  as  had  been 
hoped.  The  newspapers  have  turned  the  limelight  of  publicity  upon 
the  exceptional  women  who  have  earned  from  $20  to  $25  per  week. 
They  have  made  no  mention  of  the  army  of  munition  workers,  ma- 
chine-gun makers,  and  the  undramatic  rank  and  file  in  optical  and 
electrical  work.  These  women  have  made  good  but  their  wages  do 
not  reflect  their  success.  Two- thirds  of  the  women  who  replaced 
men  in  the  state  of  New  York  receive  less  than  $15  a  week.  Their 
wages  hover  around  a  medium  of  $13  a  week  with  a  group  receiving 
less  than  $12  a  week.  Although  some  have  bettered  themselves,  for 
a  great  many  the  war  has  meant  a  change  of  work  without  an  increase 
in  pay. 

The  wages  of  the  women  compared  with  those  of  the  men  they 
have  replaced  also  afford  reason  for  reflection.  Of  all  women  re- 
placing men  9  per  cent  receive  equal  pay.  It  is  to  be  noted,  however, 
that  the  higher  the  pay  of  the  man  replaced  the  smaller  the  chance 
of  the  woman  replacing  him  receiving  it.  The  highest  paid  men 
received  from  $22  to  $35  per  week.  The  women  who  took  thefr 
places  received  from  $10  to  $15  a  week.  Discrimination  begins  at 
nothing  and  rises  to  $19  a  week.  Over  one-half  of  the  women  re- 
ceive $4  per  week  or  more  less  than  men,  33  per  cent  receive  $6  per 


670  CURRENT  ECONOMIC  PROBLEMS 

week  or  more  less,  while  3  per  cent  receive  $10  a  week  or  more  less 

than  men. 

The  opinions  of  employers  about  the  efficiency  of  the  women  re- 
placing men  fall  into  two  groups.  In  the  first  are  those  who  found 
women  satisfactory— satis factoriness  being  defined  as  a  composite 
quality  made  up  of  productive  capacity,  steadiness,  Beliability,  me- 
chanical aptitude,  and  all  those  other  characteristics  innate  and  ac- 
quired which  are  considered  necessary  in  the  good  workman.  In  the 
second  are  those  who  had  dismissed  all  women  replacing  men.  When 
a  count  was  made  of  the  employers  who  claimed  that  women  were 
so  satisfactory  that  men  would  not  necessarily  be  reinstated  when 
they  were  again  available,  it  was  found  that  the  total  represented  80 
per  cent  of  the  plants.  Eleven  employers  are  emphatic  in  stating  that 
women  in  their  plants  produce  more  than  the  men  that  they  replace. 
Yet  in  no  case  does  a  woman  producing  more  than  a  man  receive  as 
much  as  a  man  doing  the  same  work  in  the  same  plant. 

The  replacement  of  men  by  women  has  from  the  first  been  a 
mystery,  not  only  to  those  who  thought  they  could  never  do  it,  but 
also  to  those  who  thought  if  they  could  they  never  would  stay  with 
it.  The  surprise  of  foremen  at  women's  dexterity  and  adaptability 
only  equaled  their  certainty  that  after  the  emergency  was  over  the 
problem  of  women  in  men's  places  would  settle  itself  by  their  auto- 
matic reabsorption  into  the  home.  In  this  simple  faith  they  were 
joined  by  trade-unions,  who  said  that  women  not  only  would  return 
to  their  homes,  but  that  they  would  have  to  return  to  their  homes. 
During  the  war  not  an  employer  was  to  be  found  who  openly  con- 
templated retaining  the  women  he  had  taken  the  pains  to  select  and 
train.  The  day  after  the  armistice  was  signed,  however,  there  were 
unmistakable  signs  that  not  only  were  women  to  be  kept  in  the  places 
they  were  filling  but  they  were  to  be  trained  to  fill  others  requiring 
greater  skill  and  initiative. 

It  is  far  more  difficult  to  secure  a  statement  from  an  employer 
of  his  reason  for  retaining  women  in  men's  places  than  for  dropping 
them.  His  most  usual  reply  is  "Why  not?  They  are  entirely  satis- 
factory." The  underlying  reason  may  or  may  not  come  out  later 
in  the  interview.  When  it  does  emerge  it  requires  very  little  analysis 
to  see  that  women  are  staying  primarily  because  they  permit  manu- 
facture at  less  cost  per  unit  of  production,  and  with  less  friction  be- 
tween management  and  workers.  Some  women  produce  more  than 
men  at  an  equal  wage ;  some  as  much  as  men  at  a  smaller  wage ;  and 
some  less  than  men  at  a  wage  so  much  smaller  that  their  employment 
is  still  profitable.     Women  are  by  habit  industrially  acquiescent, 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT       671 

pliable,  and  submissive  to  routine.    They  are  to  a  very  large  degree 
unorganized.    In  any  case  the  employers'  advantage  is  secure. 

The  general  attitude  of  labor  men  is  that  if  women  receive  the 
same  wages  as  men  for  the  same  work  they  will  not  oppose  them,  but 
they  will  unalterably  oppose  their  entrardre  into  new  occupations 
as  underbidders.  At  first  the  viewpoint  of  a  great  many  labor  men 
toward  the  entrance  of  women  into  new  occupations  was  skeptical. 
It  is  encouraging  to  note  that  now  most  of  them  are  realizing  that 
women  are  in  the  trade  to  stay  and  it  is  necessary  therefore  to  deal 
with  them  as  fellow-workers,  to  organize  them  in  their  trade-unions. 
If  they  succeed,  there  should  be  no  sex  competition  and  men  and 
women  in  the  trade  will  work  hand  in  hand  for  the  betterment  of 
the  conditions  under  which  they  work. 

305.     The  Health  of  Women  in  Industry^^ 

BY  JANET  M.   CAMPBELL 

The  question  of  the  relationship  of  men's  and  women's  wages 
is  dependent  in  large  measure  on  the  relative  health  and  physical 
capacity ;  and  physical  and  industrial  efficiency  are  mutually  inter- 
dependent and  indeed  inseparable.  The  medical  issues  raised  by  the 
inquiry  are  thus  fundamental. 

The  general  conclusions  which  emerge  from  this  inquiry  may  be 
summed  up  as  follows : 

1.  The  average  woman  is  physically  weaker  than  the  average 
man ;  she  cannot  compete  with  him  satisfactorily  in  occupations  re- 
quiring considerable  physical  strength,  while  competition  in  opera- 
tions of  a  less  arduous  but  still  exacting  character  may  be  detrimental 
to  her  health.  The  second  fundamental  physiological  difference 
between  the  man  and  the  woman  is  the  fact  of  her  potential  or  actual 
motherhood.  This  necessity  governs  to  a  large  extent  her  industrial 
power,  efficiency,  and  value.  It  wholly  prevents  absolutely  equal  com- 
petition in  industry.  It  cannot  be  disregarded  if  women  are  to  be 
employed  under  the  conditions  most  appropriate  to  them  not  only  as 
individuals  but  also  with  a  view  to  the  future  and  well-being  of  the 
race. 

2.  The  conditions  under  which  women  were  employed  before  the 
war  were  not  such  as  to  enable  them  to  develop  full  health  and  vigor. 
Low  wages,  an  unsatisfactory  dietary,  long  hours,  and  lack  of  exer- 
cise in  the  open  air,  resulted  in  physical  and  industrial  inefficiency  and 

29Adapted  from  a  "memorandum"  with  the  foregoing  caption,  included 
in  the  Report  of  the  War  Cabinet  Committee  (England)  on  Women  in  Indus- 
try, pp.  218,  250-52.    The  memorandum  is  dated  December  19,  1918. 


672  CURRENT  ECONOMIC  PROBLEMS 

caused  too  low  a  value  to  be  placed  upon  women's  strength  and 
capability. 

3..,  The  control  of  employment  under  the  Factory  and  Workshop 
Acts,  together  with  an  advance  in  general  sanitation,  has  done  much 
to  ameliorate  the  conditions  of  labor,  but  has  not  been  fully  effective. 

4.  Employment  under  the  conditions  existing  in  the  past  has 
probably  had,  upon  the  whole,  an  injurious  effect  upon  the  health  of 
women  and  girls,  though  it  is  difficult  to  disassociate  the  effect  of 
employment  from  social  conditions  generally.  Women  have  suffered 
from  numerous  minor  ailments,  which,  though  not  actually  disabling, 
have  resulted  in  considerable  broken  time  and  loss  of  industrial 
efficiency.  The  rise,  during  the  war,  of  the  tuberculosis  death-rate 
among  urban  women  suggests  that  any  considerable  increase  in  the 
number  of  women  employed  and  in  the  period  of  their  employment 
may,  unless  conditions  of  employment  are  improved,  cause  the  female 
death-rate  to  approximate  that  of  the  male,  a  result  which  could  not 
fail  to  have  a  detrimental  effect  upon  national  health  and  efficiency. 

5.  The  effects  of  employment  upon  the  function  of  motherhood 
are  not  easy  to  determine  with  exactitude.  The  direct  result  upon 
the  reproductive  system  is  probably  largely  negligible,  except  in  the 
case  of  multifarious  women  engaged  in  heavy  or  fatiguing  work.  The 
indirect  influence  in  causing  an  impairment  of  the  general  health  is 
certainly  considerable.  The  effect  of  the  increasing  employment  of 
women  on  the  birth-rate  has  probably  been  to  accelerate  somewhat 
the  steady  decline  which  has  been  observed  since  1876.  The  influence 
of  employment  upon  the  infant  mortality  rate  is  not  very  clear.  The 
regular  employment  of  the  mother  necessarily  deprives  her  infant  of 
its  natural  food,  which  is  the  greatest  safeguard  to  its  healthy  growth 
and  development,  and  also  of  the  careful  and  constant  attention  which 
is  so  necessary  to  its  successful  nurture.  On  the  other  hand  poverty 
or  an  unsanitary  environment  may  have  an  even  more  injurious  effect 
than  the  mother's  absence.  Indeed,  it  is  significant  that  the  infant 
mortality  rate  has  shown  its  most  rapid  decline  in  the  last  decade, 
during  which  industrial  employment  of  women  has  increased. 

6.  The  employment  of  married  women  may  react  directly  upon 
the  personal  health  of  the  expectant  and  nursing  mother  and  upon 
her  general  physical  strength  at  other  times,  by  imposing  a  double 
burden  of  factory  labor  and  domestic  duties,  while  lack  of  "mother- 
ing" may  lead  to  the  moral  and  physical  injury  of  the  children.  Em- 
ployment under  suitable  conditions  is  not  in  itself  injurious  to  preg- 
nant woman,  while  the  money  thus  earned  may  enable  her  to  be  prop- 
erly fed,  a  matter  of  the  highest  importance.  If  the  work  causes 
undue  fatigue  or  involves  strain  or  violence  it  may  give  rise  to  gen- 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        673 

eral  or  local  injury  and  lead  to  premature  confinement  or  complica- 
tions of  pregnancy.  A  woman  should  not  return  to  work  within  four 
weeks  after  the  birth  of  a  child. 

7.  The  results  of  the  employment  of  women  under  war  condi- 
tions have  emphasized  the  importance  to  health  of  the  good  food, 
clothing,  and  domestic  comfort  which  can  be  obtained  when  the  wages 
represent  a  reasonably  adequate  recompense  for  labor.  They  have 
also  proved  that  properly  nourished  women  have  a  much  greater 
reserve  of  energy  than  they  have  usually  been  credited  with,  and  that 
under  suitable  conditions  they  can  properly  and  advantageously  be 
employed  in  more  arduous  occupations  than  has  been  considered  de- 
sirable in  the  past.  Light,  sedentary  occupations  are  not  necessarily 
healthy.  The  commercial  futility  of  unduly  long  hours  of  work  and  of 
overtime  has  beep  demonstrated  repeatedly,  together  with  the  benefit 
to  health  and  to  output  of  shorter  hours,  of  the  abolition  of  work 
before  breakfast,  and  of  properly  arranged  spells  and  pauses. 

8.  Direct  supervision  of  the  health  of  industrial  workers  was 
almost  nonexistent  before  the  war.  Experience  of  war  conditions  has 
emphasized  the  need  for  more  efficient  supervision  and  for  energetic 
research  into  the  causes  of  industrial  fatigue  and  the  methods  of 
preventing  disease  directly  or  indirectly  due  to  occupation.  Factory 
hygiene  must  become  an  integral  part  of  the  general  system  of  pre- 
ventive medicine.  For  this  purpose  an  adequate  service  of  factory 
medical  offices  is  needed,  having  no  duties  of  treatment,  but  charged 
with  the  general  oversight  of  factory  conditions,  hygiene,  and  health. 

306.     Will  There  Be  a  Sex  War  in  Industry  P^" 

BY  MARY  STOCKS 

The  problem  is  a  problem  of  adjustment ;  of  the  distribution  of 
labor,  skilled  and  unskilled,  male  and  female,  among  the  various  exist- 
ing and  potential  occupations  which  the  return  of  peace  conditions 
will  offer.  From  the  workers'  point  of  view  it  is  predominantly  a 
question  of  how  to  stifle  the  renewed  competition  which  will  neces- 
sarily prejudice  the  bargaining  power  of  labor  in  the  coming  scramble 
for  the  produce  of  industry.  It  has  special  reference  to  the  outstand- 
ing problem  of  how  to  deal  with  the  army  of  women  workers  which 
war  conditions  have  called  from  home  duties  or  unenterprising  idle- 
ness, as  the  case  may  be.  It  is  here  that  we  see  looming  ahead  of  us 
the  horrible  possibility  of  something  like  an  industrial  sex  war,  irt 

30Adapted  from  "The  Future  of  the  Woman  War  Worker,"  The 
Athenaeum,  No.  4625,  pp.  21-23.    Copyright,  1918. 


674  CURRENT  ECONOMIC  PROBLEMS 

which  the  men's  trade-unions,  and  no  doubt,  for  sentimental  reasons, 
a  large  section  of  the  public  will  be  on  one  side,  and  the  industrial 
women,  supported  by  the  employers  for  purposes  of  their  own,  on  the 
other. 

Broadly,  the  position  of  the  women  is  this :  In  normal  times  they 
have  had,  for  various  reasons,  to  put  up  with  a  wage-level  considera- 
bly below  that  of  the  corresponding  class  of  male  wage  earner. 
Among  these  reasons  we  may  include  their  inferior  physical  capacity 
in  a  number  of  occupations ;  their  lower  subsistence-level,  resulting 
from  the  general  absence  of  dependent  families  and  the  frequent 
existence  of  home  resources  independent  of  their  industrial  earnings ; 
the  temporary  nature  of  their  industrial  careers,  resulting  from  the 
fact  that  they  frequently  regard  industry  as  a  stop-gap  pending  mar- 
riage ;  and  the  consequential  absence  of  vital  and  lifelong  interest  in 
industrial  conditions  which  is  the  moving  spirit  of  an  effective  trade 
unionism.  These  are  among  the  interacting  causes  of  the  inferiority 
of  women's  earnings;  but  the  widest  and  most  profound  cause  lies 
in  the  fact  that  women,  though  of  course  constituting  a  minority  in 
the  industrial  world,  are  nevertheless  competing  for  employment  in 
such  a  comparatively  restricted  area  that  the  competition  among  them 
is  more  intense  than  it  is  among  male  workers.  To  put  it  meta- 
phorically, the  volume  of  the  flood  is  less,  but  its  channel  is  relatively 
narrower ;  therefore  its  action  is  more  destructive. 

When  we  begin  to  inquire  into  the  reasons  for  this  restriction  we 
find  ourselves  lost  in  a  perfect  maze  of  speculations.  To  begin  with, 
obviously  the  genuine  physical  limitations  of  women  must  necessarily 
impose  a  natural  barrier  to  a  whole  host  of  occupations.  Supposed 
physical  limitations  not  improbably  add  to  the  number.  In  addition 
there  are  less  definite  social  causes,  such  as  differential  factory  legis- 
lation, the  inconveniences  of  a  mixed  staff,  and  the  liability  of  women 
to  get  married,  which  must  account  for  a  considerable  restriction  of 
the  demand  for  their  labor.  Behind  all  this  brood  many  centuries  of 
tradition,  custom,  prejudice,  and  sex  jealousy. 

With  the  development  of  war  conditions,  however,  some  very 
profound  modifications  have  occurred  in  the  conditions  sketched 
above.  In  the  first  place,  the  urgent  national  necessity  of  replacing 
the  large  numbers  of  men  withdrawn  from  the  labor  market  has  ac- 
counted for  the  dissolution  of  much  irrational  prejudice  against 
women's  work,  and  broken  down  innumerable  barriers  of  custom  and 
tradition.    Under  the  hard  schooling  of  necessity  the  economic  world 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT        675 

has  learned  that  much  of  the  physical  and  mental  incapacity,  much 
of  the  administrative  inconvenience,  of  women  workers  has  disap- 
peared under  the  test  af  actual  practice.  In  the  second  place,  the 
heavy  war  mortality  among  young  men  must  mean  that,  for  a  gen- 
eration at  least,  large  numbers  of  young  women  will  have  to  find  in 
the  world  of  industry  the  main  interest  of  their  lives,  though  how  far 
this  fact  will  affect  their  industrial  psychology  it  is,  of  course,  impos- 
sible to  estimate. 

When  we  come,  therefore,  to  re-examine  the  old  causes  of  in- 
feriority, we  find  that  while  many  of  them  remain  presumably 
unaltered,  one  or  two  of  them  have  been  profoundly  affected.  First 
and  foremost  the  field  in  which  women  are  competing  for  employ- 
ment has  been  almost  indefinitely  extended ;  and  it  has  been  so  ex- 
tended as  to  include  grades  of  comparatively  well-paid  work  hitherto 
closed.  Women  workers  remain,  for  the  most  part,  unorganized,  an 
easy  prey  to  industrial  exploitation  ;  but  given  the  will  to  combine  and 
the  power  to  bargain  collectively,  circumstances  point  to  the  possibility 
of  better  conditions  for  women  workers  in  the  near  future.  But  of 
course  all  this  presupposes  the  continuance  of  the  new  opportunities ; 
takes  for  granted  that  what  is  now  open  will  necessarily  remain  open. 
Will  it  ?  Certainly  much  of  it  will,  for  there  is  no  mending  of  broken 
traditions  and  no  re-erecting  of  shattered  illusions ;  but  there  is  such 
a  possibility  as  the  rebuilding  of  industrial  or  professional  barriers  for 
reasons  other  than  the  actual  capacity  of  women  to  do  the  work ;  and 
that  brings  us  back  to  our  opening  problem,  the  readjustment  of 
industrial  conditions  when  a  demobilized  army  returns  to  the  labor 
market. 

It  must  be  remembered  that  much  of  the  old  exclusion  of  women 
from  skilled  industrial  processes  was  the  result  of  trade-union  regu- 
lations— agreements  forced  upon  the  employer  by  organized  male 
labor.  Women  were  regarded,  and  not  without  good  reason,  as  unde- 
sirable fellow- workers  where  a  comparatively  high  standard  of  life 
was  to  be  maintained.  When  the  exigencies  of  war  made  it  necessary 
for  Mr.  Lloyd  George  to  promote  the  utilization  of  female  labor  in 
skilled  industry,  he  found  himself  up  against  one  of  the  most 
cherished  and  hard-earned  privileges  of  the  British  trade  unionism, 
and,  as  is  well  known,  was  only  able  to  obtain  the  suspension  of  that 
privilege  on  the  definite  understanding  that,  after  the  return  of  peace, 
the  said  trade  union  regulations  should  be  fully  and  legally  re-estab- 
lished.   Although  in  the  meanwhile  industrial  processes  have  under- 


676  CURRENT  ECONOMIC  PROBLEMS 

gone  such  revolutionary  changes  of  mechanism  and  organization  as 
to  render  the  Hteral  fulfilment  of  that  pledge  appallingly  difficult,  if 
not  practically  impossible,  yet  labor  holds,  as  it  were,  an  I.  O.  U. 
against  the  government,  and  will  be  in  a  position,  when  the  time 
comes,  to  demand  its  discharge  in  the  spirit,  if  not  in  the  letter.  The 
spirit  at  the  present  time,  if  straws  show  the  way  of  the  wind,  is  un- 
doubtedly an  exclusive  one  as  far  as  the  woman  war  worker  is  con- 
cerned. Nor  is  the  problem  confined  to  those  occupations  where 
definite  trade-union  regulations  have  been  suspended.  The  woman 
bank  clerk,  like  the  woman  engineer,  will,  in  days  to  come,  find  her- 
self confronted  by  a  male  predecessor  whose  standards  of  remunera- 
tion, and  probably  of  professional  efficiency,  are  higher  than  her  own. 
Given  the  above-described  circumstances,  the  situation  to  be 
avoided  at  all  costs  is  one  in  which  the  trade  unions  will  be  fighting 
on  one  side  for  exclusion,  women  on  the  other  for  employment ;  the 
latter  backed  whole-heartedly  by  the  employers  in  search  of  cheap 
and  comparatively  docile  labor  power,  the  former  backed  half- 
heartedly by  the  government  in  pursuance  of  the  pledges  exacted  in 
the  hour  of  need.  The  victory  of  either  side  will  spell  disaster.  If 
the  exclusive  principle  is  carried  through,  women  workers  will  find 
themselves  at  the  mercy  of  trade-union  regulations  for  the  first  time 
possessing  the  force  of  law,  and  flung  back  into  the  old  degraded  and 
inadequate  industrial  channels,  where  they  will  compete  all  the  more 
destructively  by  reason  of  their  swollen  numbers.  They  will  suffer, 
and  their  suffering  will  generate  bitterness  at  a  time  when  all  the  good 
will  in  the  world  will  be  necessary  to  face  an  uncertain  future.  Inci- 
dentally, the  economic  well-being  of  the  nation  will  be  prejudiced  by 
the  wastage  of  industrial  capacity  at  a  time  when,  with  proper  fore- 
sight and  organization,  the  demand  of  industry  for  labor  should  be 
insatiable.  Limitations  on  the  power  of  industrial  producers  to  pro- 
duce will  prove  as  harmful  in  the  hungry  years  which  must  follow 
a  world-war  as  they  are  in  face  of  the  rapacious  requirements  of  war 
itself.  On  the  other  hand,  if  for  some  reason  the  spirit  of  the  pledge 
is  never  redeemed,  if  the  employers  succeed  in  utilizing  the  mass  of 
women  war  workers  as  a  cheap  labor  supply  for  post-war  industry 
and  as  a  catspaw  for  the  deposition  of  labor's  aristocracy,  the  result 
will  be  a  serious  menace  to,  if  not  the  actual  destruction  of,  such  a 
life-standard  as  over  a  century  of  trade-union  effort  has  painfully 
succeeded  in  building  up.  Here,  too,  will  be  a  source  of  most  disas- 
trous and  dangerous  bitterness,  and  among  that  very  section  of  the 
community,  the  home-coming  army,  which  merits  the  first  considera- 
tion of  the  nation. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT       G'j'j 

G.     REVOLUTIONARY  UNIONISM 
>Y  307.     Sabotage 
a)     A  Definition  of  Sabotage  ^^ 

BY  ARTURO  M.  GIOVANNITTI 

I.  Any  conscious  and  ivilful  act  on  the  part  of  one  or  more  work- 
ers intended  to  slacken  and  reduce  the  output  of  production  in  the 
industrial  field,  or  to  restrict  trade  and  reduce  the  profits  in  the  com- 
mercial field,  in  order  to  secure  from  their  employers  better  conditions 
or  to  enforce  those  promised  or  maintain  those  already  prevailing, 
zvhen  no  other  way  of  redress  is  open. 

2.  Any  skilful  operation  on  the  machinery  of  production  in- 
tended not  to  destroy  it  or  permanently  render  it  defective,  but  only 
temporarily  to  disable  it  and  put  it  out  of  running  condition  in  order 
to  make  impossible  the  ivork  of  scabs  and  thus  to  secure  the  complete 
and  real  stoppage  of  work  during  a  strike. 

Whether  you  agree  or  not,  sabotage  is  this  and  nothing  but  this. 
It  is  not  destructive.  It  has  nothing  to  do  with  violence,  neither  to 
Hfe  nor  to  property.  It  is  nothing  more  or  less  than  the  chloroform- 
ing of  the  organism  of  production,  the  "knock-out  drops"  to  put  to 
sleep  and  out  of  harm's  way  the  ogres  of  steel  and  fire  that  watch 
and  multiply  the  treasures  of  King  Capital. 

b)     Go  Cannie  ^^ 

BY  ARTURO  M.  GIOVANNITTI 

It  must  be  said  with  special  emphasis  that  sabotage  is  not  and 
must  not  be  made  a  systematic  hampering  of  production,  that  it  is 
not  meant  as  a  perpetual  clogging  of  the  workings  of  industry,  but 
that  it  is  a  simple  expedient  of  war,  to  be  used  only  in  time  of  actual 
warfare  with  sobriety  and  moderation,  and  to  be  laid  by  when  the 
truce  intervenes. 

The  form  of  sabotage  which  was  formerly  known  as  Go  Cannie 
consists  purely  and  simply  in  "going  slow"  and  "taking  it  easy"  when 
the  bosses  do  the  same  in  regard  to  wages. 

Let  us  suppose  that  one  hundred  men  have  an  agreement  with 
the  boss  that  they  should  work  eight  hours  a  day  and  get  $4.00  in 
return  for  a  certain  amount  of  work.    The  American  Federation  of 

31  Adapted  from  the  Introduction  to  Pouget's  Sabotage,  pp.  I3-M-.  Copy- 
right by  Charles  H.  Kerr  &  Co.,  1913.  Written  in  the  Essex  County  Jail,  Law- 
rence, Massachusetts. 

32Adapted  from  the  Introduction  to  Pouget's  Sabotage,  pp.  22-25.  Copy- 
right by  Charles  H.  Kerr  &  Co.,  1913. 


678  CURRENT  ECONOMIC  PROBLEMS 

Labor  is  very  particular — and  wisely  so — ^that  the  amount  of  work 
to  be  done  during  a  day  be  clearly  stipulated  and  agreed  upon  by  the 
two  contracting  parties — the  workers  and  their  employers,  this  for 
the  purpose  of  preventing  any  "speeding  up." 

To  exemplify,  let  us  suppose  that  these  one  hundred  workers  are 
bricklayers,  get  fifty  cents  an  hour,  work  eight  hours  a  day  and,  as 
agreed,  lay  fourteen  hundred  bricks  a  day.  Now,  one  good  day  the 
boss  comes  up  and  tells  them  he  can't  pay  them  $4.00  a  day,  but  they 
must  be  satisfied  with  $3.50.  It  is  a  slack  season,  there  are  plenty 
of  idle  men  and,  moreover,  the  job  is  in  the  country  where  the  work- 
ers cannot  very  well  quit  and  return  home.  A  strike,  for  some  reason 
or  another,  is  out  of  the  question.  Such  things  do  happen.  What 
are  they  to  do?  Yield  to  the  boss  sheepishly  and  supinely  ?  But  here 
comes  the  syndicalist  who  tells  them,  "Boys,  the  boss  reduced  fifty 
cents  on  your  pay — why  not  do  the  same  and  reduce  two  hundred 
bricks  on  your  day's  work?  And  if  the  boss  notices  it  and  remon- 
strates, well,  lay  the  usual  number  of  bricks,  but  see  that  the  mortar 
does  not  stick  so  well,  so  that  the  top  part  of  the  wall  will  have  to  be 
made  over  again  in  the  morning;  or  else  after  laying  the  real  number 
of  bricks  you  are  actually  paid  for,  build  up  the  rest  out  of  the  plumb 
line  or  use  broken  bricks  or  recur  to  any  of  the  many  tricks  of  the 
trade.  The  important  thing  is  not  what  you  do,  but  simply  that  it 
be  of  no  danger  or  detriment  to  the  third  parties  and  that  the  boss  gets 
exactly  his  money's  worth  and  not  one  whit  more." 

The  same  may  be  said  of  the  other  trades.  Sweatship  girls  when 
their  wages  are  reduced,  instead  of  sewing  one  hundred  pairs  of 
pants,  can  sew,  say,  seventy  ;  or,  if  they  must  return  the  same  number, 
sew  the  other  thirty  imperfectly — with  crooked  seams — or  use  bad 
thread  or  doctor  the  thread  with  cheap  chemicals  so  that  the  seams 
rip  a  few  hours  after  the  sewing,  or  be  not  so  careful  about  the  oil  on 
the  machines,  and  so  on. 

c)     Put  Salt  in  the  Sugar  ^^ 

If  you  are  an  engineer  you  can,  with  two  cents  worth  of  powdered 
stone  or  a  pinch  of  sand,  stall  your  machine,  and  cause  a  loss  of  time 
or  make  expensive  repairs  necessary.  If  you  are  a  joiner  or  wood- 
worker, what  is  simpler  than  to  ruin  furniture  without  your  boss 
noticing  it,  and  thereby  drive  his  customers  away?  A  garment 
worker  can  easily  spoil  a  suit  or  a  bolt  of  cloth ;  if  you  are  working 
in  a  department  store  a  few  spots  on  a  fabric  cause  it  to  be  sold  for 

ssQuoted  from  the  Montpelier  Labor  Exchange  for  1900,  in  Tridon,  The 
New  Unionism   (1913),  pp.  43-46. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT       679 

next  to  nothing;  a  grocery  clerk,  by  packing  up  goods  carelessly, 
brings  about  a  smashup;  in  the  woolen  or  haberdashery  trade  a 
few  drops  of  acid  on  the  goods  you  are  wrapping  will  make  a  cus- 
tomer furious ;  ...  an  agricultural  laborer  may  sow  bad  seed  in 
wheat  fields,  etc. 

d)     The  Effectiveness  of  Sabotage  "* 

BY  ARTURO  M.  GIOVANNITTI 

Now  that  the  bosses  have  succeeded  in  dealing  an  almost  mortal 
blow  to  the  boycott,  now  that  picket  duty  is  practically  outlawed, 
free  speech  throttled,  free  assemblage  prohibited,  and  injunctions 
against  labor  are  becoming  epidemic ;  sabotage,  this  dark,  invincible, 
terrible  Damocles'  sword  that  hangs  over  the  head  of  the  master 
class,  will  replace  all  the  confiscated  weapons  and  ammunition  of  the 
army  of  the  toilers.  It  will  win,  for  it  is  the  most  redoubtable  of  all, 
except  the  general  strike.  In  vain  may  the  bosses  get  an  injunction 
against  the  strikers'  funds — sabotage  will  get  a  more  powerful  one 
against  their  machinery.  In  vain  may  they  invoke  old  laws  and  make 
new  ones  against  it — they  will  never  discover  it,  never  track  it  to  its 
lair,  never  run  it  to  the  ground,  for  no  laws  will  ever  make  a  crime  of 
the  "clumsiness  and  lack  of  skill"  of  a  "scab"  who  bungles  his  work 
or  "puts  on  the  bum"  a  machine  he  "does  not  know  how  to  run." 

There  can  be  no  injunction  against  it.  No  policeman's  club.  No 
rifle  diet.  No  prison  bars.  It  cannot  be  starved  into  submission.  It 
cannot  be  discharged.  It  cannot  be  black-listed.  It  is  present  every- 
where and  everywhere  invisible,  like  the  airship  that  soars  high  above 
the  clouds  in  the  dead  of  night,  beyond  the  reach  of  the  cannon  and 
the  searchlight,  and  drops  the  dealiest  bombs  into  the  enemy's  own 
encampment. 

Sabotage  is  the  most  formidable  weapon  of  economic  warfare, 
which  will  eventually  open  to  the  workers  the  great  iron  gate  of  capi- 
talist exploitation  and  lead  them  out  of  the  house  of  bondage  into  the 
free  land  of  the  future. 

e)     The  Universality  of  Sabotage  '* 

Actions  which  might  be  classed  as  sabotage  are  used  by^  the  dif- 
ferent exploiting  and  professional  classes. 

34 Adapted  from  the  Introduction  to  Pouget's  Sabotage,  pp.  3S-36.  Copy- 
right by  Charles  H.  Kerr  &  Co.,  1913- 

35  Quoted  from  an  editorial  in  the  Industrial  Worker,  of  Spokane,  Wash- 
ington, in  Tridon,  The  New  Unionism  (1913),  PP-  53-55- 


68o  CURRENT  ECONOMIC  PROBLEMS 

The  truck  farmer  packs  his  largest  fruits  and  vegetables  upon 
the  top  layer.  The  merchant  sells  inferior  articles  as  "something 
just  as  good."  The  doctor  gives  "bread  pills"  or  other  harmless  con- 
coctions in  cases  where  the  symptoms  are  puzzling.  The  builder  uses 
poorer  materials  than  demanded  in  the  specifications.  The  manu- 
facturer adulterates  foodstuffs  and  clothing.  All  these  are  for  the 
purpose  of  gaining  more  profits. 

Carloads  of  potatoes  were  destroyed  in  Illinois  recently ;  cotton 
was  burned  in  the  southern  states ;  coffee  was  destroyed  by  the 
Brazilian  planters;  barge  loads  of  onions  were  dumped  overboard 
in  California;  apples  were  left  to  rot  on  the  trees  of  whole  orchards 
in  Washington ;  and  hundreds  of  tons  of  foodstuffs  are  held  in  cold 
storage  until  rendered  unfit  for  consumption.    All  to  raise  prices. 

Some  forms  of  capitalist  sabotage  are  legalized,  others  are  not. 
But  whether  or  not  the  various  practices  are  sanctioned  by  law,  it 
is  evident  that  they  are  more  harmful  to  society  as  a  whole  than  is 
the  sabotage  of  the  workers. 

Capitalists  cause  imperfect  dams  to  be  constructed,  and  devastat- 
ing floods  sweep  whole  sections  of  the  country.  They  have  faulty 
bridges  erected,  and  wrecks  cause  great  loss  of  life.  They  sell 
steamer  tickets,  promising  absolute  security,  and  sabotage  the  life- 
saving  equipment  to  the  point  where  hundreds  are  murdered,  as  wit- 
ness the  "Titanic." 

The  "General  Slocum"  disaster  is  an  example  of  capitalist  sabotage 
on  the  life-preservers.  The  Iroquois  Theater  fire  is  an  example  of 
sabotage  by  exploiters  who  assured  the  public  that  the  fire-curtait^ 
was  made  of  asbestos.    The  cases  could  be  multiplied  indefinitely. 

Capitalist  sabotage  aims  to  benefit  a  small  group  of  non-producers. 
Working-class  sabotage  seeks  to  help  the  wage-working  class  at  the 
expense  of  parasites. 

The  frank  position  of  the  class-conscious  worker  is  that  capitalist 
sabotage  is  wrong  because  it  harms  the  workers;  working-class 
sabotage  is  right  because  it  aids  the  workers. 

Sabotage  is  a  direct  application  of  the  idea  that  property  has  no 
rights  that  its  creators  are  bound  to  respect.  Especially  is  this  true 
when  the  creators  of  the  wealth  of  the  world  are  in  hunger  and  want 
amid  the  abundance  they  have  produced,  while  the  idle  few  have  all 
the  good  things  of  life. 

The  open  advocacy  of  sabotage  and  its  widespread  use  is  a  true 
reflection  of  economic  conditions.  The  current  ethical  code,  with 
all  existing  laws  and  institutions,  is  based  upon  private  property  in 
production.  Why  expect  those  who  have  no  stake  in  society,  as  it  is 
now  constituted,  to  continue  to  contribute  to  its  support  ? 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACT       68i 
308.     The  Standpoint  of  Syndicalism"'^ 

BY  LOUIS  LEVINE 

The  fact  which  is  untiringly  emphasized  in  the  Syndicahst  analysis 
is  the  objective  antagonistic  position  of  those  engaged  in  modern 
industry.  The  owners  of  the  means  of  production  directly  or  indi- 
rectly running  their  business  for  their  private  ends  are  interested  in 
ever-increasing  profits  and  in  higher  returns.  The  workingmen,  on 
the  other  hand,  who  passively  carry  on  productive  operations  are 
anxious  to  obtain  the  highest  possible  price  for  their  labor-power 
which  is  their  only  source  of  livelihood.  Between  these  two  economic 
categories  friction  is  inevitable,  because  profits  ever  feed  on  wages, 
while  wages  incessantly  encroach  upon  profits. 

From  this  twofold  antagonism,  rooted  in  the  structure  of  modern 
economic  society,  struggle  must  ever  spring  anew,  and  this  is  the 
reason  why  all  schemes  and  plans  to  avoid  industrial  conflicts  fail  so 
lamentably.  Even  the  conservative  trades  unions,  based  on  the  idea 
that  the  interests  of  labor  and  capital  are  identical,  are  forced  by  cir- 
cumstances to  act  contrary  to  their  own  profession  of  faith.  Organiza- 
tions like  the  Civic  Federation  are  doomed  to  impotency.  Boards  of 
conciliation  and  arbitration  work  most  unsatisfactorily  and  can  show 
but  few  and  insignificant  results. 

All  efforts,  therefore,  to  establish  industrial  peace  under  existing 
conditions  result  at  best  in  the  most  miserable  kind  of  social  patch- 
work which  but  reveals  in  more  striking  nudity  the  irreconcilable  con- 
tradictions inherent  in  modern  economic  organization. 

There  is  but  one  logical  conclusion  from  the  point  of  view  of 
Syndicalism.  If  industrial  peace  is  made  impossible  by  modern  eco- 
nomic institutions,  the  latter  must  be  done  away  with  and  industrial 
peace  must  be  secured  by  a  fundamental  change  in  social  organization. 
At  the  root  of  the  struggle  between  capital  and  labor  is  the  private 
ownership  of  the  means  of  production  which  results  in  the  autocratic 
or  oligarchic  direction  of  industry  and  in  inequality  of  distribution. 
The  way  to  secure  industrial  peace  is  to  remove  the  fundamental 
cause  of  industrial  war,  that  is,  to  make  the  means  of  production  com- 
mon property,  to  put  the  management  of  industry  on  a  truly  demo- 
cratic basis  and  to  equalize  distribution. 

The  syndicalist  distrusts  the  state  and  believes  that  political  forms 
and  institutions  have  outlived  their  usefulness  and  can  not  be  adapted 
to  new  social  relations.    The  syndicalist  program  for  the  future,  in  so 

36Adapted  from  an  article  in  the  Annals  of  the  American  Academy  of 
Political  and  Social  Science,  XLIV,  1 14-18.     Copyright,  1912. 


682  CURRENT  ECONOMIC  PROBLEMS 

far  as  it  is  definite  and  clear,  contains  the  outlines  of  an  industrial 
society— the  basis  of  which  is  the  industrial  union,  and  the  subdi- 
visions of  which  are  federations  of  unions,  and  federations  of  fed- 
erations. The  direction  of  industry,  in  this  ideal  system,  is  decentral- 
ized in  such  a  manner  that  each  industrial  part  of  society  has  the 
control  only  of  those  economic  functions  for  the  intelligent  perform- 
ance of  which  it  is  especially  fitted  by  experience,  training,  and  in- 
dustrial position. 

The  creative  force  of  the  industrial  struggle,  according  to  the 
syndicalist,  manifests  itself  in  a  series  of  economic  and  moral  phe- 
nomena which,  taken  together,  must  have  far-reaching  results.  In  the 
struggle  for  higher  wages  and  better  conditions  of  work  the  working- 
men  are  led  to  see  the  important  part  they  play  in  the  mechanism  of 
production  and  to  resent  more  bitterly  the  opposition  to  their  demands 
on  the  part  of  employers.  With  the  intensification  of  the  struggle, 
the  feeling  of  resentment  develops  into  a  desire  for  emancipation 
from  the  conditions  which  make  oppression  possible ;  in  other  words, 
it  grows  into  complete  class-consciousness  which  consists  not  merely 
in  the  recognition  of  the  struggle  of  classes  but  also  in  the  determina- 
tion to  abolish  the  class-character  of  society.  At  the  same  time  the 
struggle  necessarily  leads  the  workingmen  to  effect  a  higher  degree 
of  solidarity  among  themselves,  to  develop  their  moral  qualities,  and 
to  fortify  and  consolidate  their  organizations. 

It  is  evident  that  unless  the  syndicalist  could  theoretically  con- 
nect the  struggle  of  the  present  with  his  ideal  of  the  future,  the 
latter  would  remain  a  beautiful  but  idle  dream  even  in  theory.  He 
is  bound,  therefore,  to  find  concrete  social  forces  working  for  the 
realization  of  his  ideal.  His  position  forces  him  to  prove  that  his 
ideal  is  the  expression  of  the  interests  of  a  definite  class,  that  it  is 
gradually  being  accepted  by  that  class  under  the  pressure  of  circum- 
stances, and  that  the  social  destinies  of  the  "revolutionary"  class  are 
more  and  more  identified  with  the  syndicalist  ideal. 

He  cheerfully  accepts  the  conclusion  that  if  industrial  strife  is 
creating  social  harmony  his  task  is  to  intensify  the  struggle,  to  widen 
its  scope,  and  to  perfect  its  methods — in  order  that  the  creative  force 
of  the  struggle  may  manifest  itself  as  thoroughly  and  on  as  large  a 
scale  as  possible.  He,  therefore,  logically  assumes  a  hostile  attitude 
towards  all  efforts  tending  to  mitigate  the  industrial  struggle,  such 
as  conciliation  and  arbitration,  and  definitely  enters  the  economic 
arena  for  the  purpose  of  stirring  up  strife  and  of  accentuating  the 
struggle  as  much  as  is  in  his  power. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACTS     683 
309.     Where  Radicalism  Thrives" 

1.  There  are  numbers  of  American  workers  who  are  not  definite- 
ly attached  either  to  any  particular  locality  or  to  any  line  of  industry. 
These  migratory  workers  are  continually  moving  from  one  part  of 
the  country  to  another  as  opportunity  for  employment  is  presented. 

The  great  movements  of  these  workers  is  seasonal  in  character,  as, 
for  example,  the  movement  of  harvest  hands  during  the  summer  and 
autumn,  the  movement  to  the  ice  camps  in  the  winter,  the  movement 
to  the  construction  camps  in  the  spring  and  summer.  In  addition 
there  are  large  irregular  movements  of  laborers  which  are  produced 
by  the  depression  in  different  trades  and  localities,  and  movements 
due  to  false  rumors  about  opportunities  and  to  the  men's  acquired 
habits  of  migration. 

2.  The  number  of  these  migratory  workers  seems  to  be  increas- 
ing, though  there  are  no  available  figures  to  show  this  conclusively. 

3.  A  considerable  proportion  of  these  migratory  workers  are  led 
to  adopt  this  kind  of  life  by  reason  of  personal  characteristics  or 
weaknesses,  and  these  weaknesses  are  accentuated  rather  than  dimin- 
ished by  the  conditions  under  which  they  live  and  work.  Neverthe- 
less, even  if  the  migratory  workers  were  all  men  of  the  highest  char- 
acter and  reliability,  there  would  still  be  a  demand  from  our  indus- 
tries for  the  movement  of  the  population  in  almost  as  great  numbers 
as  at  present,  in  order  to  supply  seasonal  demands  and  to  take  care 
of  the  fluctuations  in  business. 

4.  An  increasingly  large  number  of  laborers  go  downward  in- 
stead of  upward.  Young  men  with  ambition  and  hope  start  their 
lives  as  workers,  but,  meeting  failure  after  failure  in  establishing 
themselves  in  some  trade,  gradually  sink  into  the  ranks  of  migratory 
and  casual  workers.  Continuing  their  existence  in  these  ranks,  they 
lose  self-respect.  Afterward  they  become  "down-and-outs" — tramps, 
bums,  vagabonds,  gamblers,  pickpockets,  yeggmen,  and  other  petty 
criminals — in  short,  public  parasites. 

5.  The  movement  of  these  migratory  workers,  at  the  present 
time,  is  practically  unorganized  and  unregulated.  Workmen  in  large 
numbers  go  large  distances  in  the  hope  of  finding  employment  on  the 
basis  of  a  mere  rumor  and  frequently  find  that  there  is  no  work.  At 
the  same  time  the  demand  for  labor  in  a  given  locality  or  industry 
remains  unfilled,  because  the  workers  have  failed  to  hear  of  the  oppor- 
tunity.   In  fact  a  large  part  of  the  movement  of  migratory  workers 

^^Adapted  from  the  Final  Report  of  the  Committee  on  Industrial  Rela- 
tions, pp.  101-3.  This  is  a  summary  of  an  investigation  conducted  for  the 
commission  by  RA.  Speek,  1915. 


684  CURRENT  ECONOMIC  PROBLEMS 

at  present  is  determined,  not  by  the  demands  of  industry  for  labor, 
but  by  the  necessity  to  search  for  work.  To  illustrate :  A  man  finds 
himself  out  of  work  in  a  given  locality  because  of  the  termination 
of  the  busy  season,  because  of  business  depression,  or  because  of  his 
personal  discharge ;  he  is  unable  to  secure  employment  in  the  locality, 
and  he  has  no  information  regarding  opportunity  for  work  elsewhere. 
If  he  remains  in  the  locality  he  is  almost  certain  to  be  arrested  as  a 
vagrant.  His  only  recourse  is  to  start  moving,  and  the  direction  of 
the  movement  is  usually  determined  by  chance. 

6.  The  attempts  to  regulate  the  movements  of  migratory  workers 
by  local  organizations  have,  without  exception,  proved  failures.  This 
must  necessarily  be  true  no  matter  how  well  planned  or  well  man- 
aged such  local  organizations  may  be. 

7.  The  problem  cannot  be  handled  except  on  a  national  scale  and 
by  methods  and  machinery  which  are  proportioned  to  the  enormous 
size  and  complexity  of  the  problem. 

The  basic  industries  of  the  country,  including  agriculture  and  rail- 
road construction  work,  are  absolutely  dependent  upon  these  migra- 
tory workers. 

8.  The  conditions  under  which  migratory  workers  live,  both  in 
the  cities  and  at  their  places  of  employment,  are  such  as  to  inevitably 
weaken  their  character  and  physique,  to  make  them  carriers  of  disease, 
and  to  create  in  them  a  habit  of  unsteadiness  and  migration. 

The  provisions  for  housing  and  feeding  workers  in  the  labor 
camps  are  subject  to  severe  criticism,  while  the  lodging  houses  in  the 
.large  cities  are  even  worse,  especially  from  the  viewpoint  of  morals. 
One  season  spent  in  a  city  lodging-house  is  generally  sufficient  to 
weaken  the  physique  and  destroy  the  moral  fiber  of  even  the  strongest 
man.  Numerous  instances  of  the  spread  of  dangerous  diseases  by 
migratory  workers  also  have  been  brought  to  the  notice  of  the  com- 
mission. 

9.  The  available  information  indicates  clearly  that  even  the  most 
perfect  distribution  of  workers,  in  accordance  with  the  opportunities 
afforded  at  present  by  American  industries,  will  still  leave  enormous 
numbers  unemployed  during  certain  seasons  of  the  year  and  during 
periods  of  industrial  depression. 

10.  The  congregation  of  large  numbers  of  migratory  workers  in 
large  cities  during  the  winter  should  be  avoided,  if  possible,  not  only 
because  they  are  an  unjust  burden  upon  the  cities  but  because  of  the 
degenerating  effects  of  city  life  during  long  periods  of  idleness. 

11.  The  movement  of  migratory  and  seasonal  workers  is  caused 
chiefly  by  the  seasonal  demand  of  industries  and  by  the  men's  search 
for  work,  and,  to  a  large  degree,  by  their  aimless  desire  to  move  about. 


PROBLEMS  OF  UNIONISM  AND  WAGE  CONTRACTS      685 

The  conditions  of  their  transportation  have  become  grave.  Millions 
of  men  annually  have  to,  and  are  allowed  to,  resort  to  such  a  method 
of  movement  as  stealing  rides  on  the  railways.  This  method  of 
transportation  results  in  the  demoralization  and  casualization  of 
workers,  in  their  congestion  in  industrial  and  railway  centers,  in  waste 
of  their  time  and  energy,  in  frequent  bodily  injuries  and  numerous 
fatal  accidents  and  homicides  annually,  while,  at  the  same  time,  it 
serves  poorly  the  industrial  demand  for  help, 

12.  When  the  workers  return  to  the  city,  from  labor  camps,  for 
instance,  either  to  rest  or  to  spend  the  time  between  seasons,  they  not 
only  meet  the  unhealthy  and  demoralizing  influence  of  cheap  lodging- 
houses,  saloons,  houses  of  prostitution,  and  other  similar  establish- 
ments in  the  slums,  but  they  fall  easy  prey  to  gamblers,  small  private 
bankers,  and  all  sorts  of  parasites.  As  a  result  what  earnings  they 
have  left  after  deduction  of  their  living  expenses  at  work  places 
rapidly  disappear,  no  matter  how  large  these  earnings  may  be. 


XIII 
PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY 

Two  problems  concerned  with  the  work  and  well-being  of  the  laboring 
classes  are  clearly  recognized.  The  protection  of  the  health  of  the  workers, 
the  reduction  of  accidents  to  a  minimum,  and  the  elimination  from  the 
lot  of  toilers  of  some  measure  of  economic  insecurity  has  long  been  regarded 
as  a  province  for  "labor  legislation."  The  determination  of  wages,  the  fixing 
of  hours  of  employment,  and  like  features  of  the  immediate  wage-contract 
have  in  general  been  left  to  bargaining  and  are  intimately  associated  with  the 
development  of  unionism.  Recently  we  have  come  to  see  a  third  set  of  prob- 
lems, vaguely  defined  as  "control  within  industry,"  which  touch  each  of  the 
other  two,  yet  properly  belong  to  neither. 

The  nature  and  content  of  the  problem  of  "control  within  industry"  can  be 
set  forth  less  definitely  than  its  importance.  It  is  evident  that  it  has  to  do 
with  questions  of  the  organization  of  particular  shops,  of  the  "hiring  and 
firing"  of  men,  of  the  selection  of  methods  of  pay,  of  changes  in  the  process  of 
production,  and  kindred  matters.  It  clearly  covers  the  subject  of  the  relations 
of  laborers  to  the  employer's  agents  and  to  each  other,  as  well  as  the  more 
comprehensive  subject  of  "shop  discipline."  It  can  easily  be  made  to  extend 
to  the  general  prescription  of  working  conditions  and  to  the  terms  of  the  wage 
bargain  itself.  In  time  the  range  of  problems  which  it  includes  may  compre- 
hend many  of  the  current  functions  of  management  and  may  involve  the  dis- 
position of  the  profits  of  industry.  One  recent  advocate  of  "control"  sums  the 
matter  up  by  saying,  "When  we  say  we  want  control,  we  mean  that  we  want 
the  thing  the  employer  does  not  want  us  to  have." 

Many  would  insist  that  the  war  has  created  the  problem  of  control  in 
industry.  But  those  who  have  followed  "labor  economics"  know  that  the  prob- 
lem was  here  before  the  war.  The  war,  as  in  other  cases,  has  but  analyzed 
the  industrial  situation  and  revealed  problems  of  long  standing.  Its  industrial 
basis  is  quite  explicit.  First  there  is  the  distressing  fact  that  under  modern 
industrialism  a  proper  scheme  of  incentives  that  appeal  to  the  laborer  has  not 
been  devised.  The  inefficiency  that  results  from  the  accidental  association  of 
work  and  pay  in  his  own  mind  is  very  large.  It  is  increasingly  evident  that 
under  the  price-system  the  routine  character  of  machine  work  does  not  appeal 
to  the  spirit  of  workmanship  within  him.  A  large  part  of  his  life  is  spent  in 
the  workshop,  a  matter  that  has  led  to  an  increasing  realization  that  the  prob- 
lem of  work  is  more  than  a  mere  question  of  wages.  Second,  the  democratic 
franchise  has  led  to  a  comparison  of  the  worker's  influence  in  politics  with  the 
non-discretionary  place  he  has  in  industry.  Increasingly  he  has  felt  his  inability 
to  make  responsible  judgments  about  the  work  which  makes  up  the  most 
important  part  of  his  life.  Third,  it  has  been  discovered  that  industrial  rela- 
tions within  the  shop  have  not  been  reduced  to  law  and  order,  that  free  bar- 
gaining has  failed  to  include  within  its  terms  the  proper  regulation  of  organiza- 
tion, discipline,  and  processes. 

Out  of  this  situation  there  is  coming  a  movement  that  finds  expression  in  a 
tendency  toward  "a  constitution  for  industry."  Changes  in  technical  processes 
shall  be  introduced  under  specified  conditions.  Innovations  in  the  organiza- 
tion of  labor  shall  respond  to  proper  procedure.  The  discipline  of  workers 
must  conform  to  pre-established  rule  and  must  be  free  from  the  arbitrary  word 
of  the  forernan.  All  shop  matters  shall  be  duly  legislated  upon  and  set  down 
in  written  order.     And,  upon  these  and  like  matters,  a  measure  of  control 

686 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  687 

shall  be  given  to  the  employees.  Of  this  development  "the  shop  steward"  move- 
ment, the  organization  of  "industrial  councils,"  the  establishment  of  "plans  of 
participation"  and  like  devices  are  typical. 

The  movement  has  gone  far  enough  both  in  analysis  and  in  application 
to  raise  a  multitude  of  questions,  but  not  far  enough  to  yield  answers.  Are 
the  innovations  favored  by  employers  because  they  promise  to  increase  profits  ? 
Are  they  to  be  condemned  for  this  reason?  Is  "a  share  in  management"  an 
effective  means  for  showing  labor  the  fallacy  of  restricting  output?  Is  the 
tendency  of  this  new  device  to  break  down  craft  unionism  and  to  substitute 
industrial  unionism?  Is  the  "constitutionalization  of  industry"  anything  more 
than  the  substitution  of  one  mechanical  device  for  another?  How  can  such  a 
mere  change  in  organization  make  industry  better  able  to  appeal  to  the  laborer's 
instincts?  Will  laborers'  control  be  a  stage-play  or  a  reality?  If  the  labor 
council  has  no  discretion,  will  not  its  existence  be  purely  nominal?  If  employ- 
ers and  employees  have  equal  representation  how  will  deadlocks  on  real  issues 
be  broken?  If  the  balance  of  power  tends  to  favor  the  laborer,  what  will 
become  of  the  effectual  limits  of  his  control?  Will  not  profits  tend  to  disappear 
in  wages  ?  In  this  case  will  not  laborers  in  strategic  positions  wax  fat  at  the 
expense  of  laborers  who  are  accidentally  in  industries  not  so  strategically  sit- 
uated? Will  rewards  then  be  proportionate  to  ability  and  enterprise?  What 
guarantees  will  society  have  of  improvements  in  technique  and  organization 
from  a  group  that  may  have  vested  interests  in  the  old?  Is  not  mass  action 
always  conservative?  But  enough  of  these  questions.  The  reader  can  extend 
the  list  as  far  as  he  likes. 

Like  many  other  problems  of  economics  the  changes  which  are  impending 
are  coming  as  a  result  of  an  accommodation  of  the  industrial  system  to  its 
most  immediate  problems.  In  the  past  we  have  not  been  in  the  habit  of  set- 
ting down  the  future  trend  of  a  proposed  change  and  weighing  carefully  the 
relative  social  advantages  and  disadvantages  of  its  adoption.  Nor  are  we 
likely  to  adopt  this  method  of  procedure  in  this  instance.  The  adoption  of 
rules  for  living  and  working  together  is  still  in  the  stage  of  rule  of  thumb. 
Here,  as  elsewhere,  we  are  likely  to  yield  to  immediate  pressure  and  leave 
the  future  to  a  Providence  which  we  think  we  can  trust. 

A.     UNREST 
310.     War  and  National  Unity^ 

The  seeming  prosperity  of  the  country  during  the  war  has  ob- 
scured the  realities  of  the  situation.  Because  the  war  has  not  given 
rise  to  unemployment  and  the  financial  crisis  which  followed  on  its 
outbreak  was  successfully  tided  over,  manv  observers  ignore  the  in- 
dustrial dislocation  which  has  taken  place.  Because  there  has  been  a 
general  cessation  of  disputes  between  labor  and  capital,  which  has 
enabled  us  to  concentrate  our  energies  upon  the  vigorous  prosecution 
of  the  war,  they  imagine  that  the  problem  of  industrial  unrest  has  in 
some  way  been  solved. 

These  conclusions  are  altogether  contrary  to  the  facts  of  the  case. 
The  prosperity  of  the  present  is  artificial  and  transient.  It  is  due  in 
part  to  strenuous  exertion  which  cannot  be  continued  indefinitely; 
in  part  to  sacrifices  which  go  unrealized  because  they  are  not  pro- 

^Adapted  from  memorandum  on  the  Industrial  Situation  after  the  War, 
pp.  6-11.    Circulated  by  the  Carton  Foundation,  1916. 


688  CURRENT  ECONOMIC  PROBLEMS 

claimed;  in  part  to  the  depletion  of  accumulated  stocks;  in  part  to 
the  suspension  of  expenditure  on  national  plants  which,  if  continued, 
would  end  in  dilapidation ;  in  part  to  the  temporary  absorption  into 
industry  of  people  who  will  not  continue  to  be  producers  after  the 
war ;  in  part  to  borrowing  and  recalling  money  from  abroad.  It 
resembles  in  large  measure  the  lavishness  of  the  spendthrift  which 
leads  to  bankruptcy.  The  absence  of  unemployment  is  due,  not  to 
thriving  trade,  but  to  the  withdrawal  of  several  million  men  from 
the  labor  market,  the  inflation  of  the  currency,  and  the  concentration 
of  purchasing  power  in  the  hands  of  the  state,  which  has  not  to  study 
the  absorptive  power  of  commercial  markets  for  the  disposal  of  its 
purchases,  but  uses  them  to  destruction  as  fast  as  they  are  produced. 
It  is  not  till  these  stimulants  are  removed  and  we  are  left  once  more 
to  the  operation  of  the  ordinary  laws  of  supply  and  demand,  com- 
plicated by  the  difficulties  of  readjustment  to  normal  conditions,  that 
the  real  situation  created  by  the  war  will  become  obvious. 

It  may  be  said  that  the  success  with  which  our  national  organiza- 
tion and  activities  were  adapted  to  the  circumstances  of  the  war 
gives  a  fair  promise  of  similar  success  in  the  readjustments  necessi- 
tated by  peace.  But  the  problems  presented  by  a  temporary  crisis 
in  which  economic  considerations  sink  into  a  secondary  plane  and 
the  strongest  possible  appeal  is  made  to  the  spirit  of  self-sacrifice  in 
all  classes,  afiford  no  real  parallel  to  those  presented  by  a  return  to 
normal  conditions  after  a  long  period  of  dislocation.  The  factors 
mentioned  in  the  preceding  paragraph,  while  they  have  eased  the 
situation  during  the  war,  will  become  a  source  of  weakness  as  soon 
as  peace  is  signed.  In  some  cases,  such  as  the  withdrawal  of  men 
from  the  labor  market,  their  operation  will  be  exactly  reversed.  In 
others,  such  a  depletion  of  stocks  and  the  suspension  of  expenditures 
on  national  plant,  immediate  relief  has  been  purchased  by  mortgag- 
ing the  future.  The  war  has,  in  these  two  regards,  been  paid  for  by 
drafts  upon  our  prospective  wealth  which  will  have  to  be  met  at  a 
time  when  the  enthusiasm  which  sustains  a  nation  during  war  has 
given  place  to  the  reaction  that  usually  follows  a  period  of  tension. 
The  rapid  recovery  ol  industry  from  the  shock  of  war  affords  no 
ground  for  dismissing  lightly  the  difficulties  inherent  in  a  return  to 
peace  conditions.  On  the  contrary,  an  examination  of  the  causes 
of  that  recovery  reveals  additional  grounds  for  viewing  those  diffi- 
culties with  concern.  The  prospect  is  a  grave  one  and  it  is  Tikefy 
to  be  further  complicated  by  the  spirit  in  which  it  is  regarded  by  both 
parties  to  industry. 

Even  were  the  present  relations  of  employers  and  employed  en- 
tirely harmonious,  we  could  not  f-el  complete  confidence  in  the  con- 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  689 

tinuance  of  that  harmony  after  the  war.  But  such  is  not  the  case. 
Even  under  the  stress  of  war  there  is  ill-feehng,  suspicion,  and 
recrimination.  Charges  have  been  made  against  each  side  of  placing 
personal  and  class  interests  before  national  welfare,  and  of  using 
the  national  emergency  to  snatch  present  gains  and  to  strengthen  its 
strategical  position  for  the  resumption  of  industrial  hostilities.  Em- 
ployers have  pointed  to  extortionate  wage  demands,  broken  time, 
slackness,  insubordination,  and  sullen  resistance  to  temporary 
changes,  the  necessity  for  which  has  been  openly  acknowledged.  The 
workers  have  pointed  to  war  profits,  to  the  virtual  enslavement  of 
labor  by  the  misuse  of  powers  conferred  by  the  state,  to  attempt  to 
undermine  and  weaken  the  unions  and  so  to  establish  an  ascendancy 
which  may  be  maintained  after  the  war.  They  lay  stress,  also,  on 
the  increased  cost  of  living,  which  they  attribute  in  the  main  to  the 
deliberate  action  of  manufacturers  and  traders,  and  are  more  studi- 
ous of  their  own  than  of  national  advantage. 

There  is  a  prevalent  belief  that  the  "brotherhood  of  the  trenches" 
and  workshops,  the  spirit  of  co-operation  and  self-sacrifice  which 
has  made  possible  our  efiforts  in  the  war,  will  remain  as  a  permanent 
factor  in  our  national  life.  A  great  deal  has  been  said  of  the  effect 
of  discipline  upon  the  men  who  have  served  at  the  front,  and  it  is 
widely  assumed  that  on  their  return  they  will  be  more  amenable  to 
management  and  less  responsive  to  agitation.  Those  who  argue  thus 
do  so  mostly  on  general  principles  and  probabilities.  But  it  is  no  use 
arguing  that  certain  conditions  ought  to  produce  certain  effects  if 
the  facts  show  that  they  do  not.  There  is  evidence  that  many  of  the 
men  who  return  from  the  trenches  to  the  great  munition  and  ship- 
building centers  are,  within  a  few  weeks  of  their  return,  amongst 
those  who  exhibit  most  effectively  their  discontent  with  present  con- 
ditions. Among  those  who  have  fought  in  Flanders  or  who  have 
been  employed  in  making  shells  at  home,  there  are  many  who  look 
forward  to  a  great  social  upheaval  following  the  war.  To  some  this 
may  be  distressing  and  almost  incredible.  The  facts  remain,  and  the 
facts  must  be  faced. 

So  long  as  the  country  is  actually  at  war,  this  spirit  is  likely  to  be 
held  in  check  both  by  the  abnormal  conditions  of  state  control  and 
by  the  patriotism  of  the  mass  of  the  people.  So  long  as  the  peril 
from  without  remains  the  supreme  factor,  we  may  look  to  the  work- 
men to  forego  his  most  cherished  safeguards  and  to  employers  and 
the  propertied  classes  to  bear  patiently  restriction  of  profits  and  an 
unparalleled  burden  of  taxation.  But  we  have  had  signs  already, 
in  the  war-time  strikes,  in  the  denunciations  of  profiteering,  and  in 
the  evidence  of  a  great  body  of  suppressed  resentment  on  both  sides, 


690  CURRENT  ECONOMIC  PROBLEMS 

which  does  not  as  yet  come  to  the  surface,  that  the  industrial  peace  is 
only  a  truce.  It  would  be  a  mistake  to  assume  that  this  truce  will 
survive  the  immediate  pressure  of  foreign  war  which  brought  it  about. 
The  idea  that  the  united  front  shown  by  the  country  to  the  ex- 
ternal enemy  implies  of  itself  the  burial  of  class  hatred  and  suspicion 
and  that  the  suspension  of  controversy  during  the  war  foreshadows 
the  cessation  of  industrial  disputes  after  the  war,  is  dangerous  just 
because  it  is  so  attractive.  The  natural  desire  to  accentuate  the  ap- 
pearance of  unity  and  minimize  internal  differences  lea4s  us  to  treat 
as  negligible  sections  of  public  opinion  which  are  really  powerful 
and  may  become  predominant.  The  spirit  of  patriotism  which  in- 
duces the  majority  of  all  classes  to  remain  silent  as  to  their  grievances 
is  construed  to  mean  that  the  feeling  of  grievance  does  not  exist.  At 
the  same  time  that  criticism  is  supposed  to  imply  unqualified  approval. 
.  The  war  has  not  put  an  end  to  industrial  unrest.  Every  one  of 
the  old  causes  of  dispute  remains  and  others  of  a  most  serious  nature 
have  been  added  in  the  course  of  the  war.  The  very  moderation  and 
unselfishness  shown  by  the  responsible  leaders  of  organized  labor 
are  looked  upon  by  important  sections  of  their  following  as  a  betrayal 
of  the  cause  and  by  some  employers  as  a  tactical  opportunity.  The 
efforts  of  the  government  to  safeguard  the  interests  of  the  workers 
are  likely  to  give  rise  to  unreasonable  demands  for  future  action  on 
the  one  side  and  ungenerous  criticism  on  the  other.  The  difficult 
and  complex  problem  of  the  return  to  peace  conditions  will  bristle 
with  thorny  questions  only  to  be  solved  successfully  by  the  clear- 
sighted and  unselfish  co-operation  of  all  concerned.  There  are  too 
many  indications  that  they  may  be  approached  in  a  spirit  of  passion 
and  suspicion,  which  would  render  a  satisfactory  solution  impossible. 
This  would  be  a  serious  matter  even  if  the  industrial  problem 
stood  alone.  Failure  to  cope  with  the  economic  situation  must  nec- 
essarily involve  widespread  loss  and  misery.  But  the  industrial  prob- 
lem is  inextricably  entangled  with  social  and  political  development. 
It  is  not  merely  that  a  certain  minimum  standard  of  material  well- 
being  is  a  necessary  condition  of  moral  and  intellectual  advance,  or 
that  commercial  prosperity  is  an  important  factor  in  the  strength  and 
prestige  of  the  state.  Industry  itself  has  a  human  side.  The  dis- 
content of  labor  is  not  exclusively  a  matter  of  wages  and  hours  of 
work.  It  is  becoming  increasingly  evident  that  it  is  based  to  a  very 
large  extent  upon  questions  of  status  and  social  conditions.  The 
spirit  in  which  both  employers  and  employed  regard  their  common 
work  will  color  not  only  their  relations  to  each  other  but  their  general 
attitude  toward  the  corporate  life  of  the  nation.  That  attitude  has 
been  roughly  challenged  by  the  war,  which  has  profoundly  disturbed 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  691 

the  current  both  of  circumstances  and  of  ideas.  It  has  shaken  men's 
faith  in  the  permanence  of  existing  conditions  and  accustomed  them 
to  the  contemplation  of  great  changes  and  to  the  possibiHty  of  extra- 
ordinary exertions.  The  moment  is  a  propitious  one  for  an  attempt 
to  understand  more  clearly  than  in  the  past  the  fundamental  princi- 
ples of  industrial  relations  and  their  place  in  the  national  life.  The 
forces  of  change  are  visibly  at  work,  and  it  rests  with  us  whether  we 
allow  them  to  hurry  us  blindly  with  them,  or  direct  them  along  the 
path  of  ordered  progress. 

311.     Portrayal  of  Unrest  in  War^ 

BY  FELIX  FRANKFURTER 

1.  The  Commission  had  wide  opportunities,  both  as  to  the  extent 
of  territory  and  the  variety  of  industries  investigated,  to  inquire  into 
industrial  conditions  in  war  time.  The  Commission  visited  Arizona, 
the  Pacific  Coast,  Minneapolis  and  St.  Paul,  and  Chicago ;  studied 
the  situation  in  the  copper  mines,  the  telephone  industry,  the  North- 
west lumber  industry,  the  meat-packing  industry  as  centered  in 
Chicago,  the  rapid-transit  situation  and  the  related  industrial  con- 
dition in  the  Twin  Cities,  and  observed  as  well  other  industries  in  the 
states  adjacent  to  those  it  visited.  All  relevant  sources  of  information 
were  tapped,  for  close  contact  was  had  with  workmen  on  strike  and  at 
work ;  employers  and  professional  men  and  federal  and  state  officials, 
who  are  brought  particularly  in  touch  with  labor  matters ;  and  in 
addition,  the  voluminous  official  files  of  federal  and  state  authorities 
furnished  much  knowledge.  While  undoubtedly  each  industry  pre- 
sents its  own  peculiarities,  certain  underlying  general  factors  ap- 
plicable to  all  industry  emerge  from  the  three  months'  work  of  the 
commission. 

2.  Throughout  its  inquiry  and  in  all  its  work  the  Commission 
kept  steadily  in  mind  the  war  needs  of  the  country.  The  conclusion 
cannot  be  escaped  that  the  available  man  power  of  the  nation,  serving 
as  the  industrial  arm  of  war,  is  not  employed  to  its  full  capacity  or 
wisely  directed  to  the  energies  of  the  war. 

3.  The  effective  conduct  of  the  war  suffers  needlessly  because 
of   (a)   interruption  of  work  due  to  actual  or  threatened  strikes; 

(b)  purposed  decrease  in  efficiency  through  the  "strike  on  the  job"; 

(c)  decrease  in  efficiency  due  to  labor  unrest;  and  (d)  dislocation  of 
the  labor  supply. 

^Adapted  from  the  report  of  the  President's  Mediation  Commission  to  the 
President  of  the  United  States,  January  9,  1918.  The  report  is  signed  by  W. 
B.  Wilson,  chairman;  Ernest  P.  Marsh;  Verner  S.  Reed;  Jackson  L.  Spangler; 
John  H.  Walker ;  Felix  Frankfurter,  secretary  and  counsel ;  and  Max  Loewen- 
thal,  assistant  secretary.    This  is  a  summary  of  the  Commission's  conclusions. 


692  CURRENT  ECONOMIC  PROBLEMS 

4.  These  are  not  new  conditions  in  American  industry,  nor  are 
their  causes  new.  The  conditions  and  their  causes  have  long  been 
famihar  and  long  uncorrected.  War  has  only  served  to  intensify  the 
old  derangements  by  making  greater  demands  upon  industry  and  by 
affording  the  occasion  for  new  disturbing  factors. 

5.  Among  the  causes  of  unrest,  familiar  to  students  of  industry, 
the  following  stand  out  with  special  significance  to  the  industrial 
needs  of  war: 

a)  Broadly  speaking,  American  industry  lacks  a  healthy  basis  of 
relationship  between  management  and  men.  At  bottom  this  is  due 
to  the  insistence  by  employers  upon  individual  dealings  with  their 
men.  Direct  dealings  with  employees'  organizations  is  still  the 
minority  rule  in  the  United  States.  In  the  majority  of  instances  there 
is  no  joint  dealing,  and  in  too  many  instances  employers  are  in  active 
opposition  to  labor  organizations.  This  failure  to  equalize  the  par- 
ties in  adjustments  of  inevitable  industrial  contests  is  the  central  cause 
of  our  difficulties.  There  is  a  commendable  spirit  throughout  the 
country  to  correct  specific  evils.  The  leaders  in  industry  must  go 
farther,  they  must  help  to  correct  the  state  of  mind  on  the  part  of 
labor ;  they  must  aim  for  the  release  of  normal  feelings  by  enabling 
labor  to  take  its  place  as  a  co-operator  in  the  industrial  enterprise. 
In  a  word,  a  conscious  attempt  must  be  made  to  generate  a  new  spirit 
in  industry. 

h)  Too  many  labor  disturbances  are  due  to  the  absence  of  dis- 
interested processes  to  which  resort  may  be  had  for  peaceful  settle- 
ment. Force  becomes  too  ready  an  outlet.  We  need  continuous 
administrative  machinery  by  which  grievances  inevitable  in  industry 
may  be  easily  and  quickly  disposed  of  and  not  allowed  to  reach  the 
pressure  of  explosion. 

•  c)  There  is  a  widespread  lack  of  knowledge  on  the  part  of  capital 
as  to  labor's  feelings  and  needs  and  on  the  part  of  labor  as  to  prob- 
lems of  management.  This  is  due  primarily  to  a  lack  of  collective 
negotiation  as  the  normal  process  of  industry.  In  addition  there  is 
but  little  realization  on  the  part  of  industry  that  the  so-called  "labor 
problem"  demands  not  only  occasional  attention  but  continuous  and 
systematic  responsibility,  as  much  so  as  the  technical  or  financial 
aspects  of  industry. 

d)  Certain  specific  grievances,  when  long  uncorrected,  not  only 
mean  definite  hardships;  they  serve  as  symbols  of  the  attitude  of 
employers  and  thus  affect  the  underlying  spirit.  Hours  and  wages 
are,  of  course,  mostly  in  issue.  On  the  whole,  wage  increases  are 
asked  for  mostly  in  order  to  meet  the  increased  cost  of  living,  and  such 
demands  should  be  met  in  the  light  of  their  economic  causes.    Again, 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  693 

the  demand  for  the  eight-hour  day  is  nation  wide,  for  the  workers 
regard  it  as  expressive  of  an  accepted  national  poHcy. 

6.  Repressive  deahng  with  manifestations  of  labor  unrest  is  the 
source  of  much  bitterness,  turns  radical  labor  leaders  into  martyrs 
and  thus  increases  their  following,  and,  worst  of  all,  in  the  minds  of 
workers  tends  to  implicate  the  government  as  a  partisan  in  an  eco- 
nomic conflict.  The  problem  is  a  delicate  and  difficult  one.  There  is 
no  doubt,  however,  that  the  Bisbee  and  Jerome  deportations,  the 
Everett  incident,  the  Little  hanging,  and  similar  acts  of  violence 
against  workers  have  had  a  very  harmful  effect  upon  labor  both  in  the 
United  States  and  in  some  of  the  allied  countries.  Such  incidents  are 
attempts  to  deal  with  symptoms  rather  than  causes.  The  I.W.W. 
has  exercised  its  strongest  hold  in  those  industries  and  communities 
where  employers  have  most  resisted  the  trade-union  movement  and 
where  some  form  of  protest  against  unjust  treatment  was  inevitable. 

7.  The  derangement  of  our  labor  supply  is  one  of  the  great  evils 
in  industry.  The  shockingly  large  amount  of  labor  turnover  and  the 
phenomenon  of  migratory  labor  means  an  enormous  economic  waste 
and  involves  an  even  greater  social  cost.  These  are  evils  which  flow 
from  grievances  such  as  those  we  have  set  forth  ;  they  are  accentuated 
by  uncontrolled  instability  of  employment.  Finally,  we  have  failed 
in  the  full  use  and  wise  direction  of  our  labor  supply,  falsely  called 
"labor  shortage,"  because  we  have  failed  to  establish  a  vigorous  and 
competent  system  of  labor  distribution.  However,  means  and  added 
resources  have  recently  provided  for  a  better  grappling  with  this 
problem. 

8.  It  is  then  to  uncorrected  specific  evils  and  the  absence  of  a 
healthy  spirit  between  capital  and  labor,  due  partly  to  these  evils 
and  partly  to  an  unsound  industrial  structure,  that  we  must  attribute 
industrial  difficulties  which  we  have  experienced  during  the  war. 
Sinister  influences  and  extremist  doctrine  may  have  availed  them- 
selves of  these  conditions ;  they  certainly  have  not  created  them. 

9.  In  fact,  the  overwhelming  mass  of  the  laboring  population  is 
in  no  sense  disloyal.  Before  the  war  labor  was,  of  course,  filled  with 
pacific  hopes  shared  by  nearly  the  entire  country.  But,  like  other 
portions  of  the  citizenship,  labor  has  adjusted  itself  to  the  new  facts 
revealed  by  the  European  war.  Its  suffering  and  its  faith  are  the 
suffering  and  the  faith  of  the  nation.  With  the  exception  of  the 
sacrifices  of  the  men  in  the  armed  service,  the  greatest  sacrifices  have 
come  from  those  at  the  lower  rung  of  the  industrial  ladder.  Wag3 
increases  respond  last  to  the  needs  of  this  class  of  labor,  and  their 
meager  returns  are  hardly  adequate,  in  view  of  the  increased  cost  of 
living,  to  maintain  even  their  meager  standard  of  life.    It  is  upon 


694  CURRENT  ECONOMIC  PROBLEMS 

them  the  war  pressure  has  borne  most  severely.  Labor  at  heart  is 
as  devoted  to  the  purposes  of  the  government  in  the  prosecution  of 
this  war  as  any  other  part  of  society.  If  labor's  enthusiasm  is  less 
vocal,  and  its  feelings  here  and  there  tepid,  we  will  find  the  explana- 
tion in  some  of  the  conditions  of  the  industrial  environment  in  which 
labor  is  placed  and  which  in  many  instances  is  its  nearest  contact 
with  the  activities  of  the  war. 

a)  Too  often  there  is  a  glaring  inconsistency  between  our  demo- 
cratic purposes  in  this  war  abroad  and  the  autocratic  conduct  of  some 
of  those  guiding  industry  at  home.  This  inconsistency  is  emphasized 
by  such  episodes  as  the  Bisbee  deportations. 

h)  Personal  bitterness  and  more  intense  industrial  strife  inevita- 
bly result  when  the  claim  of  loyalty  is  falsely  resorted  to  by  employers 
and  their  sympathizers  as  a  means  of  defeating  sincere  claims  for 
social  justice,  even  though  such  claims  be  asserted  in  time  of  war. 

c)  So  long  as  profiteering  is  not  comprehensively  prevented  to 
the  full  extent  that  governmental  action  can  prevent  it,  just  so  long 
will  a  sense  of  inequality  disturb  the  fullest  devotion  of  labor's  con- 
tribution to  the  war. 

The  causes  of  unrest  suggest  their  own  means  of  correction. 

1.  The  elimination  to  the  utmost  practical  extent  of  all  pre  iteer- 
ing  during  the  period  of  the  war  is  a  prerequisite  to  the  best  moi  ale  in 
industry. 

2.  Modern  large-scale  industry  has  efiFectually  destroyed  the  per- 
sonal relation  between  employer  and  employee — the  knowledge  and 
co-operation  that  come  from  personal  contact.  It  is  therefore  no 
longer  possible  to  conduct  industry  by  dealing  with  employees  as 
individuals.  Some  form  of  collective  relationship  between  manage- 
ment and  men  is  indispensable.  The  recognition  of  this  principle  by 
the  government  should  form  an  accepted  part  of  the  labor  poHcy  of 
the  nation. 

3.  Law,  in  business  as  elsewhere,  depends  for  its  vitality  upon 
steady  employment.  Instead  of  waiting  for  adjustment  after  griev- 
ances come  to  the  surface  there  is  needed  the  establishment  of  con- 
tinuous administrative  machinery  for  the  orderly  disposition  of  in- 
dustrial issues  and  the  avoidance  of  an  atmosphere  of  contention  and 
the  waste  of  disturbances. 

4.  The  eight-hour  day  is  an  established  policy  of  the  country; 
experience  has  proved  justification  of  the  principle  also  in  war  times. 
Provision  must  of  course  be  made  for  longer  hours  in  case  of  emer- 
gencies. Labor  will  readily  meet  this  requirement  if  its  misuse  is 
guarded  against  by  appropriate  overtime  payments. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  695 

5.  Unified  direction  of  the  labor  administration  of  the  United 
States  for  the  period  of  the  war  should  be  established.  At  present 
there  is  an  unrelated  number  of  separate  committees,  boards,  agencies, 
and  departments  having  fragmentary  and  conflicting  jurisdiction  over 
the  labor  problems  raised  by  the  war.  A  single-headed  administration 
is  needed,  with  full  power  to  determine  and  establish  the  necessary 
administrative  structure. 

6.  When  assured  of  sound  labor  conditions  and  effective  means 
for  the  just  redress  of  grievances  that  may  arise,  labor  in  its  turn 
should  surrender  all  practices  which  tend  to  restrict  maximum  effi- 
ciency. 

7.  Uncorrected  evils  are  the  great  provocative  to  extremist  propa- 
ganda, and  their  correction  would  be  in  itself  the  best  counter- 
propaganda.  But  there  is  need  for  more  affirmative  education.  There 
has  been  too  little  publicity  of  an  educative  sort  in  regard  to  labor's 
relation  to  the  war.  The  purposes  of  the  government  and  the  meth- 
ods by  which  it  is  pursuing  them  should  be  brought  home  to  the  fuller 
understanding  of  labor.  Labor  has  most  at  stake  in  this  war,  and  it 
will  eagerly  devote  its  all  if  only  it  be  treated  with  confidence  and 
understanding,  subject  neither  to  indulgence  nor  neglect,  but  dealt 
with  as  a  part  of  the  citizenship  of  the  state. 

B.     OUTPUT 
312.     Selling  Labor  Short^ 

BY    WALTER   DREW 

The  most  vital,  important,  and  sinister  of  the  economic  features 
of  the  closed  shop  is  the  decreased  efficiency  of  the  union  man.  The 
fact  is  too  well  settled  to  permit  of  argument.  Bricklayers,  for  in- 
stance, in  a  closed  shop  will  lay  on  an  average  eight  hundred  to  one 
thousand  brick  per  day,  when  a  fair  day's  work  of  eight  hours,  and 
one  which  was  common  a  few  years  ago,  would  be  three  thousand 
and  more  brick.  The  structural  iron  worker,  when  he  had  his  closed 
shop,  would  drive  from  seventy-five  to  one  hundred  rivets  per  day. 
In  an  open  shop  at  the  present  time  in  New  York  and  other  cities,  the 
output  runs  from  two  hundred  to  four  hundred  rivets  per  day.  A 
carpenter  before  he  had  a  monopoly  would  hang  a  door  in  an  hour ; 
now,  in  his  closed  shop,  he  considers  four  doors  a  good  day's  work. 
President  Mellen,  of  the  New  Haven,  in  a  recent  report,  stated 
that  with  every  increase  in  wages  to  the  union  employes  of  the  road 
there  was  a  corresponding  decrease  in  efficiency. 

^Adapted  from  Closed  Shop  Unionism,  pp.  10-12,  a  pamphlet  issued  by  the 
National  Association  of  Manufacturers  of  the  United  States  of  America,  1909. 


696  CURRENT  ECONOMIC  PROBLEMS 

These  things  are  not  hard  to  understand.  The  wage  scale  by 
which  the  good  man  and  the  poor  receive  the  same  wage  takes  away 
the  incentive  of  the  good  man.  Why  should  he  do  any  more  or  bet- 
ter work  than  his  fellow,  when  they  receive  the  same  wage?  The 
good  man,  also,  is  often  kept  from  conscientious  work  by  the  union 
doctrine  that  he  must  not  set  too  fast  a  pace  for  his  less-skilled  fel- 
low, who  otherwise  might  lose  his  job  if  the  comparison  were  too 
much  to  his  discredit.  This  applies  not  only  to  his  less-skilled  fellow 
union  men,  but  also  to  the  shiftles  and  the  lazy,  who  because  of  serv- 
ice in  union  political  matters  have  been  rewarded  with  a  job  in  which 
the  union  boss  desires  to  see  them  retained.  The  practice  of  making 
work  is  also  common.  That  is,  in  dull  times,  if  a  piece  of  work  could 
be  very  well  performed  by  ten  men  in  a  given  time,  each  man  em- 
ployed so  decreases  his  efforts  as  to  make  it  necessary  to  employ 
twelve  or  fifteen  men  in  order  that  employment  may  be  given  to  more 
of  the  members  of  the  union.  The  teaching  of  labor  leaders  to  the 
effect  that  labor  produces  all  wealth,  that  there  is  an  inevitable  con- 
flict between  capital  and  labor,  and  that  unions  are  organized  for  the 
purpose  of  getting  as  much  as  possible  and  giving  in  return  as  little 
as  possible,  all  serve  to  deaden  the  conscience  and  decrease  the  effort 
of  the  union  man.  The  natural  result  of  this  combination  of  causes, 
added  to  the  ever-present  fact,  of  course,  that  the  union  man  in  the 
closed  shop  is  not  subject  to  discharge,  as  would  be  a  non-union  man, 
but  has  back  of  him  the  entire  strength  of  the  monopoly  to  vouch- 
safe him  his  job,  results  in  reducing  the  efficiency  of  the  men  to  a 
point  where  that  of  the  shiftless,  the  lazy,  and  the  least  skilled  be- 
comes the  common  measure  of  the  efficiency  of  all.  The  question  of 
high  wages,  then,  is  not  the  most  important  in  reaching  the  final  wage 
cost ;  and  when,  coupled  with  high  wages,  there  is  a  decrease  in  the 
output  of  the  worker  50  per  cent  or  more,  the  final  figures  reflected 
in  the  cost  of  production  become  startling. 

As  a  partial  summing  up,  pile  up  on  top  of  this  abnormal  wage 
cost  the  toll  of  graft;  the  losses  occasioned  by  jurisdictional  disputes, 
sympathetic  strikes  and  strikes  waged  to  establish  the  closed  shop  and 
involving  no  question  of  wages  or  hours ;  the  general  and  more  in- 
definite loss  to  industry  through  the  disorganization  of  the  productive 
factors  due  to  the  domination  of  the  union  boss  and  the  arbitrary 
restrictions  and  limitations  insisted  upon — and  some  idea  may  be 
gained  of  what  the  closed  shop  means  in  its  relation  to  the  cost  of  pro- 
duction. The  final  consumer  must  pay  for  all  these  items,  unreason- 
able, abnormal,  illegitimate  and  uneconomic  as  they  may  be.  One 
partial  oft"set  to  this  is  the  fact  that  high  wages  are  paid  to  the  few 
men  having  the  monopoly,  thus  increasing  their  purchasing  power 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  697 

and  creating  to  some  extent  a  market  for  goods  at  the  higher  prices ; 
but  this  is  a  very  small  item  of  benefit,  for  the  reason  that  the  num- 
ber of  men  receiving  the  higher  wages  is  so  few  in  comparison  with 
the  number  of  the  great  purchasing  public  that  the  wages  paid  them 
can  have  very  little  appreciable  influence  in  creating  a  general  market. 
The  final  result,  then,  is  that  the  general  public  pays  abnormal  and 
uneconomic  prices  for  many  products  with  no  corresponding  element 
of  benefit. 

313.     The  Limits  of  Sabotage'' 

THORSTEIN  VEBLEN 

Sabotage  is  not  to  be  condemned  out  of  hand,  simply  as  such. 
There  are  many  measures  of  policy  and  management  both  in  private 
business  and  in  public  administration  which  are  unmistakably  of  the 
nature  of  sabotage  and  which  are  not  only  considered  to  be  excusable, 
but  are  deliberately  sanctioned  by  statute  and  common  law  and  by 
the  public  conscience.  Many  such  measures  are  quite  of  the  essence 
of  the  case  under  the  established  system  of  law  and  order,  price  and 
business,  and  are  faithfully  believed  to  be  indispensable  to  the  com- 
mon good.  It  should  not  be  difficult  to  show  that  the  common  wel- 
fare in  any  community  which  is  organized  on  the  price  system  cannot 
be  maintained  without  a  salutary  use  of  sabotage — that  is  to  say, 
such  habitual  recourse  to  delay  and  obstruction  of  industry  and  such 
restriction  of  output  as  will  maintain  prices  at  a  reasonably  profitable 
level  and  so  guard  against  business  depression.  Indeed,  it  is  precisely 
considerations  of  this  nature  that  are  now  engaging  the  best  attention 
of  officials  and  business  men  in  their  endeavors  to  tide  over  a  threat- 
ening depression  in  American  business  and  a  consequent  season  of 
hardship  for  all  those  persons  whose  main  dependence  is  free  income 
from  investments. 

Without  some  salutary  restraint  in  the  way  of  sabotage  on  the 
productive  use  of  the  available  industrial  plant  and  workmen,  it  is 
altogether  unlikely  that  prices  could  be  maintained  at  a  reasonably 
profitable  figure  for  any  appreciable  time.  A  businesslike  control 
of  the  rate  and  volume  of  output  is  indispensable  for  keeping  up  a 
profitable  market,  and  a  profitable  market  is  the  first  and  unremitting 
condition  of  prosperity  in  any  community  whose  industry  is  owned 
and  managed  by  business  men.  The  ways  and  means  of  this  neces- 
sary control  of  the  output  of  industry  are  always  and  necessarily 
something  in  the  nature  of  sabotage — something  in  the  way  of  re- 
tardation, restriction,  withdrawal,  unemployment  of  plant  and  work- 
men— whereby  production  is  kept  short  of  productive  capacity.    The 

^Adapted  from  "On  the  Nature  and  Uses  of  Sabotage"  in  the  Dial,  LXVI 
342-46.    Copyright,  1919. 


698  CURRENT  ECONOMIC  PROBLEMS 

mechanical  industry  of  the  new  order  is  inordinately  productive.  So 
the  rate  and  volume  of  output  have  to  be  regulated  with  a  view  to 
what  the  traffic  will  bear— that  is  to  say,  what  will  yield  the  largest 
net  return  in  terms  of  price  to  the  business  men  in  charge  of  the 
country's  industrial  system.  Otherwise  there  will  be  "overproduc- 
tion," business  depression,  and  consequent  hard  times  all  round. 
Overproduction  means  production  in  excess  of  what  the  market  will 
carry  off  at  a  sufficiently  profitable  price.  So  it  appears  that  the 
continued  prosperity  of  the  country  from  day  to  day  hangs  on  a  "con- 
scientious withdrawal  of  efficiency"  by  the  business  men  who  control 
the  country's  industrial  output.  They  control  it  all  for  their  own 
use,  of  course,  and  their  own  use  means  always  a  profitable  price. 

In  any  community  that  is  organized  on  the  price  system,  with 
investment  and  business  enterprise,  habitual  unemployment  of  the 
available  industrial  plant  and  workmen,  in  whole  or  in  part,  appears 
to  be  the  indispensable  condition  without  which  tolerable  conditions 
of  life  cannot  be  maintained.  That  is  to  say,  in  no  such  community 
can  the  industrial  system  be  allowed  to  work  at  full  capacity  for  any 
appreciable  interval  of  time,  on  pain  of  business  stagnation  and  con- 
sequent privation  for  all  classes  and  conditions  of  men.  The  require- 
ments of  profitable  business  will  not  tolerate  it.  So  the  rate  and  vol- 
ume of  output  must  be  adjusted  to  the  needs  of  the  market,  not  to  the 
working  capacity  of  the  available  resources,  equipment  and  man 
power,  nor  to  the  community's  need  of  consumable  goods.  There- 
fore there  must  always  be  a  certain  variable  margin  of  unemploy- 
ment of  plant  and  man  power.  Rate  and  volume  of  output  can,  of 
course,  not  be  adjusted  by  exceeding  the  productive  capacity  of  the 
industrial  system.  So  it  has  to  be  regulated  by  keeping  short  of 
maximum  production  by  more  or  less,  as  the  condition  of  the  market 
may  require.  It  is  always  a  question  of  more  or  less  unemployment 
of  plant  and  man  power,  and  a  shrewd  moderation  in  the  unemploy- 
ment of  these  available  resources,  a  "conscientious  withdrawal  of 
efficiency,"  therefore,  is  the  beginning  of  wisdom  in  all  sound  work- 
day business  enterprise  that  has  to  do  with  industry. 

All  this  is  matter  of  course  and  notorious.  But  it  is  not  a  topic 
on  which  one  prefers  to  dwell.  Writers  and  speakers  who  dilate  on 
the  meritorious  exploits  of  the  nation's  business  men  will  not  com- 
monly allude  to  this  voluminous  running  administration  of  sabotage, 
this  conscientious  withdrawal  of  efficiency,  that  goes  into  their  ordi- 
nary day's  work.  One  prefers  to  dwell  on  those  exceptional,  sporadic, 
and  spectacular  episodes  in  business  where  business  men  have  now 
and  again  successfully  gone  out  of  the  safe  and  sane  highway  of  con- 
servative business  enterprise  that  is  hedged  about  with  a  conscientious 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  699 

withdrawal  of  efficiency,  and  have  endeavored  to  regulate  the  output 
by  increasing  the  productive  capacity  of  the  industrial  system  at  one 
point  or  another. 

Where  the  national  government  is  charged  with  the  general  care 
of  the  country's  business  interests,  as  is  invariably  the  case  among  the 
civilized  nations,  it  follows  from  the  nature  of  the  case  that  the  na- 
tion's lawgivers  and  administration  will  have  some  share  in  adminis- 
tering that  necessary  modicum  of  sabotage  that  must  always  go  into 
the  day's  work  of  carrying  on  industry  by  business  methods  and  for 
business  purposes.  The  government  is  in  a  position  to  penalize  ex- 
cessive or  unwholesome  traffic.  So  it  is  always  considered  necessary, 
or  at  least  expedient,  by  all  sound  mercantilists  to  impose  and  main- 
tain a  certain  balance  or  proportion  among  the  several  branches  of 
industry  and  trade  that  go  to  make  up  the  nation's  industrial  system. 
The  purpose  commonly  urged  for  measures  of  this  class  is  the  fuller 
utilization  of  the  nation's  industrial  resources  in  material,  equipment, 
and  man  power ;  the  invariable  effect  is  a  lowered  efficiency  and  a 
wasteful  use  of  these  resources,  together  with  an  increase  of  inter- 
national jealousy.  But  measures  of  that  kind  are  thought 
to  be  expedient  by  the  mercantilists  for  these  purposes — that  is 
to  say,  by  the  statesmen  of  these  civilized  nations,  for  the  purposes  of 
the  vested  interests.  The  chief  and  nearly  sole  means  of  maintaining 
such  a  fabricated  balance  and  proportion  among  the  nation's  indus- 
tries is  to  obstruct  the  traffic  at  some  critical  point  by  prohibiting  or 
penalizing  any  exuberant  undesirables  among  these  branches  of  in- 
dustry. Disallowance,  in  whole  or  in  part,  is  the  usual  and  standard 
method. 

The  great  standing  illustration  of  sabotage  administered  by  the 
government  is  the  protective  tariff,  of  course.  It  protects  certain 
special  interests  by  obstructing  competition  from  beyond  the  frontier. 
This  is  the  main  use  of  a  national  boundary.  The  effect  of  the  tariff 
is  to  keep  the  supply  of  goods  down  and  thereby  keep  the  price  up, 
and  so  to  bring  reasonably  satisfactory  dividends  fo  those  special 
interests  which  deal  in  the  protected  articles  of  trade,  at  the  cost  of  the 
underlying  community,  A  protective  tariff  is  a  typical  conspiracy  in 
restraint  of  trade.  It  brings  a  relatively  small,  though  absolutely 
large,  run  of  free  income  to  the  special  interests  which  benefit  by  it, 
at  a  relatively,  and  absolutely,  large  cost  to  the  underlying  community, 
and  so  it  gives  rise  to  a  body  of  vested  rights  and  intangible  assets 
belonging  to  these  special  interests. 

Of  a  similar  character,  in  so  far  that  in  effect  they  are  in  the  na- 
ture of  sabotage — conscientious  withdrawal  of  efficiency — are  all 


700  CURRENT  ECONOMIC  PROBLEMS 

manner  of  excise  and  revenue-stamp  regulations ;  although  they  are 
not  always  designed  for  that  purpose.  Such  would  be,  for  instance, 
the  partial  or  complete  prohibition  of  alcoholic  beverages,  the  regula- 
tion of  the  trade  in  tobacco,  opium,  and  other  deleterious  narcotics, 
drugs,  poisons,  and  high  explosives.  Of  the  same  nature,  in  effect  if 
not  in  intention,  are  such  regulations  as  the  oleomargarine  law ;  as 
also  the  unnecessarily  costly  and  vexatious  routine  of  inspection  im- 
posed on  the  production  of  industrial  (denatured)  alcohol,  which  has 
inured  to  the  benefit  of  certain  business  concerns  that  are  interested 
in  other  fuels  for  use  in  internal-combustion  engines;  so  also  the 
singularly  vexatious  and  elaborately  imbecile  specifications  that  limit 
and  discourage  the  use  of  the  parcel  post,  for  the  benefit  of  the  ex- 
press companies  and  other  carriers  which  have  a  vested  interest  in 
traffic  of  that  kind. 

In  what  has  just  been  said  there  is,  of  course,  no  intention  to  find 
fault  with  any  of  these  uses  of  sabotage.  It  is  not  a  question  of  mor- 
als and  good  intentions.  It  is  always  to  be  presumed  as  a  matter  of 
course  that  the  guiding  spirit  in  all  such  governmental  moves  to  reg- 
ularize the  nation's  affairs,  whether  by  restraint  or  by  incitement,  is  a 
wise  solicitude  for  the  nation's  enduring  gain  and  security.  All  that 
can  be  said  here  is  that  many  of  these  wise  measures  of  restraint  and 
incitement  are  in  the  nature  of  sabotage,  and  that  in  effect  they  habit- 
ually, though  not  invariably,  inure  to  the  benefit  of  certain  vested  in- 
terests— ordinarily  vested  interests  which  bulk  large  in  the  ownership 
and  control  of  the  nation's  resources.  That  these  measures  are  quite 
legitimate  and  presumably  salutary,  therefore,  goes  without  saying. 
In  effect  they  are  measures  for  hindering  traffic  and  industry  at  one 
point  or  another,  which  may  often  be  a  wise  precaution. 

314.     The  Increase  in  Production^ 

In  order  that  we  may  understand  the  nature  and  importance  of 
the  fundamental  problem,  it  is  necessary  to  examine  a  little  more 
closely  the  essentials  of  industrial  prosperity  and  its  relations  to 
national  welfare. 

The  foundation  of  industrial  prosperity  is  production.  The  ma- 
terial well-being  of  a  nation  demands,  first,  the  attainment  of  the 
possible  maximum  both  as  regards  size  and  quality  of  output,  whether 
of  goods  or  services ;  secondly,  the  elimination  of  all  waste  of  mate- 

^Adapted  from  a  memorandum  on  The  Industrial  Situation  after  the  War. 
Circulated  by  the  Garton  Foundation  (1916),  IfU  133-41.  Reprinted  by  Indus- 
trial Relations  Division,  United  States  Shipping  Board  Emergency  Fleet 
Corporation,  Philadelphia. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  701 

rial  or  effort  in  the  process  of  production;  thirdly,  an  equitable  divi- 
sion of  the  proceeds  of  industry,  enabHng  all  those  concerned  in  the 
creation  of  wealth  to  obtain  a  reasonable  share  of  its  material  bene- 
fits. The  social  welfare  of  the  nation  requires  that  the  conditions  of 
work  and  the  relations  between  the  parties  to  industry  shall  be  such 
as  make  for  intelligent  and  self-respecting  citizenship  on  the  part  of 
all  concerned,  and  that  the  activities  which  occupy  so  large  a  propor- 
tion of  men's  time  and  powers  shall  be  felt  by  them  to  be  fit  and 
worthy  employment  of  their  energies. 

Any  attempt  to  solve  industrial  problems  which  is  concerned 
solely  with  the  distribution  of  earnings  must  necessarily  be  inade- 
quate. In  the  first  place,  the  amount  available  for  distribution  de- 
pends upon  the  amount  produced,  and  an  attempt  by  any  section  of 
the  community  to  increase  its  own  share  of  the  proceeds  by  a  scheme 
of  redistribution  which  ignores  the  necessity  of  increased  creative 
eft'ort  is  apt  to  result  in  a  shrinkage  of  the  available  total.  In  the  sec- 
ond place,  the  questions  which  center  round  wages  and  profits,  im- 
portant as  they  are,  are  not  so  vital  as  the  questions  of  industrial  rela- 
tions and  social  conditions  with  which  they  are  connected. 

In  order  that  production  may  be  efficient  both  as  regards  the 
quantity  and  quality  of  output  and  the  m.ethods  employed,  it  is  essen- 
tial that  the  supply  of  capital  should  be  adequate  and  that  the  national 
plant  should  be  kept  up  to  date.  The  war  has  involved  deterioration 
of  plant  and  a  heavy  drain  on  capital.  In  order  that  capital  may  be 
renewed  and  the  national  plant  repaired  and  kept  in  the  highest  state 
of  efficiency  it  is  essential  that  confidence  should  be  mairitained  and 
savings  increased.  The  accumulation  of  surplus  wealth  which  we 
call  capital  represents  the  balance  of  production  over  consumption  in 
previous  years  and  is  constantly  being  added  to  or  diminished  in  ac- 
cordance with  the  ratio  of  goods  produced  to  goods  consumed.  When 
that  accumulation  has  been  depleted,  the  deficiency  can  be  made  good 
only  by  an  increase  in  the  annual  balance.  It  will  be  necessary  to  en- 
courage economy  in  the  consumption  of  goods  and  the  investment  of 
the  resulting  savings  in  productive  industries.  We  must  work  hard 
and  efficiently  in  order  to  produce  more.  We  must  spend  less  on 
luxuries  in  order  that  we  may  save  more.  We  must  increase  confi- 
dence in  the  national  industries  in  order  that  savings  may  be  attracted 
into  the  right  channels. 

Increased  production,  increased  saving,  increased  confidence — ■ 
these  are  the  keys  to  the  whole  problem. 

Production  may  be  hampered  either  in  pursuance  of  a  deliberate 
policy,  or  simply  by  the  use  of  inefficient  methods.    The  interest  of 


yo2  CURRENT  ECONOMIC  PROBLEMS 

employers,  as  a  general  rule,  is  to  increase  output,  the  danger  of  over- 
stocking being  met  by  improved  distributive  organization  and  the 
opening  up  of  new  markets.  Cases  of  restriction,  for  the  sake  of 
keeping  up  prices,  occur  mainly  in  connection  vi'ith  monopoly  products 
and  the  problem  of  counteracting  the  influences  which  make  for  re- 
stricted output  in  these  cases  deserves  a  more  careful  study  than  has 
yet  been  given  to  it. 

Much  of  the  limitation  of  output,  on  the  part  of  employers,  arises 
from  inefficiency  in  management — conservation  in  methods,  the  re- 
tention of  badly  planned  works  and  out-of-date  plant,  bad  organiza- 
tion, neglect  of  scientific  research,  the  presence  of  "deadheads"  on 
the  office  staff. 

The  limitation  of  output  by  labor  arises  partly  from  the  legitimate 
desire  to  restrict  the  hours  of  work  in  the  interest  of  health,  educa- 
tion, family  life  and  enjoyment.  These  are  considerations  of  social 
welfare  which  cannot  be  set  aside.  We  must  look  for  greater  produc- 
tion rather  than  from  an  increase  in  the  number  of  hours  worked. 
There  are,  however,  large  sections  of  labor  by  whom  a  further  limita- 
tion of  output  is  deliberately  practiced  in  the  assumed  interests  of 
their  class  as  a  whole.  In  some  cases  the  motive  is  the  honest  but  mis- 
taken belief  that  the  less  each  man  does  the  more  work  there  will  be 
to  go  round.  "Work"  is  regarded  as  an  exhaustible  fund,  or  at  the 
best  as  a  diminishable  flow,  and  it  is  assumed  to  be  in  the  interests  of 
his  class  that  each  man  should  "use  up"  as  little  as  possible.  The 
fallacy  lies  in  the  conception  of  an  inelastic  "wages  fund."  Wages 
come  out  of  the  stream  of  products,  and  other  factors  remaining 
constant,  the  distribution  of  wages  cannot  be  widened  except  by  an 
increase  of  the  stream.  In  the  case  of  trades  in  which  employment  is 
irregular  and  demand  uncertain,  the  temptation  to  slacken  work  as 
a  job  nears  completion  is  easy  to  understand,  but  the  results  of  the 
policy  are  too  wasteful  tg  be  contemplated  with  satisfaction.  The 
remedy  must  be  sought  in  a  better  organization  of  the  industries  con- 
cerned which  will  give  the  workman  greater  security  of  tenure,  and 
remove  the  fear  of  unemployment  or  relegation  to  lower-paid  work 
as  a  result  of  exercising  his  maximum  efifort. 

A  further  cause  of  limitation  of  output  lies  in  the  natural  differ- 
ences of  individual  capacity.  The  workers  believe  that  if  each  man 
were  allowed  to  produce  to  his  full  power,  the  minimum  standard  de- 
manded by  the  employer  would  be  based  on  the  performances  of  the 
quickest  and  most  skilful  and  a  "speeding-up"  process  would  be  intro- 
duced, involving  either  excessive  strain  or  lessened  earnings  on  the 
part  of  the  majority.    From  this  point  of  view,  restriction  of  output  is 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  703 

a  sacrifice  made  by  the  ablest  workers  in  the  interests  of  their  fel- 
lows. While  such  restrictions  necessarily  result  in  limiting  the  total 
output,  it  is  obvious  that  labor  cannot  fairly  be  asked  to  remove  them 
unless  some  definite  assurance  can  be  given  against  the  evils  antici- 
pated. The  question  is  one  which  will  require  very  serious  attention 
both  from  employers  and  employed,  when  we  come  to  face  the  task 
of  industrial  reconstruction. 

With  regard  to  quality  of  output  it  is  obvious  that  the  workers' 
interest  lies  in  the  direction  of  a  high  standard  which  will  improve  the 
status  of  those  concerned  in  the  industry.  Whether  from  the  point 
of  view  of  earning  power  or  of  interest  and  satisfaction  in  their  work, 
the  workmen  have  everything  to  gain  by  the  standard  of  workman- 
ship in  their  particular  trade  being  raised.  A  general  appreciation 
of  this  fact,  resulting  in  greater  attention  by  labor  organizations  to 
questions  of  craft  training  and  quality  of  output,  would  do  much 
both  to  raise  the  position  of  labor  itself  and  to  strengthen  the  hands 
of  those  employers  who  are  striving  for  a  high  level  of  production, 
as  against  those  who  seek  to  make  their  profit  out  of  the  bad  taste  of 
bargain  hunters. 

It  is  clear  that  any  restrictions  placed  upon  production,  whether 
by  employers  or  employed,  beyond  those  based  upon  the  social  needs 
of  the  workers,  must  be  removed  if  the  difficulties  of  the  economic 
situation  are  to  be  faced  successfully-  In  order  to  make  good  the 
wastage  of  war  and  raise  the  general  level  of  industrial  prosperity, 
the  efforts  of  both  parties  must  be  united  for  the  purpose  of  increas- 
ing the  quantity  of  output  and  improving  its  quality.  In  order  to 
avoid  disastrous  conflicts  with  regard  to  the  distribution  of  earnings, 
the  national  income,  the  total  sum  available  for  distribution,  must 
not  only  be  maintained,  but  increased.  The  prospects  of  success  de- 
pend upon  the  willingness  of  both  sides  to  face  the  facts  of  the  situa- 
tion and  to  throw  aside  somewhat  of  their  mutual  distrust.  It  will 
be  necessary  for  labor  to  abandon  the  policy  of  restricting  output 
and  to  concentrate  upon  demanding  adequate  remuneration  for  the 
work  performed.  It  will  be  equally  necessary  for  employers  to  recog- 
nize that  efficient  production  is  the  only  ultimate  source  of  profit, 
that  the  policy  of  keeping  down  wages  and  cutting  piece  rates  is  op- 
posed to  their  own  interests,  and  that  industry  as  a  whole  will  benefit 
by  any  rise  in  the  level  of  craftsmanship  and  production.  There  is  to- 
day an  urgent  necessity  for  the  removal  of  all  obstacles  to  any  man 
either  working  or  earning  to  the  full  extent  of  his  capacity. 

The  argument  has  brought  us  to  the  fundamental  question  which 
underlies  all  our  industrial  troubles — the  relation  between  employers 


704  CURRENT  ECONOMIC  PROBLEMS 

and  employed.  The  limitation  of  production,  whether  by  labor  re- 
strictions on  output  or  cutting  of  piece  rates  by  employers,  springs 
from  the  belief  that  the  interests  of  employers  and  employed  are  in- 
evitably and  fundamentally  hostile.  If  it  can  be  shown  that  their  in- 
terests are  concurrent  as  regards  production  and  only  partially  op- 
posed even  as  regards  distribution,  the  way  will  have  been  paved  for 
a  compromise  which  will  leave  both  parties  free  to  co-operate  in  the 
work  of  industrial  reconstruction. 

The  relations  of  employers  and  employed  are  partly  antagonistic 
as  regards  distribution,  because  it  is  to  the  interest  of  each  to  secure 
a  relatively  large  share  of  wealth  produced.  They  are  not  wholly  op- 
posed, even  in  this  respect,  because  it  is  to  the  interest  of  the  employer 
that  his  workpeople's  standard  of  life  shall  be  sufficiently  high  to 
promote  efficiency  and  afford  a  reasonable  incentive  to  effort;  it  is 
to  the  interest  of  the  workman  that  the  firm  shall  be  sufficiently  pros- 
perous to  provide  steady  employment.  Good  work  cannot  be  ex- 
pected from  men  who  are  ill-fed  and  insufficiently  clothed,  or  who 
feel  that  they  derive  no  advantage  from  increased  production.  Con- 
tinued employment  cannot  be  expected  from  a  firm  which  is  not  mak- 
ing a  profit  on  its  business.  The  qualification  becomes  still  more 
important  when  it  is  extended  from  the  relations  existing  in  a  par- 
ticular firm  to  industry  as  a  whole.  It  is  to  the  interest  of  all  em- 
ployers engaged  in  the  supply  of  common  commodities  that  wages 
as  a  whole  should  be  good,  in  order  that  the  purchasing  power  of 
their  customers  may  be  high.  It  is  to  the  interest  of  the  workers,  who 
are  also  consumers,  that  firms  producing  articles  of  general  use 
should  be  sufficiently  prosperous  to  keep  plant  up  to  date  and  produce 
well  and  cheaply. 

The  interests  of  employers  and  employed  are  concurrent  as  re- 
gards production,  because  it  is  to  the  benefit  of  each  that  the  total 
available  for  distribution  shall  be  as  large  as  possible.  The  interest 
of  the  working  class  in  increase  of  output  may  be  limited  by  other 
than  economic  considerations.  They  will  not  accept  for  the  sake  of 
increased  wages  methods  of  work  which  involve  loss  of  self-respect 
or  a  narrowing  of  their  life  by  undue  restriction  of  leisure.  To  this 
extent  the  interest  of  the  employer  may  be  over-ridden  by  considera- 
tions of  social  welfare.  The  real  conflict  is  between  his  economic 
interests  as  an  employer  of  labor  and  the  social  interests  of  the  com- 
munity of  which  he  is  a  member-  But  the  employer  and  employed 
are  both  concerned  in  increased  efficiency  of  production,  which  im- 
plies equal  or  improved  output  at  less  cost  to  the  employer  and  with 
less  strain  to  the  employed.     Here,  too,  it  is  to  be  noted  that  the 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  705 

workman,  as  consumer,  will  benefit  by  any  increase  in  the  general 
efficiency  of  production. 

C.     EFFICIENCY 
315.     Labor  and  Efficiency* 

BY  FREDERICK  W.  TAYLOR 

It  is  safe  to  say  that  no  system  or  scheme  of  management  should 
be  considered  which  does  not  in  the  long  run  give  satisfaction  to  both 
employer  and  employee,  which  does  not  make  it  apparent  that  their 
best  interests  are  mutual,  and  which  does  not  bring  about  such, 
thorough  and  hearty  co-operation  that  they  can  pull  together  instead 
of  apart.  It  cannot  be  said  that  this  condition  has  as  yet  been  at  all 
generally  recognized  as  the  necessary  foundation  for  good  manage- 
ment. On  the  contrary,  it  is  still  quite  generally  regarded  as  a  fact 
by  both  sides  that  in  many  of  th%,most  vital  matters  the  best  interests 
of  employers  are  necessarily  opposed  to  those  of  the  men.  In  fact, 
the  two  elements  which  we  will  all  agree  are  most  wanted  on  the  one 
hand  by  the  men  and  on  the  other  hand  by  the  employers  are  gen- 
erally looked  upon  as  antagonistic. 

What  the  workmen  want  from  their  employer  beyond  anything 
else  is  high  wages,  and  what  employers  want  from  their  workmen 
most  of  all  is  a  low  labor  cost  of  manufacture. 

These  two  conditions  are  not  diametrically  opposed  to  one  another 
as  would  appear  at  first  glance ;  on  the  contrary,  they  can  be  made 
to  go  together  in  all  classes  of  work,  without  exception,  and  in  the 
writer's  judgment  the  existence  or  absence  of  these  two  elements 
forms  the  best  index  to  either  good  or  bad  management. 

The  only  condition  which  contains  the  elements  of  stability  and 
permanent  satisfaction  is  that  in  which  both  employer  and  employees 
are  doing  as  well  or  better  than  their  competitors  are  likely  to  do, 
and  this  in  nine  cases  out  of  ten  means  high  wages  and  low  labor 
cost,  and  both  parties  should  be  equally  anxious  for  these  conditions 
to  prevail.  With  them  the  employer  can  hold  his  own  with  the  com- 
petitors at  all  times.  Without  them  both  parties  may  do  well  enough 
in  busy  times,  but  both  parties  are  likely  to  suffer  when  work  becomes 
scarce. 

The  possibility  of  coupling  high  wages  with  a  low  labor  cost 
rests  mainly  upon  the  enormous  diflference  between  the  amount  of 

"Adapted  from  "Shop  Management,"  Transactions  of  the  Society  of 
Mechanical  Engineers,  XXIV  (1903),  1343-47. 


7o6  CURRENT  ECONOMIC  PROBLEMS 

work  which  a  first-class  man  can  do  under  favorable  circumstances 
and  the  work  which  is  actually  done  by  the  average  man. 

That  there  is  a  difference  betwen  the  average  and  first-class  man 
is  known  to  all  employers,  but  that  the  first-class  man  can  do  in  most 
cases  two  to  four  times  as  much  as  is  done  on  an  average  is  known 
to  but  few,  and  is  fully  realized  only  by  those  who  have  made  a 
thorough  and  scientific  study  of  the  possibilities  of  men. 

The  writer  has  found  this  enormous  difference  between  the  first- 
class  and  average  man  to  exist  in  all  of  the  trades  and  branches  of 
labor  which  he  has  investigated,  and  this  covers  a  large  field,  as  he, 
together  with  several  of  his  friends,  has  been  engaged  with  more 
than  usual  opportunities  for  twenty  years  past  in  carefully  and  sys- 
tematically studying  this  subject. 

It  must  be  distinctly  understood  that  in  referring  to  the  possi- 
bilities of  a  first-class  man  the  writer  does  not  mean  what  he  can  do 
when  on  a  spurt  or  when  he  is  overexerting  himself,  but  what  a  good 
man  can  keep  up  for  a  long  term  of  years  without  injury  to  his 
health,  and  become  happier  and  thrive  under. 

The  second  and  equally  interesting  fact  upon  which  the  possibility 
of  coupling  high  wages  with  low  labor  cost  rests,  is  that  first-class  men 
are  not  only  willing  but  glad  to  work  at  their  maximum  speed,  pro- 
viding they  are  paid  from  30  to  icx>  per  cent  more  than  the  average 
of  their  trade. 

The  exact  percentage  by  which  the  wages  must  be  increased  in 
order  to  make  them  work  to  their  maximum  is  not  a  subject  to  be 
theorized  over,  settled  by  boards  of  directors,  sitting  in  solemn  con- 
clave, nor  voted  upon  by  trade  unions.  It  is  a  fact  inherent  in  human 
nature  and  has  only  been  determined  through  the  siow  and  difficult 
process  of  trial  and  error. 

The  writer  has  found,  for  example,  after  making  many  mistakes 
above  and  below  the  proper  mark,  that  to  get  the  maximum  output 
for  ordinary  shop  work  requiring  neither  especial  brains,  very  close 
application,  skill,  nor  extra  hard  work,  such,  for  instance,  as  the 
more  ordinary  kinds  of  routine  machine-shop  work,  it  is  necessary 
■:o  pay  about  30  per  cent  more  than  the  average.  For  ordinary  day 
labor  requiring  little  brains  or  special  skill,  but  calling  for  strength, 
severe  bodily  exertion  and  fatigue,  it  is  necessary  to  pay  from  50  to 
60  per  cent  above  the  average.  For  work  requiring  special  skill  or 
brains,  coupled  with  close  application  but  without  severe  bodily 
exertion,  such  as  the  more  difficult  and  delicate  machinist's  work, 
from  70  per  cent  to  80  per  cent  beyond  the  average.  For  work  re- 
quiring skill,  brains,  close  application,  strength,  and  severe  bodily 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  707 

exertion,  such,  for  instance,  as  that  involved  in  running  a  well-run 
steam  hammer  doing  miscellaneous  work,  from  80  per  cent  to  100  per 
cent  beyond  the  average.  Men  will  not  work  at  their  best  unless  as- 
sured a  good  liberal  increase,  which  must  be  permanent. 

It  is  the  writer's  judgment,  on  the  other  hand,  that  for  their  own 
good  it  is  as  important  that  workmen  should  not  be  very  much  over- 
paid, as  that  they  should  not  be  underpaid.  If  overpaid,  many  will 
work  irregularly  and  tend  to  become  more  or  less  shiftless,  extrava- 
gant, and  dissipated.  It  does  not  do  for  most  men  to  get  rich  too 
fast.  The  writer's  observation,  however,  would  lead  him  to  the  con- 
clusion that  most  men  tend  to  become  more  instead  of  less  thrifty 
when  they  receive  the  proper  increase  for  an  extra  hard  day's  work, 
as,  for  example,  the  percentages  of  increase  referred  to  above.  They 
live  rather  better,  begin  to  save  money,  become  more  sober,  and  work 
more  steadily.  This  certainly  forms  one  of  the  strongest  reasons  for 
advocating  this  type  of  management. 

316.     The  Nature  of  Scientific  Management^ 

BY  MAURICE  L.  COOKE 

What  we  want  in  any  industrial  establishment,  if  we  are  to  reach 
the  highest  point  in  productivity,  is  to  have  every  individual  use  his 
highest  powers  to  the  best  advantage.  This  is  the  final  goal  of  sci- 
entific management.  It  is  the  goal  both  for  the  individual  and  for 
society.  If  you  can  picture  a  society  in  which  every  unit  is  using 
his  highest  faculties  to  the  best  advantage,  you  will  see  that  it  ap- 
proximates the  millennium. 

The  moment  you  adopt  this  as  a  standard,  however,  you  must 
frame  your  organization  so  that  every  employee,  from  the  humblest 
to  the  highest,  is  given  a  chance  to  exercise  his  highest  powers  to  the 
best  advantage.  He  must  not  only  not  be  hindered,  but  he  must 
be  helped,  and  helped  to  the  extent  of  pointing  out  and  developing 
faculties  and  powers  of  which  he  may  have  been  unaware.  Under 
scientific  management  we  think  that  we  are  learning  how  to  do  this. 
Alfred  Marshall  has  called  attention  to  the  fact  that  perhaps  half  the 
brains  of  the  world  are  in  the  so-called  working  classes  and  that  "of 
this  a  great  part  is  fruitless  for  want  of  opportunity."  Under  the 
new  methods  this  great  storehouse  of  wealth  will  be  tapped,  not  we 
hope  for  the  benefit  of  the  few,  but  for  the  benefit  of  all. 

■'Adapted  from  "The  Spirit  and  Social  Significance  of  Scientific  Man- 
agement," Journal  of  Political  Economy,  XXI  (1913).  485-87. 


7o8  CURRENT  ECONOMIC  PROBLEMS 

To  define  scientific  management  is  no  easy  task.  Hugo  Diemer 
says  that  Mr.  Taylor 

considers  a  manufacturing  establishment  just  as  one  would  an  intricate 
machine.  He  analyzes  each  process  into  its  ultimate  simple  elements  and 
compares  each  of  these  simplest  steps  or  processes  with  an  ideal  or  perfect 
condition.  He  then  makes  all  due  allowance  for  rational  and  practical  con- 
ditions and  establishes  an  attainable  commercial  standard  for  every  step.  The 
next  process  is  that  of  attaining,  continuously,  the  standard,  involving  both 
quality  and  interlocking,  or  assembling,  of  all  these  primal  elements  into  a 
well-arranged,  well-built,  smooth-running  machine. 

Mr.  Taylor  says  that  the  philosophy  of  scientific  management  is 
embraced  under  these  four  principles: 

1.  The  development  of  a  science  in  place  of  "rule  of  thumb"  for  each 
element  of  the  work. 

2.  The  scientific  selection  and  training  of  the  workman. 

3.  The  bringing  of  the  science  and  the  scientifically  trained  workmen 
together  through  the  co-operation  of  the  management  with  the  man. 

4.  An  almost  equal  division  of  the  work  and  the  responsibility  between 
the  management  and  the  workmen,  the  management  taking  over  all  work  for 
which  they  are  better  fitted  than  the  workmen,  while  in  the  past  almost  all 
of  the  work,  and  the  greater  part  of  the  responsibility,  were  thrown  upon 
the  workman. 

Quiet  informally,  scientific  management  may  be  thus  defined : 

1.  It  is  a  definite  working  policy  applicable  wherever  human 
eflfort  is  put  forth. 

2.  It  is  the  introduction  of  the  laboratory  method  in  everyday 
affairs. 

3.  It  is  the  acceptance  of  the  dictates  of  science  instead  of  those 
of  personal  opinion  and  tradition. 

4.  It  is  the  establishment  of  the  fact  that  not  to  know  is  no 
crime — that  the  crime  is  not  being  willing  to  find  out. 

5.  It  is  a  type  of  co-operation  more  intensive  than  the  world  has 
yet  seen. 

6.  It  is  filling  in — not  bridging — the  chasm  between  capital  and 
labor. 

7.  It  is  making  our  industrial  life  square  up  with  the  best  we 
know  in  our  personal  and  social  relations. 

8.  It  involves  a  very  radical  change  in  the  attitude  both  of  the 
men  and  of  the  management  to  the  work  on  which  they  are  mutually 
engaged. 

Practically  everything  that  is  done  in  developing  scientific  man- 
agement in  an  establishment  has  for  its  object  the  setting  of  tasks. 
A  task  is  simply  a  fair  day's  work  and — let  us  not  forget — one  that 
can  be  repeated  day  in  and  day  out,  year  in  and  year  out,  if  necessary, 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  709 

without  detriment  to  the  physical,  mental  and  moral  well-being  of  the 
person  performing  it.  Unless  you  are  able  to  set  tasks  you  cannot 
have  scientific  management, 

317.     The  Attitude  of  Organized  Labor« 

We  are  opposed  to  any  system  of  shop  management  which  re- 
quires one  man  to  stand  over  another,  timing  him  with  a  stop  watch 
in  order  to  speed  him  up  beyond  his  normal  capacity.  In  addition 
to  the  brutality  of  such  a  proceeding,  no  stop  watch  time  study  can 
possibly  be  accurate.  Every  physical  act  performed  by  man  is  pre- 
ceded by  a  mental  process.  The  greater  the  amount  of  skill  required 
in  the  work,  the  greater  the  mental  process  preceding  the  physical 
expression  of  it,  and  there  is  no  method  known  to  efficiency  engineers 
or  others  by  which  a  time  study  can  be  made  by  a  stop  watch  or  any 
other  time-measuring  device  of  the  mental  process  which  precedes 
the  physical  act.  The  mental  process  being  a  necessary  part  of  the 
work  itself,  the  failure  to  make  a  time  study  of  that  operation  of  the 
work  makes  the  study  inaccurate,  and  secondly,  worthless  as  a  basis 
for  computing  compensation. 

To  establish  a  bonus  or  premium  system  upon  such  a  time  study 
is  wrong,  induces  the  workman  to  toil  beyond  his  normal  capacity, 
and  the  whole  system  has  a  tendency  to  wear  the  worker  to  a  nervous 
wreck,  destroy  his  physical  and  mental  health,  and  ultimately  land 
him  as  a  charge  upon  the  community  in  some  of  our  eleemosynary 
institutions. 

Resolved,^  That  the  Thirty-eighth  Annual  Convention  of  the 
American  Federation  of  Labor  reiterate  its  former  position  against 
the  introduction  of  these  systems  of  so-called  "scientific  manage- 
ment" and  urge  Congress  to  restore  the  language  above  referred  to 
which  was  eliminated  from  the  Naval  Appropriation  bill  in  the  Sen- 
ate and  to  incorporate  the  same  anti-Taylor  system  proviso  in  the 
appropriation  bills  which  have  carried  it  heretofore. 

318.     Modem  Industry  and  Craft  SkilP° 

The  one  great  asset  of  the  wageworker  has  been  his  craftsman- 
ship. We  think  of  craftsmanship  ordinarily  as  the  ability  to  manipu- 
late skilfully  the  tools  and  materials  of  a  craft  or  trade.    But  true 

^Resolutions  passed  by  the  National  Convention  of  the  American  Federa- 
tion of  Labor,  November  22,  1912. 

^Unanimously  adopted  June  14,  1918. 

i^An  editorial  with  the  foregoing  caption  in  the  International  Moulders' 
iournal,  LI  (1915),  197-98. 


7IO  CURRENT  ECONOMIC  PROBLEMS 

craftsmanship  is  much  more  than  this.  The  really  essential  element 
in  it  is  not  manual  skill  and  dexterity,  but  something  stored  up  in 
the  mind  of  the  worker.  This  something  is  partly  the  intimate 
knowledge  of  the  character  and  uses  of  the  tools,  materials,  and 
processes  of  the  craft  which  tradition  and  experience  have  given 
the  worker.  But  beyond  this  and  above  this,  it  is  the  knowledge 
which  enables  him  to  understand  and  overcome  the  constantly  aris- 
ing difficulties  that  grow  out  of  variations,  not  only  in  tools  and 
materials,  but  in  the  conditions  under  which  the  work  must  be  done. 

In  the  past  for  the  most  part  the  skilful  manipulation  of  the 
tools  and  materials  of  a  craft  and  this  craftsmanship  of  the  brain 
have  been  bound  up  together  in  the  person  of  the  worker  and  have 
been  his  possession.  It  is  this  unique  possession  of  craft  knowledge 
and  craft  skill  on  the  part  of  a  body  of  wage  workers — that  is,  their 
possession  of  these  things  and  the  employer's  ignorance  of  them — 
that  has  enabled  the  workers  to  organize  and  force  better  terms  from 
the  employers.  On  this  unique  possession  has  depended  more  than  on 
any  other  one  factor  the  strength  of  trade-unionism  and  the  ability 
of  unions  to  improve  the  conditions  of  their  members. 

This  being  true,  it  is  evident  that  the  greatest  blow  that  could  be 
delivered  against  unionism  and  the  organized  workers  would  be  the 
separation  of  craft  knowledge  from  craft  skill.  For  if  the  skilled 
use  of  tools  could  be  secured  from  workmen  apart  from  the  craft 
knowledge  which  only  years  of  experience  can  build  up,  the  pro- 
duction of  "skilled  workmen"  from  unskilled  hands  would  be  a  mat- 
ter in  almost  any  craft  of  but  a  few  days  or  weeks ;  any  craft  would 
be  thrown  open  to  the  competition  of  an  almost  unlimited  labor 
supply ;  the  craftsmen  in  it  would  be  practically  at  the  mercy  of  the 
employer. 

Of  late  this  separation  of  craft  knowledge  and  craft  skill  has 
actually  taken  place  in  an  ever-widening  area  and  with  an  ever- 
increasing  acceleration.  Its  process  is  shown  in  the  two  main  forms 
which  it  has  been  taking.  The  first  of  these  is  the  introduction  of 
machinery  and  the  standardization  of  tools,  machinery,  products, 
and  process,  which  make  production  possible  on  a  large  scale  and  the 
specialization  of  the  workmen.  Each  workman  under  such  circum- 
stances needs  and  can  exercise  only  a  little  craft  knowledge  and  a 
little  craft  skill.  But  he  is  still  a  craftsman,  though  only  a  narrow 
one  and  subject  to  much  competition  from  below.  The  second  form, 
more  insidious  and  more  dangerous  than  the  first,  but  to  the  signifi- 
cance of  which  most  of  us  have  not  yet  become  aroused,  is  the 
gathering  up  of  all  this  scattered  craft  knowledge,  systematizing  it 
and  concentrating  it  in  the  hands  of  the  employer,  and  then  doling 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  711 

it  out  again  in  the  form  of  minute  instructions,  giving  to  each  worker 
only  the  knowledge  needed  for  the  mechanical  performance  of  a  par- 
ticular relatively  minute  task.  This  process,  it  is  evident,  separates 
skill  and  knowledge  even  in  their  narrow  relationship.  When  it  is 
completed  the  worker  is  no  longer  a  craftsman  in  any  sense,  but  is 
an  animated  tool  of  the  management.  He  has  no  need  of  special  craft 
knowledge  or  craft  skill,  or  any  power  to  acquire  them  if  he  had,  and 
any  man  who  walks  the  streets  is  a  competitor  for  his  job. 

There  is  no  body  of  skilled  workmen  today  safe  from  the  one 
or  the  other  of  these  forces  tending  to  deprive  them  of  their  unique 
craft  knowledge  and  skill.  Only  what  may  be  termed  frontier  trades 
are  dependent  now  on  the  all-round  craftsman.  These  trades  are 
likely  at  any  time  to  be  standardized  aitd  systematized  and  to  fall 
under  the  influence  of  this  double  process  of  specialization.  The 
problem  thus  raised  is  the  greatest  one  which  organized  labor  faces. 
For  if  we  do  not  wish  to  see  the  American  workmen  reduced  to  a 
great  semi-skilled  and  perhaps  little  organized  mass,  a  new  mode 
of  protection  must  be  found  for  the  working  conditions  and  standards 
of  living  which  unionism  has  secured,  and  some  means  must  be  dis- 
covered for  giving  back  to  the  worker  what  he  is  fast  losing  in  the 
narrowing  of  the  skill  and  the  theft  of  his  craft  knowledge.  It  is 
another  problem  which  the  organized  workmen  must  solve  for  them- 
selves and  society. 

319.     Scientific  Management  and  Welfare^^ 

BY  ROBERT  FRANKLIN   HOXIE 

The  more  ultimate  effects  of  scientific  management  upon  wages, 
unemployment,  and  industrial  peace  are  matters  of  pure  speculation. 
During  the  period  of  transition,  however,  there  can  be  little  doubt  of 
the  results.  The  tendency  will  be  toward  a  realignment  of  wages. 
The  craftsmen,  the  highly  trained  workers,  cannot  hope  to  maintain 
their  wage  advantage  over  the  semi-skilled  and  less  skilled  workers. 
There  will  be  a  leveling  tendency.  Whether  this  leveling  will  be  up  or 
down  it  is  impossible  to  say.  At  present  the  writer  believes  scientific 
management  is  making  the  relatively  unskilled  more  efficient  than  ever 
before,  and  that  they  are  in  general  receiving  greater  earnings.  It  is 
evident,  however,  that  the  native  efficiency  of  the  working  class  must 
suffer  from  the  neglect  of  apprenticeship,  if  no  other  means  of  in- 
dustrial education  is  forthcoming.  Scientific  managers  themselves 
have  complained  of  the  poor  and  lawless  material  from  which  they 

^^Adapted  from  Scientific  Management  and  Labor,  pp.  133-36.  Copyright 
by  D.  Appleton  and  Co.,  1915. 


712  CURRENT  ECONOMIC  PROBLEMS 

must  recruit  their  workers,  compared  with  the  efficient  and  self- 
respecting  craftsmen  who  applied  for  employment  twenty  years  ago. 

Moreover,  it  must  not  be  overlooked  that  the  whole  scheme  of 
scientific  management,  especially  the  gathering  up  and  systematiz- 
ation  of  the  knowledge  formerly  the  possession  of  the  workmen, 
tends  enormously  to  add  to  the  strength  of  capitalism.  This  fact, 
together  with  the  greater  ease  of  replacement,  must  make  the  security 
and  continuity  of  employment  inherently  more  uncertain.  It  may  not 
be  such  in  fact,  but,  if  not,  the  result  will  be  by  grace  of  the  employer. 

If  generally  increased  efficiency  is  the  result  of  scientific  manage- 
ment, unemployment  would,  in  the  end,  seem  to  become  less  a  menace. 
But  during  the  period  of  transition  we  should  expect  its  increase. 
Not.  only  must  the  old  craftsmen  suffer  as  a  result  of  the  destruction 
of  their  crafts,  but,  until  scientific  management  finds  itself  able  to 
control  markets,  its  increased  efficiency  must  result  in  gluts  in  special 
lines  with  resulting  unemployment  in  particular  trades  and  occupa- 
tions. The  writer  was  informed  by  a  leading  scientific  management 
expert  that  one  shop  in  six  in  a  certain  industry  systematized  by  him 
could  turn  out  all  the  product  the  market  would  carry.  The  result 
to  the  workers,  if  the  statement  be  true,  needs  no  explanation.  Scien- 
tific management  would  seem  to  offer  ultimate  possibilities  of  better 
market  control  or  better  adaptation  to  market  conditions,  but  the  ex- 
perience of  the  past  year  of  depression  indicates  that  at  present  no 
such  possibility  exists. 

Finally,  until  unionism  as  it  predominantly  exists  has  been  done 
away  with  or  has  undergone  essential  modifications,  scientific  man- 
agement cannot  be  said  to  make  for  the  avoidance  of  strikes  and  the 
establishment  of  industrial  peace.  Strikes  seem  less  frequent  in 
scientific  management  shops  than  elsewhere,  but  this  is  owing  largely 
to  the  fact  that  organized  workmen  are  on'  the  whole  little  employed. 
So  long  as  present-day  unionism  believes  that  scientific  management 
means  the  destruction  of  their  organizations,  it  will  continue  to  oppose 
it  energetically. 

It  has  been  said  with  much  truth  that  scientific  management  is  like 
the  progressive  invention  of  machinery  in  its  effect  upon  workers  and 
social  conditions  and  welfare  generally, — that  it  gives  a  new  impulse 
to  the  industrial  revolution  and  strengthens  its  general  effects  and 
tendencies.  A  chief  characteristic  of  this  revolution  has  been  the 
breakdown  of  craftsmanship,  the  destruction  of  crafts,  and  the  carry- 
ing of  the  modern  industrial  world  forward  toward  an  era  of  special- 
ized workmanship  and  generally  semi-skilled  or  less  skilled  workmen. 
Scientific  management  seems  to  be  another  force  urging  us  forward 
toward  this  era  and  practically  adapted  to  function  in  an  age  of 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  713 

specialized  and  unskilled  workmanship.  Here  we  glimpse  the  great 
problem  with  which  its  spread  and  development  confront  modern 
society.  No  solution  or  series  of  solutions  offered  for  this  problem 
can  be  considered  at  all  which  does  not  meet  the  needs  of  such  a 
situation.  It  is  a  long-time  problem  which  requires  a  long-time 
solution. 

What  is  really  needed,  under  the  circumstances,  is  not  so  much 
repression  and  direct  control  as  social  supplementation  and  increased 
knowledge.  The  main  demands  are  for  a  frank  recognition  of  the 
trend  of  events  and  for  some  method  of  putting  back  into  the  worker's 
life  the  content  which  he  is  losing  as  the  result  of  increased  specializa- 
tion and  the  abandonment  of  the  old  apprenticeship  system.  The 
development  of  such  a  method  will,  of  course,  take  time.  In  the 
meanwhile,  we  need  more  thorough  study  and  general  publicity  con- 
cerning the  true  character,  policies,  and  methods  of  scientific  manage- 
ment, its  possibilities  and  limitations ;  concerning  the  real  character, 
intelligence,  and  spirit  of  those  engaged  in  its  application,  the  qualities 
and  qualifications  required  by  the  best  social  standards  for  the  exer- 
cise of  this  power  and  responsibility,  and  the  progressive  education 
of  scientific  management  experts  and  employers,  labor  and  the  public, 
to  the  needs  and  requirements  of  the  situation. 

320.     Employment  Management'^ 

It  has  taken  the  exigencies  of  war  to  bring  home  to  employers  the 
imperative  need  for  expert  administration  of  their  labor  problems. 
In  the  lag  times  of  peace  they  were  somehow  able  to  muddle  through. 
But  the  new  war  industries  requires  not  only  men,  but  skilled  men  in 
excess  of  the  available  supply.  Our  industrial  army  is  undergoing 
an  expansion  parallel  to  the  expansion  of  the  military  force. 

Today  this  expertness  is  being  developed  by  high  specialization, 
by  setting  up  a  fourth  major  department  in  our  factories — a  personnel 
or  employment  management  department  to  supplement  the  financial, 
production,  and  sales  departments.  Executives  competent  to  take 
charge  of  these  personnel  departments  are  consequently  in  great  de- 
mand. In  response  to  this  demand  the  War  Department  has  instituted 
training  classes  for  employment  managers  in  a  number  of  technical 
schools  and  universities. 

The  birth  of  the  National  Employment  Managers'  Association, 
a  national  organization  to  sponsor  the  movement  for  trained  per- 
sonal executives,  is  tantamount  to  the  birth  of  (a  new  profession.    It 

i^Adapted  from  "The  Rise  of  a  New  Profession,"  New  Republic,  XV, 
102-3.    Copyright,  1918. 


714  CURRENT  ECONOMIC  PROBLEMS 

promises  the  development  of  a  body  of  technique  and  method  in  the 
long  neglected  field  of  labor  administration,  for  the  competent  appli- 
cation of  which  a  rigorous  professional  training  and  professional 
status  are  essential.  This  is  in  line  with  the  specializing  tendency 
which  in  the  last  quarter-century  has  created  the  professions  of  ac- 
countancy, industrial  engineering,  and  scientific  management. 

But  once  this  becomes  a  fact,  once  it  is  admitted  that  there  is  a 
body  of  technical  knowledge  capable  of  transmission,  serious  ques- 
tions arise  as  to  the  field  and  controlling  point  of  view  of  the  new 
profession.  The  human  equation  is  distinctly  not  of  the  same  char- 
acter as  the  problems  of  cost  accounting,  arrangement  of  machinery, 
and  routing  of  work.  The  handling  of  human  beings,  the  adjust- 
ment of  subtle  human  relationships,  is  fundamentally  a  problem 
where  the  interests  served  by  the  personnel  executive  and  the  ulte- 
rior motives  animating  his  handling  of  men  inevitably  determine  his 
point  of  view  and  procedure. 

The  province  of  the  personnel  manager,  is  to  administer  the  selec- 
tion and  discharge  of  employees,  the  development  of  sources  of  com- 
petent labor,  the  improvement  of  working  conditions,  and  the  deter- 
mination of  equitable  standards  of  output  in  relation  to  pay.  While, 
of  course,  this  conception  involves  the  permeation  of  the  entire  fac- 
tory organization  by  the  human  interest  of  the  personnel  executive, 
it  means  specifically  that  the  employment  manager  is  charged  with 
responsibility  for  four  problems — selection,  training,  payment,  dis- 
charge. 

321.     Industrial  Physiology'^ 

BY  FREDERIC  S.  LEE 

In  surveying  the  extraordinary  growth  of  industry  during  recent 
decades  one  cannot  fail  to  be  struck  by  its  many-sided  aspects,  the 
diversity  of  its  problems,  and  the  variety  of  human  intellects  that 
have  been  called  upon  to  solve  these  problems.  Industry  is  not  simply 
an  affair  of  employer  and  employees;  it  has  its  manufacturing  as- 
pects, its  economic  aspects,  its  engineering  aspects,  its  medical  aspects, 
its  chemical  aspects,  its  human  aspects,  and  its  efficiency  aspects. 
Quite  recently  its  aspects  of  efficiency  have  risen  into  great  prom- 
inence. What  has  been  called  scientific  management  has  accom- 
plished something  in  promoting  industrial  efficiency,  but  a  critical 
analysis  of  it  reveals  its  inability  to  go  far  in  eliminating  inefficiency. 

The  fact  must  be  recognized  that  in  the  body  of  the  worker,  with 
its  combination  of  living  organs  and  tissues,  undergoing  chemical 
reactions  and  transforming  energy  under  the  direction  of  a  nervous 

i^Adapted  from  "The  New  Science  of  Industrial  Physiology,"  Public 
Health  Reports  (1919),  XXXIV,  723-28. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSI'RY  715 

system,  we  have  a  very  intricate  mechanism,  upon  the  proper  work- 
ing of  which  depends,  in  large  degree,  industrial  efficiency.  The  war, 
with  its  extraordinary  call  upon  human  energies,  has  emphasized 
as  never  before  the  hygienic  or,  more  properly  speaking,  the  physio- 
logical aspects  of  industrial  activity.  During  the  past  few  years  the 
beginnings  of  a  new  science,  an  industrial  physiology,  have  appeared 
and  attracted  the  attention  of  scientific  men  and  the  more  sagacious 
of  industrial  leaders. 

By  "industrial  physiology"  I  mean  to  designate  the  sum  of  knowl- 
edge pertaining  to  the  working  of  the  human  mechanism  in  industrial 
activity.  It  has  two  objects :  First,  the  scientific  one  of  learning 
how  the  industrial  worker  actually  performs  his  work  and  what  the 
conditions  are  under  which  he  can  work  most  efficiently,  while  at 
the  same  time  maintaining  his  body  in  health  and  in  the  best  working 
condition ;  second,  the  more  practical  one  of  establishing  in  the  fac- 
tories the  conditions  which  conduce  at  the  same  time  to  the  maximum 
output  and  the  maximum  power  of  the  worker.  The  former  of  these 
objects  is  now  being  achieved;  the  latter  will  be  achieved  when  it 
becomes  clear  to  both  employers  and  workmen  that  it  is  an  advantage 
to  both  that  industrial  work  be  organized  on  an  intelligent  basis. 

The  methods  by  which  industrial  physiology  are  being  developed 
are  the  recognized  methods  of  all  scientific  investigation,  namely, 
observation  and  experiment.  The  investigations  are  carried  on 
chiefly  in  the  factories,  the  workers  being  used  as  the  subjects  and 
ui.der  their  actual  working  conditions,  these  conditions  being  changed 
when  it  is  desired  to  compare  the  efficiency  of  one  set  of  conditiops 
with  that  of  another.  Exact  measurements  of  output  are  made,  and, 
where  it  is  possible,  exact  tests  of  the  physiological  effects  of  the  work 
are  employed.  Every  effort  is  made  to  procure  exact  data  and  utilize 
these  as  a  basis  for  forming  conclusions  rather  than  to  rely  upon 
mere  opinion  and  preconceived  notion. 

Some  of  the  topics  that  have  been  or  are  being  investigated  and 
some  of  the  results  are  the  following : 

Certain  physiological  and  psychological  tests  have  been  employed 
with  workers,  and  it  appears  practicable  to  employ  some  of  these 
tests  in  selecting  workers  and  assigning  them  to  jobs. 

The  output  of  the  successive  hours  of  the  working-day  in  different 
types  of  operations  have  been  measured  and  the  daily  curves  of  the 
output  have  been  plotted.  These  vary  with  the  kind  of  operation, 
but  are  alike  in  showing  a  reduced  efficiency  as  the  day  proceeds. 

Reduction  in  the  length  of  the  working-day  is  characterized  by 
an  increase  in  output  of  the  successive  hours  and  usually  by  a  total 
increase  in  that  of  the  day.  The  optimum  duration  of  work  probably 
varies  with  the  character  of  work  itself. 


7i6  CURRENT  ECONOMIC  PROBLEMS 

The  introduction  of  resting  periods  in  the  working  spell  is  ac- 
companied especially  when  the  working-day  is  long,  by  a  total  in- 
crease in  the  day's  production.  A  five-hour  working  spell,  unbroken, 
is  probably  always  too  long. 

Overtime  following  a  day  of  labor  is  probably  inadvisable,  as  is 
also  Sunday  work  following  a  week's  labor.  These  tend  to  impair 
the  working  power  of  the  worker. 

A  hot  day  tends  to  impair  strength  and  reduce  output.  Every 
effort  should  be  made  to  keep  the  body  of  the  worker  cool. 

Night  work  is,  in  general,  less  efficient  than  day  work.  Its  total 
output  is  less,  and  this,  with  a  long  working-night,  falls  off  enormously 
in  the  early  morning  hours.  Alternation  of  periods  of  night  work 
with  periods  of  day  work  is  more  profitable  than  continuous  night 
work. 

Women  are  capable  of  a  greater  variety  of  industrial  occupations 
than  has  hitherto  been  recognized.  Their  problem  is  not  of  their 
greater  or  less  general  efficiency  than  men,  but  rather  of  what  type 
of  work  they  are  best  fitted  for. 

Accidents  to  workers  are  a  great  source  of  inefficiency.  They  are 
caused  by  fatigue,  inexperience,  speed,  insufficient  lighting,  high  tem- 
perature, and  like  factors. 

Food  and  efficiency  are  directly  connected  with  one  another. 

A  high  labor  turnover  is  incompatible  with  efficiency.  It  is  ex- 
pensive, entailing  high  cost  of  training,  and  is  a  serious  cause  of 
accidents. 

With  the  ending  of  the  war  the  problems  of  industry  press  for 
solution  more  earnestly  than  ever.  One  of  the  most  timely  of  these 
concerns  the  physiological  aspects  of  the  human  machine.  Upon  us 
in  America  there  is  imposed  a  grave  duty — that  of  directing  investi- 
gation along  such  lines  that  erhpiricism  and  tradition,  two  obstacles 
long  potent  in  industrial  evolution,  shall  be  cast  out  and  industry 
shall  be  placed  permanently  upon  a  scientific  basis. 

D.     ORDER 
322.     Joint  Standing  Industrial  Councils" 

We  have  the  honor  to  submit  the  following  interim  report  on 

joint  standing  industrial  councils : 

2.     The  terms  of  reference  to  the  subcommittee  are : 

( I )     To  make  and  consider  suggestions  for  securing  a  permanent 

improvement  in  the  relations  between  employers  and  workmen. 

^*The  Interim  Report  by  the  Committee  on  Relations  between  Employers 
and  Employees  (the  Whitley  Committee)  of  the  British  Ministry  of  Recon- 
struction (1917). 

In  all  this  committee  issued  six  published  statements,  of  which  this  is  the 
first.    The  second  dealt  with  joint  standing  industrial  councils  for  unorganized 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  717 

(2)  To  recommend  means  for  securing  that  industrial  condition 
affecting  the  relations  between  employers  and  workmen  shall  be 
systematically  revised  by  those  concerned,  with  a  view  to  improving 
conditions  in  the  future. 

3.  After  a  general  consideration  of  our  duties  in  relation  to  the 
matters  referred  to  us,  we  decided  first  to  address  ourselves  to  the 
problem  of  establishing  permanently  improved  relations  between  em- 
ployers and  employed  in  the  main  industries  of  the  country,  in  which 
there  exist  representative  organizations  on  both  sides.  The  present 
report  accordingly  deals  more  especially  with  these  trades.  We  are 
proceeding  with  the  consideration  of  the  problems  connected  with  the 
industries  which  are  less  well  organized. 

4.  We  appreciate  that  under  the  pressure  of  the  war  both  em- 
ployers and  workpeople  and  their  organizations  are  very  much  pre- 
occupied, but,  notwithstanding,  believe  it  to  be  of  the  highest  im- 
portance that  our  proposals  should  be  put  before  those  concerned 
without  delay,  so  that  employers  and  employed  may  meet  in  the  near 
future  and  discuss  the  problems  before  them. 

5.  The  circumstances  of  the  present  time  are  admitted  on  all 
sides  to  offer  a  great  opportunity  for  securing  a  permanent  improve- 
ment in  the  relations  between  employers  and  employed,  while  failure 
to  utilize  the  opportunity  may  involve  the  nation  in  grave  industrial 
difficulties  at  the  end  of  the  war. 

It  is  generally  allowed  that  the  war  enforced  some  reconstruction 
of  industry,  and  in  considering  the  subjects  referred  to  us  we  have 
kept  in  view  the  need  for  securing  in  the  development  of  reconstruc- 
tion the  largest  possible  measures  of  co-operation  between  employers 
and  employed. 

In  the  interests  of  the  community  it  is  vital  that  after  the  war  the 
co-operation  of  all  classes,  established  during  the  war,  should  con- 
tinue, and  more  especially  with  regard  to  the  relations  between  em- 
ployers and  employed.  For  securing  improvement  in  the  latter,  it 
is  essential  that  any  proposals  put  forward  should  offer  to  work- 
people the  means  of  attaining  improved  conditions  of  employment 
and  a  higher  standard  of  comfort  generally,  and  involve  the  enlist- 
ment of  their  active  and  continuous  co-operation  in  the  promotion 
of  industry. 

To  this  end,  the  establishment  for  each  industry  of  an  organiza- 
tion, representative  of  employers  and  workpeople,  to  have  as  its 


trades.  An  adaptation  of  the  third,  or  supplementary  report  is  given  in  the 
next  selection.  The  fourth  was  a  memorandum  on  industrial  councils  and 
trade  boards ;  the  fifth  a  report  upon  conciliation  and  arbitration ;  and  the  sixth 
a  "final  report"  that  does  little  more  than  summarize  the  other  published 
reports. 


7i8  CURRENT  ECONOMIC  PROBLEMS 

object  the  regular  consideration  of  matters  affecting  the  progress  and 
well-being  of  the  trade  from  the  point  of  view  of  all  those  engaged 
in  it,  so  far  as  this  is  consistent  with  the  general  interest  of  the  com- 
munity, appears  to  us  necessary. 

6.  Many  complicated  problems  have  arisen  during  the  war  which 
have  a  bearing  both  on  employers  and  workpeople,  and  may  affect 
the  relations  between  them.  It  is  clear  that  industrial  conditions  will 
need  careful  handling  if  grave  difficulties  and  strained  relations  are 
to  be  avoided  after  the  war  has  ended.  The  precise  nature  of  the 
problems  to  be  faced  naturally  varies  from  industry  to  industry,  and 
even  from  branch  to  branch  within  the  same  industry.  Their  treat- 
ment consequently  will  need  an  intimate  knowledge  of  the  facts  and 
circumstances  of  each  trade,  and  such  knowledge  is  to  be  found  only 
among  those  directly  connected  with  the  trade. 

7.  With  a  view  to  providing  means  for  carrying  out  the  policy 
outlined  above,  we  recommend  that  His  Majesty's  government  should 
propose  without  delay  to  the  various  associations  of  employers  and 
employed  the  formation  of  joint  standing  industrial  councils  in  the 
several  industries,  where  they  do  not  already  exist,  composed  of  rep- 
resentatives of  employers  and  employed,  regard  being  to  the  various 
sections  of  the  industry  and  the  various  classes  of  labor  engaged. 

8.  The  appointment  of  a  chairman  or  chairmen  should,  we  think, 
be  left  to  the  council  who  may  decide  that  there  should  be:  (i)  a 
chairman  for  each  side  of  the  council ;  (2)  a  chairman  and  vice 
chairman  selected  from  the  members  of  the  council  (one  from  each 
side  of  the  council)  ;  (3)  a  chairman  chosen  by  the  council  from 
independent  persons  outside  the  industry ;  or  (4)  a  chairman  nomi- 
nated by  such  person  or  authority  as  the  council  may  determine  or, 
failing  agreement,  by  the  government. 

9.  The  council  should  meet  at  regular  and  frequent  intervals. 

10.  The  object  to  which  the  consideration  of  the  councils  should 
be  directed  should  be  appropriate  matters  affecting  the  several  in- 
dustries and  particularly  the  establishment  of  a  closer  co-operation 
between  employers  and  employed.  Questions  connected  with  demo- 
bilization will  call  for  early  attention. 

11.  One  of  the  chief  factors  in  the  problem,  as  it  at  first  pre- 
sents itself,  consists  of  the  guaranties  given  by  the  government,  with 
parliamentary  sanction,  and  the  various  undertakings  entered  into  by 
employers,  to  restore  the  trade-union  rules  and  customs  suspended 
during  the  war.  While  this  does  not  mean  that  all  the  lessons  learned 
during  the  war  should  be  ignored,  it  does  mean  that  the  definite  co- 
operation and  acquiescence  by  both  employers  and  employed  must  be 
a  condition  of  any  setting  aside  of  these  guaranties  or  undertakings, 


PROBLEMS  OP  CONTROL  WITHIN  INDUSTRY  719 

and  that,  if  new  arrangements  are  to  be  reached,  in  themselves  more 
satisfactory  to  all  parties  but  not  in  strict  accordance  with  the  guar- 
anties, they  must  be  the  joint  work  of  employers  and  employed. 

12.  The  matters  to  be  considered  by  the  councils  must  inevitably 
differ  widely  from  industry  to  industry,  as  different  circumstances 
and  conditions  call  for  different  treatment,  but  we  are  of  opinion  that 
the  suggestions  set  forth  below  ought  to  be  taken  into  account,  sub- 
ject to  such  modification  in  each  case  as  may  serve  to  adapt  them  to 
the  need  of  the  various  industries. 

13.  In  the  well-organized  industries,  one  of  the  first  questions  to 
be  considered  should  be  the  establishment  of  local  and  works  organiza- 
tions to  supplement  and  make  more  effective  the  work  of  the  central 
bodies.  It  is  not  enough  to  secure  co-operation  at  the  center  between 
the  national  organizations ;  it  is  equally  necessary  to  enlist  the  activity 
and  support  of  employers  and  employed  in  the  districts  and  in  indivi- 
dual establishments.  The  national  industrial  council  should  not  be 
regarded  as  complete  in  itself ;  what  is  needed  is  a  triple  organization 
— in  the  workshops,  the  districts,  and  nationally.  Moreover,  it  is 
essential  that  the  organization  at  each  of  these  three  stages  should 
proceed  on  a  common  principle,  and  that  the  greatest  measure  of 
common  action  between  them  should  be  secured. 

14.  With  this  end  in  view,  we  are  of  opinion  that  the  following 
proposals  should  be  laid  before  the  national  industrial  councils: 

a)  That  district  councils,  representative  of  the  trade-unions  and 
of  the  employers'  associations  in  the  industry,  should  be  created,  or 
developed  out  of  the  existing  machinery  for  negotiotion  in  the  vari- 
ous trades. 

b)  That  works  committees,  representative  of  the  management 
and  of  the  workers  employed,  should  be  instituted  in  particular  works 
to  act  in  close  co-operation  with  the  district  and  national  machinery. 

As  it  is  of  the  highest  importance  that  the  scheme  making  provi- 
sion for  these  committees  should  be  such  as  to  secure  the  support  of 
the  trade-unions  and  employers'  associations  concerned,  its  design 
should  be  a  matter  for  agreement  between  these  organizations. 

Just  as  regular  meetings  and  continuity  of  co-operation  are  es- 
sential in  the  case  of  the  national  industrial  councils,  so  they  seem  to 
be  necessary  in  the  case  of  the  district  and  works  organizations.  The 
object  is  to  secure  co-operation  by  granting  workpeople  a  greater 
share  in  the  consideration  of  matters  affecting  their  industry,  and  this 
can  only  be  achieved  by  keeping  employers  and  workpeople  in  con- 
stant touch. 


720  CURRENT  ECONOMIC  PROBLEMS 

15.  The  respective  functions  of  works  committees,  district  coun- 
cils, and  national  councils  will  no  doubt  require  to  be  determined  sep- 
arately in  accordance  with  the  varying  conditions  of  different  in- 
dustries. Care  will  need  to  be  taken  in  each  case  to  delimit  accurately 
their  respective  functions,  in  order  to  avoid  overlapping  and  resulting 
friction.  For  instance,  where  conditions  of  employment  are  deter- 
mined by  national  agreements,  the  district  councils  or  works  commit- 
tees should  not  be  allowed  to  contract  out  of  conditions,  so  laid  down, 
nor,  where  conditions  are  determined  by  local  agreements,  should 
such  power  be  allowed  to  works  committees. 

16.  Among  the  questions  with  which  it  is  suggested  that  the 
national  councils  should  deal  or  allocate  to  district  councils  or  works 
committees  the  following  may  be  selected  for  special  mention : 

a)  The  better  utilization  of  the  practical  knowledge  and  ex- 
perience of  the  workpeople. 

b)  Means  for  securing  to  the  workpeople  a  greater  share  in 
and  responsibility  for  the  determination  and  observance  of  the  condi- 
tions under  which  their  work  is  carried  on.  * 

c)  The  settlement  of  the  general  principles  governing  the  con- 
ditions of  employment,  including  the  methods  of  fixing,  paying,  and 
readjusting  wages,  having  regard  to  the  need  for  securing  to  the 
workpeople  a  share  in  the  increased  prosperity  of  the  industry. 

d)  The  •establishment  of  regular  methods  of  negotiations  for 
issues  arising  between  employers  and  workpeople,  with  a  view  both 
to  the  prevention  of  differences  and  to  their  better  adjustment  when 
they  appear. 

e)  Means  of  insuring  to  the  workpeople  the  greatest  possible 
security  of  earnings  and  employment,  without  undue  restriction  upon 
change  of  occupation  or  employer. 

/)  Methods  of  fixing  and  adjusting  earnings,  piecework  prices, 
etc.,  and  of  dealing  with  the  many  difficulties  which  arise  with  regard 
to  the  method  and  amount  of  payment  apart  from  the  fixing  of  gen- 
eral standard  rates,  which  are  already  covered  by  paragraph  c). 

g)     Technical  education  and  training. 

h)     Industrial  research  and  the  full  utilization  of  its  results. 

*)  The  provision  of  facilities  for  the  full  consideration  and 
utilization  of  inventions  and  improvements  designed  by  workpeople 
and  for  the  adequate  safe-guarding  of  the  rights  of  the  designers  of 
such  improvements. 

/)  Improvements  of  processes,  machinery,  and  organization  and 
appropriate  questions  relating  to  management  and  the  examination 
of  industrial  experiments,  with  special  reference  to  co-operation  in 
carrying  new  ideas  into  effect  and  full  consideration  of  the  work- 
people's point  of  view  in  relation  to  them. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  721 

k)     Proposed  legislation  affecting  the  industry. 

17.  The  methods  by  which  the  functions  of  the  proposed  councils 
should  be  correlated  to  those  of  joint  bodies  in  the  different  districts, 
and  in  the  various  works  within  the  districts,  must  necessarily  vary 
according  to  the  trade.  It  may,  therefore,  be  the  best  policy  to  leave 
it  to  the  traders  themselves  to  formulate  schemes  suitable  to  their  spe- 
cial circumstances,  it  being  understood  that  it  is  essential  to  secure  in 
each  industry  the  fullest  measure  of  co-operation  between  employers 
and  employed,  both  generally,  through  the  national  councils,  and 
specifically,  through  district  committees  and  workshop  committees. 

18.  It  would  seem  advisable  that  the  government  should  put 
the  proposals  relating  to  national  industrial  councils  before  the  em- 
ployers' and  workpeople's  associations  and  request  them  to  adopt 
such  measures  as  are  needful  for  their  establishment  where  they  do 
not  already  exist.  Suitable  steps  should  also  be  taken,  at  the  proper 
time  to  put  the  matter  before  the  general  public. 

19.  In  forwarding  the  proposals  to  the  parties  concerned,  we 
think  the  government  should  offer  to  be  represented  in  an  advisory 
capacity  at  the  preliminary  meetings  of  a  council,  if  the  parties  so  de- 
sire. We  are  also  of  opinion  that  the  government  should  undertake 
to  supply  to  the  various  councils  such  information  on  industrial  sub- 
jects as  may  be  available  and  likely  to  prove  of  value. 

20.  It  has  been  suggested  that  means  must  be  devised  to  safe- 
guard the  interests  of  the  community  against  possible  action  of  an 
anti-social  character  on  the  part  of  the  councils.  We  have,  however, 
here  assumed  that  the  councils,  in  their  work  of  promoting  the  in- 
terests of  their  own  industries,  will  have  regard  for  the  national 
interest.  If  they  fulfil  their  functions  they  will  be  the  best  builders 
of  national  prosperity.  The  state  never  parts  with  its  inherent  over- 
riding power,  but  such  power  may  be  least  needed  when  least  ob- 
truded. 

21.  It  appears  to  us  that  it  may  be  desirable  at  some  later  stage 
for  the  state  to  give  the  sanction  of  law  to  agreements  made  by  the 
councils,  but  the  initiative  in  this  direction  should  come  from  the 
councils  themselves, 

22.  The  plans  sketched  in  the  foregoing  paragraphs  are  applica- 
ble in  the  form  in  which  they  are  given  only  to  industries  in  which 
there  are  responsible  associations  of  employers  and  workpeople  which 
can  claim  to  be  fairly  representative.  The  case  of  the  less  well- 
organized  trades  or  sections  of  a  trade  necessarily  needs  further 
consideration.  We  hope  to  be  in  a  position  shortly  to  put  forward 
recommendations  that  will  prepare  the  way  for  the  active  utilization 
in  these  trades  of  the  same  practical  co-operation  as  is  foreshadowed 
in  the  proposals  made  above  for  the  more  highly  organized  trades. 


722  CURRENT  ECONOMIC  PROBLEMS 

23.  It  may  be  desirable  to  state  here  our  considered  opinion  that 
an  essential  condition  of  securing  a  permanent  improvement  in  the 
relations  between  employers  and  employed  is  that  there  should  be 
adequate  organization  on  the  part  of  both  employers  and  workpeople. 
The  proposals  outlined  for  joint  co-operation  throughout  the  several 
industries  depend  for  their  ultimate  success  upon  there  being  such 
organization  on  both  sides ;  and  such  organization  is  necessary  also  to 
provide  means  whereby  the  arrangements  and  agreements  made  for 
the  industry  may  be  effectively  carried  out. 

24.  We  have  thought  it  well  to  refrain  from  making  suggestions 
or  offering  opinions  with  regard  to  such  matters  as  profit-sharing, 
copartnership,  or  particular  systems  of  wages,  etc.  It  would  be  im- 
practicable for  us  to  make  any  useful  general  recommendations  on 
such  matters,  having  regard  to  the  varying  conditions  in  different 
trades.  We  are  convinced,  moreover,  that  a  permanent  improvement 
in  the  relations  between  employers  and  employed  must  be  founded 
upon  something  other  than  a  cash  basis.  What  is  wanted  is  that  the 
workpeople  should  have  a  greater  opportunity  of  participating  in 
the  discussion  about  and  adjustment  of  those  parts  of  industry  b} 
w^hich  they  are  most  affected. 

25.  The  schemes  recommended  in  this  report  are  intended  not 
merely  for  the  treatment  of  industrial  problems  when  they  have  be- 
come acute,  but  also,  and  more  especially,  to  prevent  their  becoming 
acute.  We  believe  that  regular  meetings  to  discuss  the  industrial 
questions,  apart  from  and  prior  to  any  differences  with  regard  to  them 
that  may  have  begun  to  cause  friction,  will  materially  reduce  the 
number  of  occasions  on  which,  in  the  view  of  either  employers  or 
employed,  it  is  necessary  to  contemplate  recourse  to  a  stoppage  of 
work. 

26.  We  venture  to  hope  that  representative  men  in  each  industry 
with  pride  in  their  calling  and  care  for  its  place  as  a  contributor  to 
the  national  well-being,  will  come  together  in  the  manner  here  sug- 
gested, and  apply  themselves  to  promoting  industrial  harmony  and 
efficiency  and  removing  the  obstacles  that  have  hitherto  stood  in  the 
way. 

323.     The  Organization  of  Works  Committees^^ 

In  our  first  and  second  reports  we  have  referred  to  the  establish- 
ment of  works  committees,  representative  of  the  management  and  of 
the  workpeople,  and  appointed  from  within  the  works,  as  an  essential 

^^Adapted  from  Supplementary  (the  third)  Report  on  Works  Committees 
issued  by  the  Committee  on  Relations  (the  Whitley  Committee)  between  Em- 
ployers and  Employed  of  the  British  Ministry  of  Reconstruction,  1917. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  723 

part  of  the  scheme  of  organization  suggested  to  secure  improved  rela- 
tions between  employer  and  employed.  The  purpose  of  the  present 
report  is  to  deal  more  fully  with  the  proposal  to  institute  such  com- 
mittees. 

2.  Better  relations  between  employers  and  their  workpeople  can 
best  be  arrived  at  by  granting  to  the  latter  a  greater  share  in  the  con- 
sideration of  matters  with  which  they  are  concerned.  In  every  indus- 
try there  are  certain  questions,  such  as  rates  of  wages  and  hours  of 
work,  which  should  be  settled  by  district  or  national  agreement,  and 
with  any  matter  so  settled  no  works  committee  should  be  allowed 
to  interfere ;  but  there  are  also  many  questions  closely  affecting  daily 
life  and  comfort  in,  and  the  success  of,  the  business,  and  afifecting  in 
no  small  degree  efficiency  of  working,  which  are  peculiar  to  the  in- 
dividual workshop  or  factory.  The  purpose  of  a  works  committee  is 
to  establish  and  maintain  a  system  of  co-operation  in  all  these  work- 
shop matters. 

3.  We  have  throughout  our  recommendations  proceeded  upon 
the  assumption  that  the  greatest  success  is  likely  to  be  achieved  by 
leaving  to  the  representative  bodies  of  employers  and  employed  in 
each  industry  the  maximum  degree  of  freedom  to  settle  for  them- 
selves the  precise  form  of  council  or  committee  which  should  be 
adopted,  having  regard  in  each  case  to  the  particular  circumstances 
of  the  trade ;  and,  in  accordance  with  this  principle,  we  refrain  from 
indicating  any  definite  form  of  constitution  for  the  works  committee. 
Our  proposals  as  a  whole  assume  the  existence  of  organizations  of 
both  employers  and  employed,  and  a  frank  and  full  recognition  of 
such  organizations.  Works  committees  established  otherwise  than  in 
accordance  with  these  principles  could  not  be  regarded  as  a  part  of 
the  scheme  we  have  recommended,  and  might,  indeed,  be  a  hindrance 
to  the  development  of  the  new  relations  in  industry  to  which  we  look 
forward.  We  think  that  the  aim  should  be  the  complete  and  coherent 
organization  of  the  trade  on  both  sides,  and  works  committees  will 
be  of  value  in  so  far  as  they  contribute  to  such  a  result. 

4.  We  are  of  opinion  that  the  complete  success  of  works  com- 
mittees necessarily  depends  largely  upon  the  degree  and  efficiency  of 
organization  in  the  trade,  and  upon  the  extent  to  which  the  committees 
can  be  linked  up,  through  organizations  that  we  have  in  mind,  with 
the  remainder  of  the  scheme  which  we  are  proposing,  viz.,  the  district 
and  national  councils.  We  think  it  important  to  state  that  the  suc- 
cess of  the  works  committees  w^ould  be  very  seriously  interfered  with 
if  the  idea  existed  that  such  committees  were  used,  or  likely  to  be 
used,  by  employers  in  opposition  to  trade  unionism.     It  is  strongly 


724  CURRENT  ECONOMIC  PROBLEMS 

felt  that  the  setting  up  of  works  committees  without  the  co-operation 
of  the  trade-unions  and  the  employers'  associations  in  the  trade  or 
branch  of  trade  concerned  would  stand  in  the  way  of  the  improved  in- 
dustrial relationships  which  in  these  reports  we  are  endeavoring  to 
further. 

5.  In  an  industry  where  the  workpeople  are  unorganized,  or  only 
very  partially  organized,  there  is  a  danger  that  works  committees  may 
be  used,  or  thought  to  be  used,  in  opposition  to  trade-unionism.  It 
is  important  that  such  fears  should  be  guarded  against  in  the  initiation 
of  any  scheme.  We  look  upon  successful  works  committees  as  the 
broad  base  of  the  industrial  structure  which  we  have  recommended, 
and  as  the  means  of  enlisting  the  interest  of  the  workers  in  the  suc- 
cess both  of  the  industry  to  which  they  are  attached  and  of  the  work- 
shop or  factory  where  so  much  of  their  life  is  spent.  These  commit- 
tees should  not,  in  constitution  or  methods  of  working,  discourage 
trade  organizations. 

6.  Works  committees,  in  our  opinion,  should  have  regular  meet- 
ings, at  fixed  times,  and,  as  a  general  rule,  not  less  frequently  than 
once  a  fortnight.  They  should  always  keep  in  the  forefront  the  idea 
of  constructive  co-operation  in  the  improvement  of  the  industry  to 
which  they  belong.  Suggestions  of  all  kinds  tending  to  improvement 
should  be  frankly  welcomed'  and  freely  discussed.  Practical  pro- 
posals should  be  examined  from  all  points  of  view.  There  is  an  un- 
developed asset  of  constructive  ability — valuable  alike  to  the  industry 
and  to  the  state — awaiting  the  means  of  realization  ;  problems,  old  and 
new,  will  find  their  solution  in  a  frank  partnership  of  knowledge,  ex- 
perience, and  good-will.  Works  committees  would  fail  in  their  main 
purpose  if  they  existed  only  to  smooth  over  grievances. 

7.  We  recognize  that,  from  time  to  time,  matters  will  arise  which 
the  management  or  the  workmen  consider  to  be  questions  they  can- 
not discuss  in  these  joint  meetings.  When  this  occurs  we  anticipate 
that  nothing  but  good  will  come  from  the  friendly  statement  of  the 
reasons  why  the  reservation  is  made. 

8.  We  regard  the  successful  development  and  utilization  of 
works  committees  in  any  business  on  the  basis  recommended  in  this 
report  as  of  equal  importance  with  its  commercial  and  scientific 
efficiency;  and  we  think  that  in  every  case  one  of  the  partners  or 
directors,  or  some  other  responsible  representative  of  the  manage- 
ment, would  be  well  advised  to  devote  a  substantial  part  of  his  time 
and  thought  to  the  good  working  and  development  of  such  a 
committee. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  725 

9.  There  has  been  some  experience,  both  before  the  war  and  dur- 
ing the  war,  of  the  benefits  of  works  committees,  and  we  think  it 
should  be  recommended  most  strongly  to  employers  and  employed 
that,  in  connection  with  the  scheme  for  the  establishment  of  national 
and  district  industrial  councils,  they  should  examine  this  experience 
with  a  view  to  the  institution  of  works  committees  on  proper  lines, 
in  works  where  the  conditions  render  their  formation  practicable. 
We  have  recommended  that  the  Ministry  of  Labor  should  prepare  a 
summary  of  the  experience  available  with  reference  to  works  com- 
mittees, both  before  and  during  the  war,  including  information  as  to 
any  rules  or  reports  relating  to  such  committees,  and  should  issue 
a  memorandum  thereon  for  the  guidance  of  employers  and  work- 
people generally,  and  we  understand  that  such  a  memorandum  is 
now  in  course  of  preparation. 

10.  In  order  to  insure  uniform  and  common  principles  of  action, 
it  is  essential  that  where  national  and  district  industrial  councils 
exist  the  works  committees  should  be  in  close  touch  with  them,  and 
the  scheme  for  linking  up  works  committees  with  the  councils  should 
be  considered  and  determined  by  the  National  Councils. 

11.  We  have  considered  it  better  not  to  attempt  to  indicate  any 
specific  form  of  works  committees.  Industrial  establishments  show 
such  infinite  variation  in  size,  number  of  persons  employed,  multiplic- 
ity of  departments,  and  other  conditions,  that  the  particular  form  of 
works  committees  must  necessarily  be  adapted  to  the  circumstances 
of  each  case.  It  would,  therefore,  be  impossible  to  formulate  any 
satisfactory  scheme  which  does  not  provide  a  large  measure  of  elas- 
ticity. 

We  are  confident  that  the  nature  of  the  particular  organization 
necessary  for  the  various  cases  will  be  settled  without  difficulty  by 
the  exercise  of  good-will  on  both  sides. 

324.     National  Councils  for  Industries'^ 

The  Whitley  Report  on  Joint  Standing  Industrial  Councils,  in 
discussing  the  constitution  and  functions  of  such  councils,  recom- 
mended that  it  should  be  left  to  the  trades  themselves  to  constitute 
schemes  suitable  to  their  special  circumstances.  The  object  of  the 
following  memorandum  is  to  put  forward  certain  suggestions  which 
may  serve  as  a  basis  for  discussion  and  help  in  concentrating  atten- 
tion upon  some  outstanding  points  in  the  relations  of  employers  and 
workpeople  which  must  be  taken  into  consideration  in  the  actual 

^'Adapted  from  "Industrial  Councils,"  Industrial  Reports,  No.  4,  pp.  3-7, 
issued  by  the  (British)  Ministry  of  Labor,  1919. 


726  CURRENT  ECONOMIC  PROBLEMS 

formation  of  a  council.    Many  of  the  clauses  which  follow  are  drawn 
from  constitutions  already  drafted. 

The  functions  of  a  joint  industrial  council  are: 

1.  To  secure  the  largest  possible  measure  of  joint  action  be- 
tween employers  and  workpeople  for  the  development  of  the  industry 
as  a  part  of  national  hfe  and  for  the  improvement  of  the  conditions 
of  all  engaged  in  industry.  Among  its  more  specific  objects  will  be 
the  following: 

2.  Regular  consideration  of  wages,  hours,  and  working  condi- 
tions in  the  industry  as  a  whole. 

3.  The  consideration  of  measures  for  regularizing  production 
and  employment. 

4.  The  consideration  of  the  existing  machinery  for  the  settle- 
ment of  differences  between  different  parties  and  sections  in  the  in- 
dustry, and  the  estabhshment  of  machinery  for  this  purpose  where 
it  does  not  already  exist,  with  the  object  of  securing  the  speedy 
settlement  of  difficulties. 

5.  The  consideration  of  measures  for  securing  the  inclusion  of 
all  employers  and  workpeople  in  their  respective  associations. 

6.  The  collection  of  statistics  and  information  on  matters  apper- 
taining to  the  industry. 

7.  The  encouragement  of  the  study  of  processes  and  design  and 
of  research,  with  a  view  to  perfecting  the  products  of  the  industry. 

8.  The  provision  of  facihties  for  the  full  consideration  and 
utilization  of  inventions  and  any  improvement  in  machinery  or 
method,  and  for  the  adequate  safeguarding  of  the  rights  of  the  de- 
signers of  such  improvements,  and  to  secure  that  such  improvement 
in  method  shall  give  to  each  party  an  equitable  share  of  the  benefits 
financially  or  otherwise  arising  therefrom. 

9.  Inquiries  into  special  problems  in  the  industry,  including  the 
comparative  study  of  the  organization  and  methods  of  the  industry 
in  this  and  other  countries,  and,  where  desirable,  the  publication  of 
reports.  The  arrangements  of  lectures  and  the  holding  of  confer- 
ences on  subjects  of  general  interest  to  the  industry. 

10.  The  improvement  of  the  health  conditions  obtaining  in  the 
industry  and  the  provision  of  special  treatment  where  necessary  for 
workers  in  the  industry. 

11.  The  supervision  of  entry  into,  and  training  for,  the  industry, 
and  co-operation  with  the  educational  authorities  in  arranging  edu- 
cation in  all  its  branches  for  the  industry. 

12.  The  issue  to  the  press  of  authoritative  statements  upon  mat- 
ters affecting  the  industry  of  general  interest  to  the  community- 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  727 

13.  Representation  of  the  needs  and  opinions  of  the  industry  to 
the  government,  governmental  departments,  and  other  industries. 

14.  The  consideration  of  any  other  matters  that  may  be  referred 
to  it  by  the  government  or  any  government  department. 

15.  The  considerations  of  the  proposals  for  district  councils  and 
works  committees,  put  forward  in  the  Whitley  Report,  having  regard 
in  each  case  to  any  such  organizations  as  may  already  be  in  existence. 

16.  Co-operation  with  the  Joint  Industrial  Councils  for  other 
industries  to  deal  with  problems  of  common  interest. 

325.     A  National  Industrial  CounciP^ 

The  committee  are  impressed  with  the  importance  of  establishing 
without  delay  some  form  of  permanent  representative  national  indus- 
trial council.    The  considered  views  of  the  committee  are  as  follows  1 

Preamble. — A  national  industrial  council  should  not  supersede 
any  of  the  existing  agencies  for  dealing  with  industrial  questions. 
Its  object  would  be  to  supplement  and  co-ordinate  the  existing  sec- 
tional machinery  by  bringing  together  the  knowledge  and  experience 
of  all  sections  and  focusing  them  upon  the  problems  that  affect  indus- 
trial relations  as  a  whole.    Its  functions,  therefore,  would  be  advisory. 

Such  a  council  would  have  to  be  large  to  give  due  representation 
to  all  industrial  interests  concerned ;  at  the  same  time,  it  should  be  as 
small  as  is  consistent  with  an  adequate  representative  basis.  Since 
in  any  case  it  would  be  too  large  for  the  transaction  of  detailed 
business,  a  standing  committee,  large  enough  to  insure  that  it  will 
not  be  unrepresentative,  will  be  needed.  The  council  must  be  elected, 
not  nominated;  otherwise  its  authority  will  not  be  adequate  to  the 
proper  handling  of  its  functions. 

In  order  that  the  council  may  have  the  necessary  independent 
status  and  authority  if  it  is  to  promote  industrial  peace,  the  govern- 
ment should  recognize  it  as  the  official  consultative  authority  to  the 
government  upon  industrial  relations,  and  should  make  it  the  normal 
channel  through  which  the  opinion  and  experience  of  industry  will  be 
sought  on  all  questions  with  which  industry  as  a  whole  is  concerned. 

In  addition  to  advising  the  government  the  council  should,  when 
it  is  thought  fit,  issue  statements  on  industrial  questions  or  disputes 
for  the  guidance  of  public  opinion. 

Objects. — To  secure  the  largest  possible  measure  of  joint  action 
between  the  representative  organizations  of  employers  and  work- 
people, and  to  be  the  normal  channel  through  which  the  opinion  and 

i^Adapted  from  the  "Report  of  the  Industrial  Conference  Provisional 
Joint  Committee"  adopted  by  the  (British)  National  Industrial  Conference, 
at  Central  Hall,  Westminster,  April  4,  1919. 


728  CURRENT  ECONOMIC  PROBLEMS 

experience  of  industry  will  be  sought  by  the  government  on  all  ques- 
tions affecting  industry  as  a  whole. 

It  will  be  open  to  the  council  to  take  any  action  that  falls  within 
the  scope  of  this  general  definition.  Among  the  more  specific  objects 
will  be:  (a)  the  consideration  of  general  questions  affecting  indus- 
trial relations  ',  {b)  the  consideration  of  measures  for  joint  or  several 
action  to  anticipate  and  avoid  threatened  disputes ;  (c)  the  considera- 
tion of  actual  disputes  affecting  industrial  relations;  {d)  the  consid- 
eration of  legislative  proposals  affecting  industrial  relations;  {e)  to 
advise  the  government  on  industrial  questions  and  on  the  general 
industrial  situation;  (/)  to  issue  statements  for  the  guidance  of 
public  opinion  on  industrial  issues. 

Constitutions. — The  council :  i.  The  council  shall  consist  of  four 
hundred  members  fully  representative  of  and  duly  accredited  by 
the  employers'  organizations  and  the  trade-unions,  to  be  elected  one- 
half  by  each  of  the  two. 

2.  The  method  of  election  and  the  allocation  of  representatives 
shall  be  determined  by  each  side  for  itself. 

3.  Members  of  the  council  shall  retire  annually,  and  shall  be 
eligible  for  re-election  by  the  organizations  which  they  represent. 

4.  The  council  shall  meet  at  least  twice  a  year,  and  in  addition 
as  often  as  the  standing  committee  deem  it  to  be  necessary. 

5.  The  minister  of  labor  shall  be  president  of  the  council  and 
shall,  when  possible,  preside  at  its  meetings.  There  shall  be  three 
vice-presidents,  one  appointed  by  the  government  to  be  chairman 
of  the  standing  committee,  one  elected  by  and  from  the  employers' 
representatives  on  the  council,  and  one  elected  by  and  from  the  trade- 
unions'  representatives.  In  the  absence  of  the  president,  the  chair- 
man of  the  standing  committee  shall  preside,  in  his  absence  one  of 
the  other  vice-presidents. 

6.  The  two  sides  of  the  council  shall  vote  separately,  and  no 
resolution  shall  be  declared  carried  unless  approved  by  a  majority  of 
those  present  on  each  side.  Each  side  shall  determine  for  itself  the 
method  of  voting. 

7.  The  expenses  of  the  council  shall  be  borne  by  the  government. 

8.  The  council  shall  be  empowered  to  make  standing  orders  for 
the  conduct  of  its  business. 

The  standing  committee:  i.  There  shall  be  a  standing  com- 
mittee of  the  council,  consisting  of  twenty-five  members  elected  by 
and  from  the  employers'  representatives,  and  twenty-five  elected  by 
and  from  the  trade-union  representatives. 

2.  The  mode  of  election  of  members  shall  be  determined  by 
each  side  of  the  council  for  itself. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  729 

3.  The  standing  committee  shall  be  empowered  to  take  such 
action  as  it  deems  to  be  necessary  to  carry  out  the  objects  of  the 
council.  It  shall  consider  any  questions  referred  to  it  by  the  council 
or  the  government,  and  shall  report  to  the  council  its  decisions. 

4.  The  standing  committee  shall  be  empowered  to  appoint  an 
emergency  committee  and  such  subcommittees  as  may  be  necessary. 

5.  The  standing  committee  shall  be  empowered  to  co-opt  rep- 
resentatives of  any  trade  not  directly  represented  upon  it  for  the 
consideration  of  any  question  affecting  that  trade. 

6.  The  standing  committee  shall  meet  as  often  as  may  be  neces- 
sary, and  at  least  once  a  month. 

7.  The  government  shall  appoint  a  chairman  to  the  standing  com- 
mittee who  shall  preside  at  its  meetings,  but  shall  have  no  vote. 
There  shall  be  two  vice-chairmen,  elected  respectively  by  and  from 
the  representatives  of  the  employers  and  the  trade-unions.  In  the 
absence  of  the  chairman  the  vice-chairmen  shall  preside  in  turn. 

8.  The  standing  committee  shall  be  empowered  to  appoint  such 
secretaries  and  other  officials  as  may  be  necessary. 

9.  The  standing  committee  shall  be  empowered  to  make  stand- 
ing orders  for  the  conduct  of  its  business. 

10.  The  expenses  of  the  standing  committee  shall  be  borne  by 
the  government. 

E.     POLITICS 

326.     Instincts  and  Employment^* 

BY  IRVING  FISHER 

1.  The  instinct  of  self-preservation. — Maintain  healthy  working 
conditions.  Guard  against  overfatigue.  Provide  safety  devices.  No 
man  can  do  his  work  well  if  he  feels  it  is  fitting  him  only  for  the 
scrap  heap. 

Provide  a  living  wage. 

Assure  your  men  of  steady  jobs  as  long  as  they  do  their  part. 
Let  them  know  that,  if  laid  oflf  without  any  fault  of  theirs,  they  will 
be  given  due  notice  or  a  suitable  dismissal  wage.  Energy  dissipated 
in  worry  means  loss  to  all  concerned. 

2.  The  instinct  of  workmanship. — Find  the  tight  job,  mentally 
and  physically,  for  every  man,  and  the  right  man  for  every  job. 

Enable  the  man  by  exact  records  to  have  a  true  and  accurate 
picture  of  his  work  and  of  any  improvement  he  makes  in  it. 

Encourage  the  workman  to  suggest  improvements  in  the  processes 
and  thus  stimulate  personal  interest. 

isprom  "How  Can  the  Employer  Help  the  Worker  Satisfy  His  Funda- 
mental Instinct."  Published  by  Industrial  Department,  Y.M.C.A..  of  New 
Haven,  1918. 


730  CURRENT  ECONOMIC  PROBLEMS 

Guard  against  the  tendency  to  let  the  workers  slip  into  dead-end 
jobs.     Make  it  plain  that  efficiency  means  advancement. 

Encourage  promotions  and  the  development  of  all-round  ability. 

Make  your  directions  to  workmen  clear,  concrete,  and  specific, 
and  have  a  well  thought-out  plan  of  work. 

3.  The  instinct  of  respect. — Utilize  the  records  of  work  to  give 
the  credit  and  standing  which  a  good  record  deserves  in  the  eyes  of 
the  employer  and  of  fellow-workmen.  The  spirit  of  rivalry  spurs 
initiative. 

Avoid  calling  a  man  down,  especially  before  his  fellow-workers. 

So  far  as  possible  use  praise  as  the  chief  incentive  rather  than 
blame  or  threat  of  dismissal. 

Consider  a  man  trustworthy  until  he  has  proved  himself  un- 
trustworthy.   Even-handed  justice  is  recognized  by  saint  and  sinner. 

4.  The  instinct  of  loyalty. — Develop  a  team  spirit. 

Mass  activities,  group  singing,  marching  in  a  parade,  going  on 
a  picnic,  wearing  a  button,  or  cheering  a  baseball  team  will  foster  a 
united  feeling. 

Stimulate  pride  in  the  organization.  Pride  is  a  weatherproof 
cement. 

Make  the  organization  worth  being  loyal  to.  Loyalty  is  based  on 
justice  and  mutual  consideration.  Prove  to  the  workman  that  you 
^*espect  his  rights  and  wishes.    Put  yourself  in  his  place. 

If  you  want  overtime  or  special  consideration  from  him  let  him, 
\i  possible,  have  the  fun  of  volunteering  the  service. 

5.  The  instinct  of  play. — "All  work  and  no  play  makes  Jack  a 
dull  boy."  The  balanced  life  demands  recreation  which  provides  a 
safety  valve  for  many  inevitably  repressed  instincts.  This  play  should 
not  be  frivolity,  still  less  dissipation,  but  entertainment  which  will 
develop  physical  and  mental  health  and  a  broadened  outlook  on  life. 

Encourage  membership  on  athletic  teams,  attendance  at  good 
movies,  at  reading  rooms,  and  clubs.  Have  singing  at  the  noon  hour, 
and  calisthenics  to  interrupt  the  morning  and  the  afternoon.  At  the 
least,  try  brief  rest  periods. 

6.  The  instinct  of  love. — Conditions  of  employment  should,  in 
every  possible  way, conduce  to  happy  family  life.  The  unrest  caused 
by  bad  instinctive  life  outside  the  plant  is  demoralizing. 

Do  not  arouse  resentment  by  any  action  which  affects  the  family 
welfare. 

A  workman  without  a  home  or  a  happy  home  is  unstable. 

7.  The  instinct  of  worship. — "Man  shall  not  live  by  bread  alone." 
No  man  should  be  compelled  to  do  work  which  will  prevent  attend- 
ance at  church  or  inspiring  public  meeting,  or  crush  idealism,  or 
warp  the  spirit  of  humanity  and  service. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  731 

Every  man  should  have  a  religion ;  and  his  daily  work  should  be 
uplifted  by,  and  really  be  a  part  of,  his  religion. 

In  a  word,  your  employee  is  a  man  with  the  same  fundamental 
human  nature  as  yourself.  Remember  that  his  primitive  instincts 
can  be  guided  but  not  suppressed.  If  you  would  have  him  loyal, 
efficient,  and  contented,  give  him  the  opportunity  to  give  expression 
to  the  best  that  is  in  him.  Without  self-expression  no  man  can  lead 
a  normal  life.  It  is  his  initiative  which  you  should  aim  to  encourage. 
This  is  not  paternalism,  which  is  always  resented.    It  is  the  opposite. 

When  the  worker  can  be  given  a  stake  in  the  business  and  a  voice 
in  its  management  almost  all  the  important  motives  are  enlisted  and 
strengthened — the  motives  of  money-making,  of  accumulating,  cre- 
ating, gaining  credit,  team  play. 

Afford  an  opportunity  for  presenting  grievances  and  for  their 
adjustment. 

327.     The  Midvale  Plani» 

In  order  to  establish  a  representative  system  which  will  provide 
a  regular  means  of  communication  and  conference  between  the  offi- 
cials and  the  employees  of  these  companies,  the  following  plan  is 
hereby  adopted : 

I.     PLAN   OF   REPRESENTATION    OF    EMPLOYEES 

1.  For  the  convenient  administration  of  this  plan,  each  plant 
shall  be  divided  into  as  many  divisions  as  may  be  decided  upon  by 
the  division  representatives  of  each  plant,  on  the  basis  of  one  repre- 
sentative for  each  300  men.  If  any  division  shall  have  150  men  in 
excess  of  300  or  multiple  of  300  it  shall  be  entitled  to  a  representa- 
tive for  such  fraction.  In  case  the  fraction  is  less  than  150  it  shall 
not  be  counted  unless  merged  with  a  similar  fraction  from  another 
division. 

The  foregoing  representation  shall  be  based  upon  the  average 
number  of  employes  of  each  division,  as  shown  on  the  books  of  the 
company  for  the  three  months,  October,  November,  and  December, 
preceding  the  election. 

For  the  purpose  of  determining  the  proper  representation  of 
each  division,  the  Plant  Conference  Committee  hereinafter  consti- 
tuted, shall  have  access  to  the  records  of  the  time  offices  of  the  plant. 

2.  Annual  election  of  employees'  representatives. — Employees  in 
each  division  shall  elect  annually  from  among  their  number,  repre- 
sentatives as  set  forth  in  clause  i  to  act  on  their  behalf  in  all  matters 

^^Plan  of  representation  of  employees  of  Midvale  Steel  and  Ordnance 
Company,  Cambria  Steel  Company,  and  subsidiary  companies,  effective  October 
I,  1918. 


732  CURRENT  ECONOMIC  PROBLEMS 

pertaining  to  conditions  of  employment,  the  adjustment  of  differ- 
ences, and  all  other  matters  affecting  the  relation  of  the  employees  to 
the  company.  ' 

3.  Annual  election  of  representatives. — The  annual  election  of 
representatives  shall  be  held  on  the  second  Monday  of  January  of 
each  year,  and  the  nomination  of  representatives  shall  be  held  at  least 
two  days  preceding  the  election.  The  meetings  for  the  nomination 
and  election  shall  be  called  by  direction  of  the  Plant  Conference  Com- 
mittee hereinafter  constituted.  Notices  of  the  nomination  and  elec- 
tion, indicating  the  number  of  representatives  to  be  elected  in  each 
division,  shall  be  publicly  posted  in  each  subdivision  of  the  works 
a  week  in  advance  of  such  meetings,  and  shall  state  that  all  employees 
are  entitled  to  vote,  with  the  exception  of  salaried  foremen  and 
superintendents.  Special  elections  shall  be  similarly  called,  when  for 
any  reason  a  vacancy  occurs  in  the  representation  of  any  division. 

4.  Nomination  and  election  of  representatives. — To  insure  abso- 
lute freedom  of  choice,  both  nomination  and  election  shall  be  by 
secret  ballot,  under  conditions  insuring  an  impartial  count.  The 
company  shall,  if  requested,  provide  ballot  boxes.  It  shall  also,  if 
requested,  provide  blank  ballots  for  purposes  of  nomination,  and 
also  ballots,  differing  in  form  or  color,  for  purposes  of  election.  Each 
employee  entitled  to  vote,  shall  be  given  a  nomination  blank  by  the 
election  officers,  on  which  he  shall  write  the  names  of  the  fellow- 
employees  in  his  division  whom  he  desires  to  nominate  as  representa- 
tives, and  will  himself  deposit  the  nomination  blank  in  the  ballot  box. 
Each  employee  may  nominate  representatives  to  the  number  to  which 
the  division  is  entitled,  in  accordance  with  public  notice.  Employees 
unable  to  write  may  ask  any  of  their  fellow-employees  to  write  for 
them  on  their  ballots  names  of  the  persons  whom  they  desire  to 
nominate. 

In  the  event  of  any  nomination  paper  containing  more  than  the 
number  of  representatives  to  which  the  division  is  entitled  the  ballot 
shall  be  void.  Persons  to  the  number  of  twice  as  many  representa- 
tives as  the  division  is  entitled  to  receiving  the  highest  number  of 
nomination  votes  shall  be  regarded  as  the  duly  nominated  candidates 
for  employees'  representatives,  and  shall  be  voted  upon  as  herein- 
after provided.  For  example,  if  the  division  is  entitled  to  two  rep- 
resentatives the  four  persons  receiving  the  largest  number  of  nomi- 
nation votes  shall  be  regarded  as  the  duly  nominated  candidates.  If 
the  division  is  entitled  to  three  representatives,  then  the  six  persons 
receiving  the  largest  number,  etc. 

5.  Nomination  and  election  of  representatives. — For  the  pur- 
poses of  inaugurating  this  plan,  the  division  representatives  elected 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  733 

at  the  various  plants  on  Monday,  September  23,  19 18,  shall  hold 
office  until  their  successors  are  elected  on  the  second  Monday  of  Janu- 
ary, 1919.  All  nominations  and  elections  thereafter  shall  be  under 
the  supervision  of  an  Election  Committee  of  three  for  each  division, 
to  be  selected  by  the  Plant  Conference  Committee  hereinafter  con- 
stituted. 

The  Election  Committee  shall  count  the  nominating  ballots,  make 
a  list  showing  the  number  of  votes  cast  for  each  person,  and  post 
notices,  signed  by  each  member  of  the  committee,  at  suitable  places 
in  the  division,  giving  the  number  of  votes  cast  for  each  person  and. 
announcing  the  names  of  the  nominees,  as  provided  in  clause  4. 
These  notices  shall  be  posted  at  least  forty-eight  hours  in  advance  of 
the  election.  On  the  date  designated,  the  election  of  representatives 
shall  be  held  by  secret  ballot,  from  among  the  number  of  candidates 
nominated. 

The  election  ballots  shall  be  counted  by  the  Division  Election 
Committee,  and  one  list  in  triplicate,  showing  the  number  of  votes 
cast  for  each  person,  shall  be  prepared  by  the  Division  Election 
Committee  and  signed  by  each  member  thereof,  one  of  which  lists 
shall  be  posted  in  a  conspicuous  place  in  the  division,  one  forwarded 
to  the  general  superintendent  as  evidence  that  the  persons  elected  are 
duly  accredited,  and  one  list  retained  by  the  committee.  The  persons 
showing  by  such  certified  lists  to  have  been  elected  as  provided  in 
clause  4,  shall  be  the  representatives  of  the  division  for  the  ensuing 
year,  or  until  their  successors  are  elected. 

6.  The  Division  Election  Committee  shall  seal  and  hold  in  safe 
custody  for  a  period  of  ten  days  the  ballot  boxes  containing  both  the 
nomination  and  the  election  ballots.  In  case  of  an  appeal  signed  by 
not  less  than  two-thirds  of  the  voters  of  any  division,  within  this 
ten-day  period,  questioning  the  validity  of  the  count,  the  Division 
Election  Committee  shall  deliver  the  sealed  ballot  boxes  to  the  Plant 
Conference  Committee,  hereinafter  constituted.  This  committee  shall 
count  and  certify  by  signed  lists  in  the  same  manner  as  provided  in 
clause  5,  and  there  shall  be  no  further  appeal  from  their  decision. 
If  in  the  judgment  of  the  Plant  Conference  Committee  the  irregu- 
larities are  such  as  to  demand  a  new  election,  they  are  authorized  to 
arrange  for  such  election. 

7.  As  a  certain  interval  of  time  is  required  to  enable  a  man  to 
become  acquainted  with  the  conditions  surrounding  the  work  in  any 
department,  so  that  he  can  intelligently  represent  his  fellow-work- 
men, all  persons  elected  as  division  representatives  shall  have  been 
in  the  employment  of  the  company  for  at  least  one  year  in  the  aggre- 
gate; provided,  however,  that  the  division  representative  of  each 


734  CURRENT  ECONOMIC  PROBLEMS 

plant,  if  they  so  elect,  may  provide  for  a  longer  term  of  service  in 
order  to  qualify  a  man  for  the  position  of  representative. 

8.  In  case  a  petition  is  signed  by  not  less  than  two-thirds  of  the 
employees  of  any  division,  stating  that  any  elected  representative  of 
that  division  has  ceased  to  be  satisfactory  to  them,  a  re-election  for 
the  position  occupied  by  such  representative  shall  be  held  similar  to 
that  which  would  be  held  in  the  case  of  a  vacancy. 

9.  When  any  elected  representative  ceases  to  be  an  employee  of 
the  company,  his  position  as  representative  shall  become  vacant,  and 
his  successor  shall  be  elected  as  provided  in  Part  I,  clause  3. 

II.    ADMINISTRATION 

1.  Within  a  week  from  the  date  on  which  the  Division  Election  ' 
Committee  announce  the  names  of  the  elected  division  representa- 
tives, all  of  these  representatives  shall  meet  and  elect  from  among 
their  number  a  Plant  Conference  Committee,  consisting  of  one  rep- 
resentative for  each  3,000  employees  at  the  plant ;  with  the  proviso 
that  if,  at  any  plant,  the  number  of  employees  in  excess  of  3,000  or 
any  multiple  thereof  is  1,500,  there  shall  be  a  representative  elected 
for  this  fraction;  and  if  the  fraction  is  less  than  1,500,  it  shall  not 
be  counted ;  with  the  further  proviso  that  no  two  members  of  the 
Plant  Conference  Committee  shall  be  selected  from  the  same  depart- 
ment of  the  plant. 

2.  Any  employee  having  any  grievance  or  any  matter  on  which 
he  desires  to  have  a  decision  shall  first  present  the  subject  to  his 
immediate  foreman  or  superintendent,  in  person  or  through  his  divi- 
sion representatives.  If  unable  to  secure  a  satisfactory  adjustment, 
the  aggrieved  person,  through  his  division  representatives,  shall  pre- 
sent the  matter  in  writing  to  the  Plant  Conference  Committee  men- 
tioned in  clause  i.  If,  in  the  judgment  of  this  committee,  the 
grievance  is  a  just  one,  they  shall  present  the  matter  in  writing  to 
the  general  superintendent  of  the  works,  who  shall  then  confer  with 
the  Plant  Conference  Committee,  with  a  view  to  reaching  a  satisfac- 
tory settlement.  The  general  superintendent  shall  have  the  privilege, 
if  he  so  desires,  of  calling  into  this  conference  all  of  the  division 
representatives. 

3.  If  the  general  superintendent,  or  his  representative,  and  a 
majority  of  the  Plant  Conference  Committee  (or  a  majority  of  the 
division  representatives  in  case  they  are  called  into  the  conference), 
are  unable  to  agree  upon  any  question  at  issue,  the  matter  shall  be 
referred  to  a  committee  consisting  of  the  general  superintendents  of 
all  the  plants  of  the  company  and  all  the  members  of  the  Plant  Con- 
ference Committees  of  all  the  plants  of  the  company.    This  combina- 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  735 

tion  of  Plant  Conference  Committees  together  with  the  general 
superintendents  shall  be  known  as  the  General  Committee.  On  all 
propositions  submitted  to  a  vote  by  the  General  Committee,  the  gen- 
eral superintendents  shall  jointly  cast  one  vote  for  the  company  and 
the  representatives  of  the  employees  shall  jointly  cast  one  vote  for 
the  employees.  The  president  and  other  executive  officers  of  the 
company  shall  have  the  privilege  of  appearing  before  the  General 
Committee.  If  this  committee  is  unable  to  reach  an  agreement,  the 
matter  shall  be  referred  to  arbitration, 

4.  One  person  shall  be  elected  as  arbitrator  if  the  parties  can 
agree  upon  his  election;  otherwise  there  shall  be  a  board  of  three 
arbitrators,  one  member  to  be  selected  by  the  president  of  the  com- 
pany or  his  representative,  one  member  to  be  selected  by  the  employee 
members  of  the  General  Committee;  these  two  members,  if  unable 
to  agree,  to  select  a  third  arbitrator.  The  decision  of  the  arbitrator 
or  arbitrators  in  any  matter  submitted  to  him  or  them,  shall  be  final 
and  binding  upon  both  the  company  and  the  employees. 

III.     RULES   GOVERNING  THE   EMPLOYMENT   AND  DISCHARGE  OF 

WORKMEN 

1.  The  right  of  the  company  to  hire  and  suspend  or  discharge 
m.en  shall  not  be  limited,  except  as  expressly  provided  herein. 

2.  Any  employee,  guilty  of  any  of  the  following  offenses,  shall 
be  subject  to  immediate  discharge  without  notice:  (a)  disloyalty  to 
the  United  States  government  by  act  or  utterance;  (b)  any  offense 
against  the  criminal  law  of  the  state ;  (c)  assault  upon,  or  attempt  to 
injure,  another  person;  (d)  wanton  destruction  of  property;  (e)  re- 
fusal to  obey  a  reasonable  order  of  his  superior  officer ;  (/)  intoxica- 
tion while  on  duty. 

3.  For  offenses  of  a  less  serious  character,  such  as  carelessness, 
failure  to  report  for  duty  regularly  and  at  the  proper  time,  ineffi- 
ciency, etc.,  it  shall  be  the  duty  of  the  officers  to  secure  efficiency  by 
giving  the  offender  at  least  one  caution,  which,  if  not  heeded,  may 
be  followed  by  dismissal  without  further  notice. 

4.  Any  employee  discharged  for  cause,  may  demand  that  such 
cause  be  clearly  stated  to  him,  and  shall  have  the  right  of  appeal  to 
the  general  superintendent,  either  in  person  or  through  his  elected 
representative. 

IV.     GENERAL 

I.  No  employee  shall  be  compelled  to  purchase  any  articles,  or 
service,  from  the  company  nor  to  subscribe  to  any  fund,  except  such 
beneficial  associations  as  are  already  established  or  may  hereafter. 


736  CURRENT  ECONOMIC  PROBLEMS 

with  the  consent  of  the  employees,  be  created.  This  shall  not  affect 
the  duty  of  employees  to  account  for  tools  or  other  supplies  owned 
by  the  company  and  intrusted  to  their  care. 

2.  Nothing  in  the  foregoing  shall  prohibit  the  company  from 
giving  employees  an  opportunity  to  subscribe  for  the  stock  of  the 
company,  Liberty  Loans,  Thrift  Stamps,  etc.,  providing  all  such 
subscriptions  are  entirely  voluntary  on  the  part  of  the  employees. 

3.  Nothing  herein  shall  affect  the  right  of  the  company  to  sus- 
pend work  in  any  department  because  of  lack  of  orders  or  for  any 
other  legitimate  busniess  reason.  This  may  be  done  without  notice, 
but  it  shall  be  the  duty  of  the  officers  to  give  as  much  advance  notice 
as  practicable. 

4.  If  any  elected  representative  is  appointed  as  a  salaried  fore- 
man or  superintendent,  his  position  as  representative  shall  thereby 
become  vacant,  and  his  successor  shall  be  elected  as  provided  in 
Part  I,  clause  3. 

Once  every  three  months,  at  times  and  places  mutually  agreed 
upon  by  the  president  of  the  company  and  the  Conference  Com- 
mittee of  the  plants,  there  shall  be  a  combined  meeting  of  all  elected 
representatives  with  the  officials  of  the  company  for  the  purpose  of 
discussing  all  matters  of  general  interest  to  both  parties. 

328.     The  Colorado  Plan-" 

1.  There  shall  be  on  the  part  of  the  company  and  its  employees 
a  strict  observance  of  the  federal  and  state  labor  laws  and  of  the 
company's  rules  and  regulations  supplementing  the  same. 

2.  The  wage  rate  shall  be  kept  on  file  by  the  superintendents  of 
the  several  departments  and  shall  be  open  to  inspection  by  any  rep- 
resentative or  other  employee  upon  request. 

3.  There  shall  be  no  discrimination  by  the  company  or  by  any 
of  its  employees  on  account  of  membership  or  non-membership  on 
any  society,  fraternity,  or  union. 

4.  The  right  to  hire  and  discharge,  the  management  of  the 
works,  and  the  direction  of  the  working  force,  shall  be  vested  ex- 
clusively in  the  company,  and  except  as  expressly  restricted  this  right 
shall  not  be  abridged  by  anything  contained  herein. 

5.  There  shall  be  posted  in  each  subdivision  a  list  of  offenses  for 
commission  of  which  by  an  employee  dismissal  may  result  without 
notice.  For  other  offenses  employees  shall  not  be  discharged  with- 
out first  having  been  notified  that  a  repetition  of  the  offense  will  be  a 

20Adapted  from  Part  III,  "The  Prevention  and  Adjustment  of  Industrial 
Disputes"  of  the  Plan  of  Representation  of  Employees  of  the  Colorado  Fuel 
and  Iron  Company  in  the  Company's  Minnequa  Steel  Works,  1915. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  737 

cause  for  dismissal.  Nothing  herein  shall  abridge  the  right  of  the 
company  to  relieve  employees  from  duty  because  of  lack  of  work. 
In  relief  from  duty  through  lack  of  work,  men  with  families  shall, 
all  things  being  equal,  be  given  the  preference. 

6.  Employees  shall  have  the  right  to  hold  meetings  at  appro- 
priate places  on  company  property  or  elsewhere  as  they  may  desire 
outside  of  working  hours  or  on  idle  days. 

7.  Employees  shall  not  be  obliged  to  trade  at  the  company  stores, 
but  shall  be  at  perfect  liberty  to  purchase  goods  wherever  they  may 
choose. 

8.  Subject  to  the  provisions  hereinafter  mentioned,  every  em- 
ployee of  the  company  shall  have  the  right  of  ultimate  appeal  to  the 
president  of  the  company  concerning  any  condition  or  treatment  to 
which  he  may  be  subjected  and  which  he  may  deem  unfair. 

9.  It  shall  be  the  duty  of  the  president's  industrial  representative 
to  respond  promptly  to  any  request  from  employees  representatives 
for  his  presence  in  any  subdivision,  and  to  visit  all  of  them  frequently 
to  confer  with  the  employees  or  their  representatives  and  the  super- 
intendents respecting  working  and  living  conditions,  the  observance 
of  federal  and  state  laws,  the  carrying  out  of  company  regulations, 
and  ^o  report  the  result  of  such  conference  to  the  president. 

10.  Before  reporting  any  grievance  to  the  president,  to  the  indus- 
trial representative,  or  to  other  of  the  high  officers  of  the  company, 
employees  shall  first  seek  to  have  differences  on  the  conditions  com- 
plained about  adjusted  by  conference,  in  person  or  through  their 
representatives,  with  the  foreman  or  superintendent. 

11.  Employees  believing  themselves  subjected  to  unfair  condi- 
tions and  having  failed  to  secure  adjustment  through  the  superin- 
tendent, may  present  their  grievances  to  the  industrial  representative, 
either  in  person  or  through  their  regularly  elected  representatives, 
and  it  shall  be  the  duty  of  the  industrial  representative  to  look  into 
the  same  immediately  and  seek  to  adjust  the  grievance. 

12.  Should  the  industrial  representative  fail  with  respect  to  any 
grievance,  suspension,  or  dismissal,  the  aggrieved  employee,  either 
himself  or  through  his  representative,  may  appeal  for  the  considera- 
tion and  adjustment  of  his  grievance  to  the  manager,  general  man- 
ager, or  the  president  of  the  company,  in  consecutive  order.  The 
right  of  appeal  must  be  exercised  within  a  period  of  two  weeks  after 
the  same  has  been  referred  to  the  industrial  representative. 

13.  Where  the  industrial  representative  or  one  of  the  higher 
officials  fails  to  adjust  a  difference,  upon  request  to  the  president  by 
the  employees'  representatives  of  the  division  concerned,  or  upon 
the  initiative  of  the  president  himself,  the  difference  shall  be  referred 


738  CURRENT  ECONOMIC  PROBLEMS 

to  the  joint  committee  on  industrial  co-operation  and  conciliation, 
and  the  decision  of  the  majority  of  such  Joint  Committee  shall  be 
binding  upon  all  parties.^^ 

14.  Whenever  the  Joint  Committee  on  Industrial  Co-operation 
and  Conciliation  is  called  upon  to  act,  except  by  the  consent  of  all 
present,  it  shall  not  proceed  with  any  important  part  of  its  duties 
unless  both  sides  are  equally  represented.  Where  agreeable,  equal 
lepresentation  may  be  effected  by  the  withdrawal  of  one  or  more 
members  from  the  side  having  the  majority. 

15.  Should  the  Joint  Committee  fail  to  reach  a  majority  deci- 
sion as  to  any  difference,  if  the  majority  of  its  members  so  agree  the 
Joint  Committee  may  select  as  umpire  a  third  person  who  shall  sit 
in  conference  with  the  committee  and  whose  decision  shall  be  binding 
upon  all  parties. 

16.  In  the  event  of  the  Joint  Committee  failing  to  adjust  a  dif- 
ference by  a  majority  decision  or  by  the  selection  of  an  umpire,  if 
the  parties  so  agree  the  matter  shall  within  ten  days  be  referred  to 
arbitration.  Otherwise  it  shall  be  made  the  subject  of  an  investiga- 
tion by  the  state  of  Colorado  Industrial  Commission,  in  accordance 
with  the  provision  of  the  statute  regulating  the  powers  of  the  com- 
mission. Where  a  difference  is  referred  to  arbitration,  one  party 
shall  be  selected  as  arbiter  if  the  parties  can  agree  upon  his  selection. 
Otherwise  there  shall  be  a  board  of  three  arbitrators,  one  to  be  se- 
lected by  the  employees'  representatives  on  the  Joint  Committee,  one 
by  the  company's  representatives  on  this  committee,  and  a  third  by 
the  two  arbiters  thus  selected.  By  consent  of  both  parties  the  In- 
dustrial Commission  of  the  state  of  Colorado  rnay  be  asked  to  appoint 
all  the  arbiters  or  to  arbitrate  the  difference  itself.  The  decision  of 
the  sole  arbiter,  or  of  the  majority  of  the  Board  of  Arbitration,  or 
of  the  Industrial  Commission  when  acting  as  arbiters,  as  the  case 
may  be,  shall  be  final  and  shall  be  binding  upon  the  parties. 

17.  To  protect  against  the  possibility  of  unjust  treatment  be- 
cause of  any  action  taken  or  to  be  taken  by  them  on  behalf  of  one  or 
more  of  the  company's  employees,  any  employees'  representative 
believing  himself  to  be  discriminated  against  for  such  a  cause  shall 
have  the  same  right  of  appeal  to  the  officers  of  the  company  or  to  the 
Joint  Committee  as  is  accorded  every  other  employee  of  the  company. 
Having  exercised  the  right  in  the  consecutive  order  indicated  without 
obtaining  satisfaction,  for  thirty  days  thereafter  he  shall  have  the 
further  right  of  appeal  to  the  Industrial  Commission  of  the  state  of 

2iThis  committee  is  composed  of  twelve  members,  six  of  the  number 
designated  by  the  employees'  representatives  on  the  Joint  Conference  and  the 
other  six  by  the  president  of  the  company  or  his  representative. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  739 

Colorado,  which  body  shall  determine  whether  or  not  discrimination 
has  been  shown,  and  as  respects  any  representative  demand  by  the 
commission  to  have  been  unfairly  dealt  with,  the  company  shall  make 
such  reparation  as  the  Industrial  Commission  shall  deem  just, 

329.     The  Future  of  Industrial  Relations'^ 

BY    HENRY    P.    KENDALL 

The  war  has  now  ceased.  The  labor  problem  stands  in  higher 
relief  as  the  great  problem  facing  the  American  people  today.  The 
question  before  organized  business  is,  Will  we  be  far-sighted  in 
formulating  a  declaration  of  right  principles  upon  which  employers 
can  meet  employees  and  the  public  on  a  new  forum  where  sound 
industrial  relations  can  be  secured  and  maintained,  not  by  a  measure 
of  economic  strength  as  in  the  past,  but  by  the  rule  of  reason? 

There  are  four  ways  in  which  the  problem  will  be  considered. 
First,  a  set  of  federal  industrial  courts  after  the  plan  of  the  Australian 
system  through  which  compulsory  arbitration  is  virtually  in  force, 
with  a  huge  governmental  machinery  to  carry  it  out.  There  is  the 
second  plan  of  wage  adjustment  boards  set  up  by  the  industries 
themselves  and  their  employees  with  equal  representation  on  each 
side.  These  boards  should  in  advance  determine  and  agree  on  stand- 
ards of  wages,  hours,  and  conditions  of  employment,  in  which  both 
parties  interested  should  have  an  equal  voice.  The  third  method  of 
approaching  the  problem  of  industrial  relations  is  to  hold  that  since 
labor  and  management  are  in  an  irreconcilable  conflict,  proper  pro- 
cedure is  merely  to  keep  up  the  fight  until  one  side  is  beaten  or 
things  get  so  bad  that  the  country  at  large  will  take  a  hand.  The 
fourth  plan  is  simply  to  let  things  drift  to  an  approximation  of  a 
status  quo  ante,  which  very  few  believe  is  either  sound  or  wise. 

The  second  plan,  it  seems  to  me,  is  the  only  possible  safeguard 
for  management  and  is  sound  in  business  principles  and  in  ethics. 
Far-seeing  business  men  today  would  do  well  to  speak  in  no  mis- 
understood fashion  and  declare  the  principles  for  which  they  stand. 
They  must  be  ready  to  meet  the  situation  squarely  with  a  full  knowl- 
edge of  economic  law  and  the  laws  of  society.  There  are  certain 
principles  on  which  wage  adjustment  boards  by  industries  are 
founded.  An  outstanding  part  of  the  plan  is  to  grant  representation 
within  shops,  on  the  theory  that  the  employees  are  entitled  to  a  voice 
in  determining  the  conditions  under  which  they  work.  Other  prin- 
ciples which  should  govern  and  on  which  any  wise  action  can  be  taken 
are  the  following : 

22Adapted  from  an  address  entitled  "Post-War  Standards  for  Industrial 
Relations,"  delivered  before  a  group  of  business  men  and  manufacturers, 
December  5,  1918. 


740  CURRENT  ECONOMIC  PROBLEMS 

I.  The  recognition  that  industrial  enterprises  are  the  source  of 
HveHhood  to  workers  as  well  as  to  employers  and  should  be  con- 
ducted with  a  view  of  the  greatest  opportunity  for  all  concerned. 
-  2.  That  much  of  the  industrial  unrest  is  caused  by  irregularity 
of  employment  which  can  be  lessened  greatly  if  industries  and  com- 
munities will  face  the  problem  and  feel  it  their  responsibility,  and 
co-operate  to  standardize  methods,  customs,  and  styles,  to  give  regu- 
larity of  employment. 

3.  The  right  of  workers  to  organize  in  joint  action  not  inimical 
to  the  general  welfare  cannot  be  denied.  Such  recognition,  however, 
must  be  joined  with  responsibility  of  both  parties  to  the  faithful 
observance  of  collective  agreements  and  co-operation  with  the  man- 
agement to  promote  the  efficiency  of  the  establishment  as  a  whole. 

4.  Impartial  agencies  such  as  outlined  above  must  be  set  up  to 
interpret  agreements  and  to  apply  them  in  particular  cases  and  to 
make  prompt  and  authoritative  settlements. 

5.  The  right  of  workers,  including  common  laborers,  to  a  living 
wage  is  declared. 

6.  When  the  volume  of  business  declines,  wages  should  be  the 
last  item  to  be  cut  down.  It  has  been  demonstrated  that  high  wages 
and  national  prosperity  are  corollaries. 

7.  Wherever  there  is  a  standardized  wage  there  should  be  a 
definite  standardized  measure  of  performance  and  all  workers  have 
a  right  to  compensation  in  proportion  to  their  individual  accomplish- 
ments, ability,  and  service. 

In  plants  where  there  are  a  sufficient  number  of  the  employed, 
where  the  personal  relations  of  the  proprietor  are  more  or  less  lost, 
the  interests  of  the  employees  should  be  delegated  to  some  one 
person  as  a  labor  manager  or  director  of  personnel  who  should  have 
charge  of  this  function  of  business.  It  is  my  conviction  that  manufac- 
turers and  merchants  could  do  no  more  useful  work  than  furthering 
throughout  the  business  interests  of  the  country  the  idea  of  the  im- 
portance of  the  employment  manager  by  which  industries  and  cor- 
porations shall  have  a  department  which  is  sensitive  and  responsive 
to  the  grievances  and  aspirations  of  the  employees. 

In  panic  times  the  country  realizes  the  inflexibility  of  the  present 
methods  of  distributing  labor.  The  Labor  Department  has  estab- 
lished a  system  of  public  employment  offices.  I  believe  that  in  theory 
this  is  just  as  sound  for  the  flexibility  of  labor  as  the  Federal  Reserve 
Board  is  for  the  flexibility  of  currency.  These,  however,  should  not 
be  contaminated  with  a  political  influence.  The  practice  should  be 
extended  by  decentralized  control  through  local  agencies  made  up  of 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  741 

representatives  of  employers  and  employes.    The  public  should  con- 
trol such  agencies  and  maintain  a  high  standard  of  efficiency. 

It  is  the  responsibility  of  wise  business  men  to  discover  the  cur- 
rents of  underlying  business  conditions  and  help  to  direct  them  into 
proper  channels.  This  cannot  be  done  by  ignoring  the  great  problem 
of  industrial  relations  or  simply  fighting  organized  labor.  The  sound 
solution  of  this  great  problem  will  determine  the  future  political, 
economic,  and  social  stability  as  well  as  the  industrial  prosperity 
of  this  great  country.  Shall  the  only  big  organization  representative 
of  business  in  the  broadest  sense  throughout  the  country  remain 
silent  on  the  subject  ?  Is  there  any  more  important  business  problem  ? 
Shall  it  lead  the  way  and  declare  a  set  of  principles  about  which  busi- 
ness may  rally  and  which  shall  serve  as  a  guide  to  governmental 
action  so  far  as  it  is  required,  in  addition  to  what  the  business  men 
of  the  country  in  conjunction  with  the  workers  accomplish  by  their 
own  means? 

F.     STANDARDS 

330.     Standards  for  Children  Entering  Employment-^ 

I.    AGE   MINIMUM 

An  age  minimum  of  sixteen  for  employment  in  any  occupation 
except  that  children  between  fourteen  and  sixteen  may  be  employed 
in  agriculture  and  domestic  service  during  vacation  periods. 

An  age  minimum  of  eighteen  for  employment  in  and  about  mines 
and  quarries. 

An  age  minimum  of  twenty-one  for  night  messenger  service. 

An  age  minimum  of  twenty-one  for  girls  employed  as  messengers 
for  telegraph  and  messenger  companies. 

Prohibition  of  the  employment  of  minors  in  dangerous  or  hazard- 
ous occupations  or  at  any  work  which  will  retard  their  proper  physical 
development. 

II.    EDUCATIONAL  MINIMUM 

All  children  shall  be  required  to  attend  school  for  at  least  nine 
months  each  year,  either  full  time  or  part  time,  between  the  ages  of 
seven  and  eighteen. 

Children  between  sixteen  and  eighteen  years  of  age  who  have 
completed  the  eighth  grade  and  are  legally  and  regularly  employed 
shall  be  required  to  attend  day  continuation  schools  eight  hours 
a  week. 

23This  list  of  tentative  minimum  standards  was  adopted  by  the  Conference 
on  Child  Welfare,  held  under  the  auspices  of  the  Children's  Bureau  at  Wash- 
ington, May  5-8,  1919. 


742  CURRENT  ECONOMIC  PROBLEMS 

Children  between  sixteen  and  eighteen  who  have  not  completed 
the  eighth  grade  and  are  legally  and  regularly  employed  shall  attend 
full-time  school. 

Vacation  schools  placing  special  emphasis  on  healthful  play  and 
leisure  time  activities  shall  be  provided  for  all  children. 

III.  PHYSICAL  MINIMUM 

A  child  shall  not  be  allowed  to  go  to  work  until  he  has  had  a 
physical  examination  by  a  public  health  physician  or  school  physician 
and  has  been  found  to  be  of  normal  development  for  a  child  of  his 
age  and  physically  fit  for  the  work  at  which  he  is  to  be  employed. 

There  shall  be  a  periodical  medical  examination  of  all  working 
children  who  are  under  eighteen  years  of  age. 

IV,    HOURS  OF  EMPLOYMENT 

No  minor  shall  be  employed  more  than  eight  hours  a  day.  The 
maximum  working  day  for  children  between  sixteen  and  eighteen 
years  of  age  shall  be  shorter  than  the  legal  working-day  for  adults. 

The  hours  spent  at  continuation  school  by  children  under  eighteen 
shall  be  counted  as  a  part  of  the  working-day. 

Night  work  for  minors  shall  be  prohibited  between  6:00  p.m. 
and  7:00  a.m. 

V.    MINIMUM   WAGE 

Minors  at  work  shall  be  paid  at  a  rate  of  wages  which  for  full-time 
work  shall  yield  not  less  than  the  minimum  essential  for  the  "neces- 
sary cost  of  proper  living." 

VI.  PLACEMENT  AND   EMPLOYMENT    SUPERVISION 

There  shall  be  a  central  agency  which  shall  deal  with  all  juvenile 
employment  problems.  Adequate  provision  shall  be  made  for  ad- 
vising children  when  they  leave  school  of  the  employment  opportu- 
nities open  to  them ;  for  assisting  them  in  finding  suitable  work  and 
providing  for  them  such  supervision  as  may  be  needed  during  the 
first  years  of  their  employment.  All  agencies  working  toward  these 
ends  should  be  co-ordinated  through  the  central  agency  referred  to. 

VII.    ADMINISTRATION 

Provision  shall  be  made  for  issuing  employment  certificates  to 
all  children  entering  employment  who  are  eighteen  years  of  age. 

An  employment  certificate  shall  not  be  issued  to  the  child  until 
the  issuing  officer  has  received,  approved,  and  filed  the  following : 

I.     Reliable  documentary  proof  of  the  child's  age. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  743 

2.  Satisfactory  evidence  that  the  child  has  completed  the  eighth 
grade. 

3.  A  certificate  of  physical  fitness  signed  by  a  public  health 
physician.  This  certificate  shall  state  that  the  minor  has  been  thor- 
oughly examined  by  the  physician  and  that  he  is  physically  qualified 
for  the  employment  contemplated. 

4.  Promise  of  employment. 

The  certificate  shall  be  issued  to  the  employer  and  shall  be  re- 
turned by  the  employer  to  the  issuing  officer  when  the  child  leaves 
his  employment. 

The  school  last  attended,  the  compulsory  education  department, 
and  the  continuation  schools  shall  be  kept  informed  by  the  issuing 
officers  of  certificates  issued  or  refused  and  of  unemployed  children 
for  whom  certificates  have  been  issued. 

Minors  over  eighteen  years  of  age  shall  be  required  to  present 
evidence  of  age  before  being  permitted  to  work  in  occupations  in 
which  their  employment  is  prohibited. 

Record  forms  shall  be  standardized  and  the  issuing  of  employ- 
ment certificates  shall  be  under  state  supervision. 

Reports  shall  be  made  to  the  factory  inspection  department  of 
certificates  issued  and  refused. 

Full-time  attendance  officers  adequately  proportioned  to  the 
school  population  shall  be  provided  in  cities  and  counties  to  enforce 
the  school  attendance  law. 

The  enforcement  of  school  attendance  laws  by  city  or  county 
school  authorities  shall  be  under  school  supervision. 

Inspection  for  the  enforcement  of  all  child-labor  laws,  including 
those  regulating  the  employment  of  children  in  mines  or  quarries, 
shall  be  under  the  same  department.  The  number  of  inspectors 
shall  be  sufficient  to  insure  the  regular  observance  of  the  laws. 

Provision  should  be  made  for  stafif  of  physicians  adequate  to 
examine  periodically  all  employed  children  under  eighteen  years 
of  age. 

331.     Standards  for  Women  in  Industry^* 

I.     HOURS  OF  LABOR 

I.  No  woman  shall  be  employed  or  permitted  to  work  more 
than  eight  hours  in  any  one  day  or  forty-eight  hours  in  any  one  week. 
The  time  when  the  work  of  women  employees  shall  begin  and  end 
and  the  time  allowed  for  meals  shall  be  posted  in  a  conspicuous  place 
in  each  workroom  and  a  record  shall  be  kept  of  the  overtime  of  each 

2*Issued  by  the  Women  in  Industry  Service  of  the  United  States  Depart- 
irent  of  Labor,  1918.    Indorsed  by  the  United  States  War  Labor  Policies  Board. 


744  CURRENT  ECONOMIC  PROBLEMS 

woman  worker. 

2.  Observance  of  the  Saturday  half-holiday  should  be  the 
custom. 

3.  Every  woman  worker  should  have  one  day  of  rest  in  seven. 

4.  At  least  three-quarters  of  an  hour  shall  be  allowed  for  a  meal. 

5.  A  rest  period  of  ten  minutes  should  be  allowed  in  the  middle 
of  each  working  period  without  thereby  increasing  the  length  of  the 
working  day. 

6.  No  woman  shall  be  employed  between  the  hours  of  10:00 
p.  M.  and  6  a.  m. 

II.     WAGES 

1.  Women  doing  the  same  work  as  men  shall  receive  the  same 
wages  with  such  proportionate  increases  as  the  men  are  receiving  in 
the  same  industry.  Slight  changes  made  in  the  process  or  in  the 
arrangement  of  work  should  not  be  regarded  as  justifying  a  lower 
v/age  for  a  woman  than  for  a  man  unless  statistics  of  production 
show  that  the  output  for  the  job  in  question  is  less  when  women  are 
employed  than  when  men  are  employed.  If  a  difference  in  output 
is  demonstrated,  the  difference  in  the  wage  rate  should  be  based  upon 
the  difference  in  production  for  the  job  as  a  whole  andnot  determined 
arbitrarily. 

2.  Wages  should  be  established  on  the  basis  of  occupation  and 
not  on  the  basis  of  sex.  The  minimum  wage  rate  should  cover  the 
cost  of  living  for  dependents  and  not  merely  for  the  individual. 

III.     WORKING  CONDITIONS 

I.  State  labor  laws  and  industrial  codes  should  be  consulted  with 
reference  to  provisions  for  comfort  and  sanitation.  Washing  facili- 
ties with  hot  and  cold  water,  soap  and  individual  towels  should  be 
provided  in  sufficient  numbers  and  in  accessible  locations  to  make 
washing  before  meals  and  at  the  close  of  the  workday  convenient. 
Toilets  should  be  separate  for  men  and  women,  clean  and  accessible. 
Their  numbers  should  have  a  standard  rate  to  the  number  of  workers 
employed.  Dressing-rooms  should  be  provided  adjacent  to  washing 
facilities,  making  possible  changes  of  clothing  outside  the  work- 
rooms. Rest  rooms  should  be  provided.  Lighting  should  be  ar- 
ranged so  that  direct  rays  do  not  shine  on  the  workers'  eyes.  Venti- 
lation should  be  adequate  and  heat  sufficient.  Drinking  water  should 
be  cool  and  accessible,  with  individual  drinking  cups  or  bubble  foun- 
tain provided.  Provision  should  be  made  for  the  workers  to  secure 
a  hot  and  nourishing  meal  eaten  outside  the  workroom,  and  if  no 
lurch  rooms  are  accessible  near  the  plant,  a  lunch  room  should  be 
maintained  in  the  establishment. 


PROBLEMS  OF  CONTROL  WITHINilNDUSTRY  745 

2.  Continuous  standing  and  continuous  sitting  are  both  injuri- 
ous. A  seat  should  be  provided  for  every  woman  employed  and  its 
use  encouraged.  It  is  possible  and  desirable  to  adjust  the  height  of 
the  chairs  in  relation  to  the  height  of  the  machines  or  work  tables, 
so  that  the  worker  may  with  equal  convenience  and  efficiency  stand 
or  sit  at  her  work.  The  seats  should  have  backs.  If  a  chair  is  high, 
a  foot  rest  should  be  provided. 

3.  Risks  from  machinery,  danger  from  fire  and  exposure  to  dust, 
fumes  or  other  occupational  hazards  should  be  scrupulously  guarded 
against  by  observance  of  standards  in  state  and  federal  codes.  First 
aid  equipment  should  be  provided.  Fire  drills  and  other  forms  of 
education  of  the  workers  in  the  observance  of  safety  regulations 
should  be  instituted. 

4.  In  determining  what  occupations  are  suitable  and  safe  for 
women  attention  should  be  centered  especially  on  the  following  con- 
ditions which  would  render  the  employment  of  women  undesirable 
if  changes  are  not  made:  (a)  constant  standing  or  other  positions 
causing  a  physical  strain;  (&)  operation  of  mechanical  devices  re- 
quiring undue  strength;  (c)  repeated  lifting  of  weights  of  twenty- 
five  pounds  or  over,  or  other  abnormally  fatiguing  motions;  (d) 
exposure  to  excessive  heat,  that  is,  over  80°,  or  excessive  cold,  that 
is,  under  50° ;  {e)  exposure  to  dust,  fumes,  or  other  occupational 
poisons  without  adequate  safeguards  against  disease. 

5.  Women  must  not  be  employed  in  occupations  involving  use 
of  poisons  which  are  proved  to  be  more  injurious  to  women  than  to 
men,  such  as  certain  processes  in  the  lead  industries. 

6.  Uniforms  with  caps  and  comfortable  shoes  are  desirable  for 
health  and  safety  in  occupations  for  which  machines  are  used  or  in 
which  the  processes  are  dusty. 

IV.     HOME  WORK 

No  work  shall  be  given  out  to  be  done  in  rooms  used  for  living 
or  sleeping  purposes  or  in  rooms  directly  connected  with  living  or 
sleeping-rooms  in  any  dwelling  or  tenement. 

V.     EMPLOYMENT  MANAGEMENT 

1.  In  establishing  satisfactory  relations  between  a  company  and 
its  employees  a  personnel  department  is  important,  charged  with 
responsibility  for  selection,  assignment,  transfer,  or  withdrawal  of 
workers  and  the  establishment  of  proper  working  conditions. 

2.  Where  women  are  employed,  a  competent  woman  should  be 
appointed  as  employment  executive  with  responsibility  for  conditions 


746  CURRENT  ECONOMIC  PROBLEMS 

affecting  women.     Women  should  also  be  appointed  in  supervisory 
positions  in  the  departments  employing  women. 

3.  The  selection  of  workers  best  adapted  to  the  requirements 
through  physical  equipment  and  through  experience  and  other  quali- 
fications is  as  important  as  the  determination  of  the  conditions  of  the 
work  to  be  done. 

VI.     CO-OPERATION  OF  WORKERS  IN  ENFORCEMENT  OF  STANDARDS 

The  responsibility  should  not  rest  upon  the  management  alone  to 
determine  wisely  and  efficiently  the  conditions  which  should  be  estab- 
lished. The  genuine  co-operation  essential  to  production  can  be 
secured  only  if  definite  channels  of  communication  between  em- 
ployers and  groups  of  their  workers  are  established.  The  need  of 
creating  methods  of  joint  negotiation  between  employers  and  groups 
of  employees  is  especially  great  in  the  light  of  the  critical  points  of 
controversy  which  may  arise  on  a  time  like  the  present.  Existing 
channels  should  be  preserved  and  new  ones  opened  if  required,  to 
provide  easier  access  for  discussion  between  employer  and  employee. 

332,     International  Labor  Standards-^ 

Under  the  wage  system  the  capitalists  seek  to  increase  their 
profit  in  exploiting  the  workers  by  methods  which,  unless  the  exploi- 
tation is  limited  by  international  action  of  the  workers,  would  lead  to 
the  physical,  moral,  and  intellectual  decay  of  the  workers. 

The  emancipation  of  labor  can  be  realized  only  by  the  abolition 
of  the  capitalist  system  itself.  Meanwhile,  the  resistance  of  the 
organized  workers  can  lessen  the  evil;  thus  the  worker's  health,  his 
family  life,  and  the  possibility  of  bettering  his  education  can  be  pro- 
tected in  such  fashion  that  he  may  fulfil  his  duties  as  a  citizen  in  the 
modern  democracy.  The  capitalist  form  of  production  produces  a 
competition  in  the  various  countries  which  puts  the  backward  coun- 
tries in  a  state  of  inferiority  to  the  more  advanced. 

The  need  of  a  normal  basis  for  international  labor  legislation  has 
become  doubly  urgent  as  a  result  of  the  terrific  upset  and  enormous 
ravages  which  the  popular  forces  have  suffered  because  of  the  war. 
We  regard  the  preS'ent  remedy  of  this  situation  to  be  the  constitution 
of  a  league  of  nations  applying  an  international  labor  legislation. 

25Adapted  by  the  International  Labor  Conference  held  at  Berne,  1919. 
From  the  Survey,  XLI,  857.  It  need  not  be  said  that  this  charter  was  not 
adopted  by  the  Peace  Conference,  and  that  the  provisions  of  the  treaty  relating 
to  labor  amount  to  little  more  than  an  organization  of  an  international  labor 
office  and  provisions  for  mechanism  for  dealing  with  labor  problems  in  the 
future. 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  747 

The  International  Trade-Union  Conference  met  at  Berne  and 
asked  the  league  of  nations  to  institute  and  apply  an  international 
system  fixing  the  conditions  of  labor. 

The  present  conference  supports  the  decisions  of  the  Trades- 
Union  Conference  of  Leeds  (1917)  and  Berne  (1918),  and  asks 
that  their  essential  provisions,  already  applied  in  the  several  countries, 
be  applied  internationally  and  be  inscribed  in  the  treaty  of  peace  as 
an  international  charter  of  labor,  as  follows: 

1.  The  conference  considers  primary  instruction  obligatory  in 
all  countries;  pre-apprenticeship  and  general  industrial  training 
should  be  estabhshed  everywhere.  Higher  schooling  should  be  free 
and  accessible  to  all,  special  aptitudes  and  aspirations  not  being 
blocked  by  the  material  conditions  of  life  in  which  the  children  may 
be  placed. 

Children  below  fifteen  shall  not  be  employed  in  industry. 

2.  Children  from  fifteen  to  eighteen  shall  not  be  employed  more 
than  six  hours  per  day,  with  one  and  one-half  hours'  rest  after  four 
hours  of  work.  For  two  hours  per  day  both  sexes  shall  take  tech- 
nical continuation  courses  to  be  established  for  them  between  six 
in  the  morning  and  eight  at  night. 

The  employment  of  children  shall  be  prohibited  (a)  between 
eight  at  night  and  six  in  the  morning;  (&)  Sundays  and  hoUdays; 
(c)  in  unhealthy  industries;  {d)  in  underground  mines. 

3.  Women  workers  shall  have  a  Saturday  half-holiday  and  shall 
work  only  four  hours  that  day;  exceptions  which  are  necessary  in 
certain  industries  being  compensated  for  by  a  half-holiday  some  other 
day  in  the  week. 

Women  workers  shall  not  work  at  night.  Employers  shall  be 
forbidden  to  furnish  home  work  after  the  regular  hours  of  labor. 
Women  shall  not  be  employed  in  the  dangerous  industries  where  it 
is  impossible  to  create  healthy  conditions,  as,  for  instance,  in  mines 
where  the  handling  of  harmful  materials  is  injurious  to  the  health 
of  weak  constitutions. 

The  employment  of  women  for  four  weeks  before  and  six  weeks 
after  maternity  shall  be  forbidden. 

A  system  of  maternity  insurance  shall  be  established  in  all 
countries  and  benefits  paid  in  case  of  illness.  Women's  work  shall 
be  free  and  based  on  the  principle  of  equal  pay  for  equal  work. 

4.  The  hours  of  labor  shall  not  exceed  eight  per  day  and  forty- 
four  per  week.  Night  work,  after  eight  at  night  and  before  six  in 
the  morning,  shall  be  forbidden  except  where  the  technical  nature  of 
the  work  makes  it  inevitable. 


748  CURRENT  ECONOMICjPROBLEMS 

Where  night  work  is  necessary  the  pay  shall  be  higher. 

5.  The  Saturday  half-holiday  shall  be  introduced  in  all  countries. 
The  weekly  repose  shall  be  of  at  least  thirty-six  hours.  When  the 
nature  of  the  work  requires  Sunday  work,  the  weekly  repose  shall 
be  arranged  during  the  week.  In  industries  of  continuous  fire,  the 
work  shall  be  arranged  so  as  to  give  the  workers  holidays  on  alternate 
Sundays. 

6.  To  protect  health,  and  as  a  guaranty  against  accidents,  the 
hours  of  labor  shall  be  reduced  at  least  eight  hours  in  very  dangerous 
industries.  The  use  of  harmful  matters  is  forbidden  wherever  they 
can  be  replaced.  A  list  of  prohibited  industrial  poisons  shall  be 
made;  the  use  of  white  phosphorous  and  white  lead  in  decoration 
shall  be  forbidden.  A  system  of  automatic  coupling  shall  be  applied 
internationally  on  the  railroads. 

All  laws  and  regulations  concerning  industrial  labor  shall  in  prin- 
ciple be  applied  to  home  work ;  the  same  is  true  for  social  insurance. 

7.  Work  which  may  poison  or  injure  health  shall  be  excluded 
from  homes. 

8.  Food  industries,  including  the  manufacture  of  boxes  and 
sacks  to  contain  food,  shall  be  excluded  from  homes. 

9.  Infectious  diseases  must  be  reported  in  home  industries  and 
work  forbidden  in  houses  where  these  diseases  are  found.  Medical 
inspection  shall  be  established. 

Lists  of  workers  employed  in  home  industries  shall  be  drawn  up 
and  they  shall  have  salary  books.  Committees  of  representatives  of 
employers  and  workers  shall  be  formed  wherever  home  industries 
prevail,  and  they  shall  have  legal  power  to  fix  wages.  Such  wage 
scales  shall  be  posted  in  the  work  places. 

Workers  shall  have  the  right  to  organize  in  all  countries.  Laws 
and  decrees  submitting  certain  classes  of  workers  to  special  condi- 
tions or  depriving  them  of  the  right  of  organization  shall  be  abro- 
gated. Emigrant  workers  shall  have  the  same  rights  as  native 
workers,  including  the  right  to  join  unions  and  to  strike.  Punish- 
ments shall  be  provided  for  those  who  oppose  the  rights  of  organi- 
zation and  association. 

Foreign  workers  have  the  right  to  the  wages  and  conditions  of 
labor  which  have  been  agreed  upon  between  the  unions  and  employers 
in  all  branches  of  industry.  Lacking  such  agreements  they  have 
the  right  to  the  wages  current  in  the  region. 

10.  Emigration  shall  in  general  be  free.  Exceptions  shall  be 
made  in  the  following  cases:  (a)  A  state  may  temporarily  limit 
immigration  during  a  period  of  economic  depression  in  order  to  pro- 
tect the  native  as  well  as  the  foreign  workers,  (b)  Any  state  may 
control  immigration  in  the  interest  of  public  hygiene  and  may  tern- 


PROBLEMS  OF  CONTROL  WITHIN  INDUSTRY  749 

porarily  forbid  it.  (c)  States  may  demand  of  immigrants  that  they 
be  able  to  read  and  write  in  their  own  tongue — this  in  order  to  main- 
tain a  minimum  of  popular  education  and  to  render  possible  the 
application  of  labor  laws  in  industries  employing  immigrants. 

The  contracting  states  agree  to  introduce  without  delay  laws 
forbidding  engaging  workers  by  contract  to  work  in  other  countries 
and  putting  an  end  to  the  abuse  of  private  employment  agencies. 
Such  contracts  shall  be  forbidden. 

The  contracting  states  agree  to  prepare  statistics  of  the  labor 
market  based  upon  local  reports,  mutually  exchanging  information 
as  often  as  possible  through  a  central  international  office.  These  sta- 
tistics shall  be  communicated  to  the  trade-unions  of  each  country. 
No  worker  shall  be  expelled  from  any  country  for  trade-union 
activity;  he  shall  have  the  right  of  appealing  to  the  courts  against 
expulsion. 

If  wages  be  insufficient  to  assure  a  normal  life,  and  if  it  be  im- 
possible for  employers  and  workers  to  agree,  the  government  shall 
institute  mixed  commissions  to  establish  minimum  wages. 

11.  In  order  to  combat  unemployment,  the  trade-union  centers 
of  the  various  countries  shall  maintain  relations  and  exchange  in- 
formation relative  to  the  demand  and  supply  of  labor.  A  system 
of  insurance  against  unemployment  shall  be  established  in  all 
countries. 

12.  All  workers  shall  be  insured  by  the  state  against  industrial 
accidents.  The  benefits  paid  the  insured  or  their  dependents  shall 
be  fixed  according  to  the  laws  of  the  worker's  country  of  origin.  Old 
age  and  invalidity  insurance  and  insurance  for  widows  and  orphans 
shall  be  established  with  equal  benefits  for  natives  and  foreigners. 

A  foreign  worker  may,  on  departure,  if  he  has  been  the  victim  of 
an  industrial  accident,  receive  a  lump  sum,  if  such  an  agreement  has 
been  concluded  between  the  country  where  he  has  been  working  and 
his  country  of  origin. 

13.  A  special  international  code  shall  be  created  for  the  protec- 
tion of  seamen,  to  be  applied  in  collaboration  with  the  seamen's 
unions. 

14.  The  application  of  these  measures  shall  in  each  country  be 
confided  to  labor  inspectors.  These  inspectors  shall  be  chosen  among 
technical,  sanitary,  and  economic  experts,  and  aided  by  the  workers 
of  both  sexes. 

The  trade-unions  shall  watch  over  the  publication  of  the  labor 
laws.  Employers  employing  more  than  four  workers  speaking  for- 
eign tongues  shall  post  the  labor  regulations  and  other  important 
notices  in  their  respective  languages,  and  shall  at  their  own  expense 
teach  the  language  of  the  country  to  their  employees. 


750  CURRENT  ECONOMIC  PROBLEMS 

15.  To  apply  the  international  labor  legislation  the  contracting 
states  shall  create  a  permanent  commission  constituting  half  of  the 
delegates  of  the  states  which  are  members  of  the  league  of  nations 
and  half  of  delegates  of  the  international  federation  of  labor  unions. 

The  permanent  commission  shall  convoke  annually  the  delegates 
of  the  contracting  states  to  perfect  the  international  labor  legislation. 
This  conference  should  be  composed  one-half  of  representatives  of 
the  organized  workers  of  each  country ;  it  shall  have  power  to  make 
resolutions  having  the  force  of  international  law. 

The  Permanent  Commission  shall  collaborate  with  the  Interna- 
tional Labor  Office  at  Bale  and  with  the  International  Union  of 
Trade-Unions. 


XIV 
SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS 

From  time  out  of  mind  the  value  and  permanence  of  "fundamental"  insti- 
tutions have  been  questioned.  The  escape  in  America  from  a  discussion  of 
problems  so  basic  has  been  largely  due  to  the  nevi^ness  of  our  society.  The 
open  frontier,  the  wide  distribution  of  industrial  opportunity,  the  lack  of 
formal  class  lines,  and  a  spirit  of  self-reliance  have  centered  our  attention 
upon  the  more  immediate  problems  of  applying  a  machine-technique  to  a  new 
continent  and  of  collecting  the  golden  returns.  So  closely  have  we  been  ab- 
sorbed in  this  that  we  have  regarded  our  institutions  as  a  part  of  the  immutable 
universe  itself,  as  unalterable  as  the  paths  of  the  stars. 

But  with  our  consciousness  of  maturity  we  are  beginning  to  realize  that 
in  the  immediate  future  we  must  newly  evaluate  our  institutions.  Three  lines 
of  development  are  responsible  for  this  change  in  attitude.  First,  we  are 
victims  of  intellectual  curiosity.  The  emphasis  placed  upon  the  general  ideas 
of  "evolution"  and  "organism"  in  our  intellectual  system  has  led  investigators 
to  explore  the  institutional  realm,  and  they  have  brought  back  word  to  us  that 
our  institutions  are  but  social  conventions,  and  that,  though  they  change  slowly, 
they  nevertheless  change.  Accordingly  they  are  losing  the  attribute  of  abso- 
luteness with  which  we  have  been  accustomed  to  endow  them.  Secondly,  there 
is  a  growing  feeling  that  wealth  is  inequitably  distributed.  This  attitude  was 
apparent  in  our  discussion  of  the  tariff,  the  railroads,  the  trusts,  the  immigra- 
tion problem.  It  manifests  itself  clearly  in  discussions  of  the  problems  of  labor 
and  in  the  literature  of  socialism.  Even  so  late  as  a  decade  ago  the  conflict 
between  those  who  proposed  radical  changes  in  our  present  social  arrangements 
and  the  upholders  of  the  present  order  turned  upon  the  issue  of  the  source  of 
value.  Today  questions  of  market-process  are  no  longer  strategic  points  of 
conflict  between  the  opposing  systems.  The  clash  now  is  over  institutions. 
Accordingly  we  find  questions  of  the  social  and  industrial  reform  engaging  the 
attention,  not  only  of  the  economist,  but  of  the  student  of  jurisprudence,  the 
political  scientist,  the  sociologist,  and  the  philosopher  as  well.  Thirdly,  the 
peculiar  nature  of  the  industrial  system  is  forcing  such  questions  to  the  front. 
Unlike  other  systems.  Modern  Industrialism  makes  use  of  a  vast  co-operative 
productive  system.  In  this  there  are  employed  vast  aggregates  of  accumulated 
wealth.  A  consciousness  of  the  importance  of  this  large  volume  of  "socialized 
capital"  is  leading  to  the  formation  of  a  "gospel  of  wealth"  not  unlike  the 
mediaeval  "doctrine  of  stewardship."  The  disposition  to  justify  or  condemn 
ownership  or  use  of  productive  goods  by  "social  results"  is  becoming  stronger. 
Together  these  three  lines  of  development  are  increasing  our  interest  in  prob- 
lems of  an  institutional  nature. 

Four  closely  related  problems  are  treated  below  as  typical  of  the  whole 
group.  The  first,  and  in  a  sense  the  one  which  comprehends  all  the  others, 
is  the  legal  system.  It  has  been  pronounced  alike  "a  subtle  device  of  capital- 
ism for  enslaving  the  laborer"  and  "the  supreme  palladium  of  our  liberties." 
Its  defenders  insist  that  "law  is  the  conservative  factor  in  social  development" 
and  declare  its  stability  a  necessary  condition  to  industrial  and  social  advance. 
Its  opponents  insist  that  it  is  still  bound  by  the  natural-rights  philosophy  of  the 
eighteenth  century,  that  it  is  living  in  a  world  of  fictions,  and  that  it  knows 
nothing  of  the  reality  of  Modern  Industrialism.  A  second  institution,  which  is 
little  else  than  an  aspect  of  this  larger  first,  is  the  system  of  jurisprudence  as 
interpreted  by  the  courts.  It  is  easy  to  discern  a  fundamental  anithesis  between 
the  theory  of  social  or  group  solidarity  underlying  much  recent  legislation  and 

751 


752  CURRENT  ECONOMIC  PROBLEMS 

the  individualistic  philosophy  which  finds  expression  in  court  decisions.  It  is 
easy  to  criticise  the  legislation  as  overlooking  "natural  rights"  which  the 
"courts  were  established  to  maintain."  It  is  equally  easy  to  condemn  the  courts 
for  their  inability  to  appreciate  the  theory  of  group  welfare  underlying  such 
legislative  enactments.  It  is  a  far  more  difficult  problem  to  suggest  a  practical 
way  in  which  the  antithesis  can  be  solved. 

A  third  institution  under  attack  is  our  system  of  private  property.  Most 
of  those  who  condemn  the  institution  are  moved  by  the  inequalities  in  vvealth 
which  they  charge  to  it.  Their  attitude  is  alike  shortsighted  and  individual- 
istic. The  institution  is  commonly  defended  upon  the  ground  that  property- 
owners  are  entitled  to  "what  they  produce,"  the  asumption  being  that  they 
"produce"  their  property.  It  need  not  be  said  that  this  defense  is  as  weak 
as  the  attack.  There  is,  however,  a  growing  disposition  to  judge  the  institu- 
tion by  its  less  immediate  "social  consequences."  Thus,  it  is  attacked  because 
of  its  creation  and  perpetuation  of  artificial  inequalities  in  income,  because  of 
its  influence  in  stratifying  society  on  pecuniary  lines,  and  because  of  the 
dominant  social  position  which  it  gives  to  the  owners  of  large  aggregates  of 
material  wealth.  Its  defenders,  in  like  manner,  stress  the  incentive  which  it 
furnishes  to  individual  initiative,  the  function  which  it  performs  in  social 
organization  by  placing  productive  property  under  efficient  management,  and 
its  contribution  to  material  development  in  furthering  the  accumulation  of 
capital.  Perchance  a  system  may  be  devised  for  combining  the  advantages  of 
economic  democracy  with  those  of  an  advancing  material  culture.  If  so,  by 
all  means  let  us  adopt  it.  But  if  the  antithesis  is  irreconcilable,  we  must  choose 
between  two  things,  both  of  which  ofifer  advantages  and  disadvantages.  Per- 
chance it  may  be  best  to  sacrifice  material  advancement ;  but  it  is  to  be  feared 
that  the  preent  generation  cannot  easily  be  convinced  of  that.  Perhaps  we 
may  be  fortunate  enough  to  retain  the  institution,  but  can  succeed  in  modifying 
it  in  such  a  way  as  to  establish  a  necessary  connection  between  the  privileges 
and  the  responsibilities  of  ownerhip.  At  best  the  problem  contains  many 
contradictory  values,  and  turns  upon  the  larger  question  of  the  type  of  society 
that  is  desirable. 

A  fourth  and  closely  related  institution  is  that  of  individual  liberty,  em- 
bracing as  it  does  the  legal  convention  of  freedom  of  contract.  A  necessary 
complement  of  private  property  in  a  flexible  industrial  system,  it  is  the  very 
epitome  of  the  older  institutional  complex.  Its  modification  is  threatened  by 
the  rise  of  the  newer  group  spirit,  through  such  legislative  initiatives  as  regu- 
lation of  monopoly,  prescription  of  hours  of  labor,  legal  restraints  upon  hiring 
and  discharge,  etc.  How  sweeping  its  modification  is  to  be  only  the  future 
can  tell. 

Our  attention  to  our  institutional  framework  of  society  has  just  begun. 
The  range  of  inquiry  is  as  broad  as  human  life  itself;  the  other  problems 
discussed  in  this  volume  only  begin  to  show  its  comprehensiveness.  By  con- 
scious change  many  of  our  institutions  are  to  be  profoundly  modified.  If  the 
newer  life  finds  the  institutional  molds  too  rigid,  the  change  may  be  rapid  and 
revolutionary.  But  most  important  of  all  are  the  changes  in  these  institutions 
which  are  gradually  being  effected  by  a  process  of  growth  which  we  but  dimly 
see  and  the  changes  which  these  institutions  in  turn  are  inducing  in  the  complex 
of  our  developing  scheme  of  life  and  values. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  753 

A.     THE  LEGAL  SYSTEM 
333.     The  Economic  Basis  of  Law' 

BY  ACHILLE  LORIA 

Changes  in  the  prevailing  economic  conditions  necessarily  involve 
corresponding  alterations  in  law.  The  history  of  law  furnishes  us 
with  clear  and  definite  demonstration  of  the  fact.  During  the  primi- 
tive period  when  law  was  worked  out  upon  a  family  and  not  upon 
a  property  basis,  mother-right  prevailed  universally.  Under  more 
modern  conditions  we  are  struck  with  amazement  at  the  similarity 
in  legal  systems  prevailing  among  the  most  diverse  peoples.  The 
ancient  law  of  the  Romans  and  Germans  alike  shows  us  the  same 
classification  of  persons ;  among  both  the  law  maintained  the  inviola- 
bility of  private  property,  determined  the  boundaries  of  patrimonial 
fields,  proclaimed  the  personal  nature  of  an  obligation,  and  fixed  the 
rigorous  bonds  that  shackled  the  liberty  of  the  debtor. 

That  so  striking  an  analogy  should  exist  in  the  legal  system  of 
two  peoples  so  profoundly  different  and  so  widely  separated  is  highly 
significant :  on  the  one  hand,  because  it  reverses  the  theory  that  law 
is  an  emanation  of  national  consciousness ;  and  upon  the  other,  be- 
cause it  shows  that  the  law  necessarily  depends  upon  existing  eco- 
nomic conditions.  The  Romans  and  tjie  primitive  Germans  were 
different  in  race  and  manners  and  lived  under  different  climatic  con- 
ditions. Between  the  two  peoples  there  was  nothing  in  common 
beyond  the  identity  of  their  economic  systems ;  or,  to  put  it  more 
definitely,  there  was  nothing  in  common  except  identical  territorial 
conditions,  which  irresistibly  impelled  them  to  adopt  an  identical 
economic  constitution.  The  analogy  in  legal  systems  must  neces- 
sarily have  resulted  from  the  one  element  common  to  them  both,  their 
economic  system. 

The  Roman  economy  and  the  German  economy  proceeded  to- 
gether for  a  certain  time.  But  after  the  collective  economy  gave 
way  to  the  system  of  capitalistic  property,  their  ways  lay  apart ;  for 
Germany's  free  land,  being  of  a  low  grade  of  fertility,  could  be  taken 
from  the  laborer  without  serious  violence,  while  in  Southern  Europe, 
with  its  fertile  land,  blood  and  iron  alone  could  prevent  the  laborers 
from  establishing  themselves  on  the  free  land.  This  led  in  Southern 
Europe  to  an  admirably  perfected  capitalistic  system  upon  which  a 
corresponding  legal  structure  was  raised.  The  resulting  system  of 
legal  relations  and  doctrines  remain  to  our  day  a  superb  monument  to 
Latin  genius. 

^Adapted  from  The  Economic  Foundations  of  Society  (1889),  pp.  80-86. 
Translated  by  Lindley  M.  Keasbey. 


754  CURRENT  ECONOMIC  PROBLEMS 

The  slave  economy  was  never  rigorously  established  in  Teutonic 
countries ;  the  suppression  of  free  land  there  assumed  the  milder 
form  of  serfdom.  Thus  there  was  produced  a  legal  system  differing 
from  that  of  Rome  in  three  respects:  it  instituted  patriarchal  rela- 
tions between  property  and  labor ;  it  protected  the  serf  from  arbi- 
trary acts  of  violence  by  the  proprietor;  and  it  placed  respect  for 
the  family  and  a  sentiment  of  solidarity  above  the  mere  satisfaction 
of  brutal  egoism.  With  the  disintegration  of  Roman  society,  the 
classic  law  fell  into  abeyance.  Southern  Europe  was  forced  to  in- 
troduce the  serf  system,  and  it  then  became  expedient  to  substitute 
the  Germanic  code  for  the  classic  law  of  Rome.  This  substitution 
was  not  a  victory  of  Teutonic  over  Roman  law ;  it  was  simply  the 
natural  reproduction  of  a  legal  system  to  meet  the  reappearance  of 
the  very  economic  conditions  that  had  originally  given  it  life.  We 
thus  have  additional  proof  of  the  law's  exclusive  dependence  upon 
the  economic  structure  of  society. 

In  a  somewhat  analogous  manner  the  later  institution  in  Germany 
of  economic  relations  similar  to  those  formerly  prevailing  in  Rome 
introduced  the  Roman  law  into  that  country.  Here  the  growing  wage 
economy  engendered  a  new  set  of  relations  between  property  and 
labor,  and  these  had  to  give  rise  to  institutions  heretofore  unknown. 
The  new  system  offered  a  profound  analogy  to  that  of  the  Roman 
slave  economy.  Thus,  though  the  law  regulating  the  wage  contract 
had  to  be  an  original  creation  of  the  new  economic  system,  the  law 
regulating  the  relations  among  proprietors  could  practically  be  repro- 
duced in  its  classic  form.  Now  it  is  exactly  these  relations  that 
constitute  the  essential  object  of  the  law.  The  Roman  law,  accord- 
ingly, emerged  from  the  tomb  where  it  had  so  long  reposed  into  the 
expansion  of  a  new  life.  The  movement  toward  this  awakening 
commenced  in  Italy  where  the  wage  economy  first  began  to  develop. 
Its  passing  from  Italy  into  Germany  was  but  the  necessary  correla- 
tion of  the  economic  revolution  that  spread  these  same  conditions 
throughout  Northern  Europe. 

Thus  legal  history  shows  us  that  instead  of  being  the  product  of 
abstract  reason,  or  the  result  of  national  consciousness,  or  a  racial 
characteristic,  the  law  is  simply  the  necessary  outcome  of  economic 
conditions. 

334.     Social  Rights  and  the  Legal  System^ 

BY  ROSCOE  POUND 

A  generation  ago  it  would  have  been  hard  to  find  anyone  to  ques- 
tion that  upon  the  whole  the  American  law  was  quite  what  it  should 

_2Adapted  from  "Social  Problems  and  the  Courts,"  American  Journal  of 
Sociology,  XVIII,  331-41.    Copyright  by  the  University  of  Chicago,  1912. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  755 

be.  But  first  the  economists  and  sociologists  and  students  of  govern- 
ment, and  then  the  bar  itself,  have  been  thinking  upon  this  matter 
freely  and  vigorously  until  criticism  has  become  stable.  The  need 
for  agitation  has  passed.  Now  for  a  season  we  need  careful  diag- 
nosis and  thoroughgoing  study  of  the  lines  along  which  change  is  to 
proceed. 

Legal  history  shows  that^  from  time  to  time  legal  systems  have  to 
be  remade,  and  that  this  new  birth  of  a  body  of  law  takes  place 
through  the  infusion  into  the  legal  system  of  something  from  with- 
out. A  purely  professional  development  of  law,  which  is  necessary 
in  the  long  run,  has  certain  disadvantages,  and  the  undue  rigidity  to 
which  it  gives  rise  must  be  set  off  from  time  to  time  by  receiving 
into  the  legal  system  ideas  developed  outside  of  legal  thought.  Such 
a  process  has  taken  place  in  the  history  of  our  own  law.  In  the  six- 
teenth and  seventeenth  centuries  the  common  law,  through  purely 
professional  development  in  the  King's  Courts,  had  become  so  sys- 
tematic and  logical  and  rigid  that  it  took  no  account  of  the  moral 
aspects  of  causes  to  which  it  was  to  be  applied.  With  equal  impar- 
tiality its  rules  fell  upon  the  just  and  the  unjust.  The  rise  of  the 
Court  of  Chancery  and  the  development  of  equity  brought  about  an 
infusion  of  morals  into  the  legal  system — an  infusion  of  the  ethical 
notions  of  chancellors  who  were  clergymen,  not  lawyers — and  made 
over  the  whole  law.  Again,  in  the  eighteenth  century,  the  law  had 
become  so  fixed  and  systematized  by  professional  development  as  to 
be  quite  out  of  accord  with  a  commercial  age.  As  the  sixteenth- 
century  judge  refused  to  hear  of  a  purely  moral  question,  asking 
simply  what  was  the  common  law,  so  the  eighteenth-century  judge  at 
first  refused  to  hear  of  mercantile  custom  and  commercial  usage, 
and  insisted  upon  the  strict  rules  of  the  traditional  law.  But  before 
the  century  was  out,  by  the  absorption  of  the  law  merchant,  a  great 
body  of  non-professional  ideas,  worked  out  by  the  experience  of 
merchants,  had  been  infused  into  the  legal  system,  and  had  created  or 
made  over  whole  departments  of  the  law. 

Today  a  like  process  is  going  on.  The  sixteenth-century  judge 
who  rendered  judgment  upon  a  bond  already  paid,  because  no  formal 
release  had  been  executed,  and  refused  to  take  account  of  the  purely 
moral  aspects  of  the  creditor's  conduct;  the  great  judge  in  the 
eighteenth  century  who  refused  to  allow  the  indorsee  of  a  promis- 
sory note  to  sue  upon  it,  because  by  the  common  law  things  in  action 
were  not  transferable,  and  would  not  listen  to  the  settled  custom  of 
merchants  to  transfer  such  notes,  nor  to  the  statement  of  the  London 
tradesmen  as  to  the  unhappy  effect  of  such  a  ruling  upon  business, 
have  their  entire  counterpart  in  the  judges  of  one  of  the  great  courts 


756  CURRENT  ECONOMIC  PROBLEMS 

of  the  Urjited  States  in  the  twentieth  century  to  whom  the  economic 
and  sociological  aspects  of  a  question  appear  palpably  irrelevant. 

The  sixteenth-  and  seventeenth-century  law  was  brought  to  take 
account  of  ethics.  The  eighteenth-century  law  came  to  receive  the 
custom  of  merchants  as  part  of  the  law  of  the  land.  May  we  not 
be  confident  that  in  the  same  way  the  law  of  the  twentieth  century 
will  absorb  the  new  economies  and  the  social  science  of  today  and 
be  made  over  thereby  ? 

It  is  an  infusion  of  social  ideas  into  the  traditional  element  of 
our  law  that  we  have  to  bring  about;  and  such  an  infusion  is  going 
on.  The  right  course  is  not  to  tinker  with  our  courts  and  with  our 
judicial  organization  in  the  hope  of  bringing  about  particular  results 
in  particular  kinds  of  cases,  at  a  sacrifice  of  all  that  we  have  learned 
or  ought  to  have  learned  from  legal  and  judicial  history.  It  is  rather 
to  provide  a  new  set  of  premises,  a  new  order  of  ideas  in  such  form 
that  the  courts  may  use  them  and  develop  them  into  a  modern  system 
by  judicial  experience  of  actual  cases.  A  body  of  law  which  will 
satisfy  the  social  workers  of  today  cannot  be  made  of  the  ultra-indi- 
vidualist materials  of  eighteenth-century  jurisprudence  and  nine- 
teenth-century common  law  based  thereon,  no  matter  how  judges  are 
chosen  or  how  often  they  are  dismissed. 

A  master  of  legal  history  tells  us  that  taught  law  is  tough  law. 
Certainly  it  is  true  that  our  legal  thinking  and  legal  teaching  are  to 
be  blamed  more  than  the  courts  for  the  want  of  sympathy  with  social 
legislation  which  has  been  so  much  in  evidence  in  the  immediate  past. 
One  might  almost  say  that  instead  of  recall  of  judges,  recall  of  law 
teachers  would  be  a  useful  institution.  At  any  rate,  what  we  must 
insist  upon  is  recall  of  much  of  the  juristic  and  judicial  thinking  of 
the  last  century. 

For  many  reasons  which  cannot  be  taken  up  here,  our  conception 
of  the  end  of  the  legal  system  came  to  be  thoroughly  individualistic. 
Legal  justice  meant  securing  of  individual  interests.  It  sought  by 
means  of  law  to  prevent  all  interference  with  individual  self-develop- 
ment and  self-assertion,  so  far  as  this  might  be  done  consistently  with 
a  like  self-development  and  self-assertion  on  the  part  of  others.  It 
conceived  that  the  function  of  the  state  and  of  the  law  was  to  make 
it  possible  for  the  individual  to  act  freely.  Hence  it  called  for  a 
minimum  of  legal  restraint,  restricting  the  sphere  of  law  to  such 
checks  as  are  necessary  to  secure  "a  harmonious  coexistence  of  the 
individual  and  of  the  whole."  This  purely  individualistic  theory  of 
justice  culminated  in  the  eighteenth  century  in  the  Declaration  of  the 
Rights  of  Man  and  the  Bill  of  Rights  so  characteristic  of  that  period. 
Spencer's  formula  of  justice,  "the  liberty  of  each  limited  only  by  the 
like  liberties  of  all,"  represents  the  ideal  which  American  law  has 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  757 

had  before  it  during  its  whole  existence.  In  politics,  in  ethics,  and  in 
economics  this  conception  has  decayed,  and  has  given  way  to  a  newer 
idea  of  justice.    But  it  continues  to  rule  in  jurisprudence. 

In  contrast  with  such  juristic  thinking  of  the  immediate  past, 
which  started  from  the  premise  that  the  object  of  the  law  was  to 
secure  individual  interests  and  knew  of  social  interests  only  as  indi- 
vidual interests  of  the  state  or  sovereign,  the  juristic  thinking  of  the 
present  must  start  from  the  proposition  that  individual  interests  are 
to  be  secured  by  law  because  and  to  the  extent  that  they  are  social 
interests.  There  is  a  social  interest  in  securing  individual  interests 
so  far  as  securing  them  conduces  to  general  security,  security  of  in- 
stitutions and  the  general  rural  and  social  life  of  individuals.  Hence 
while  individual  interests  are  one  thing  and  social  interests  another, 
the  law,  which  is  a  social  institution,  really  secures  individual  inter- 
ests because  of  a  social  interest  in  so  doing. 

Study  of  fundamental  problems  of  jurisprudence,  not  petty 
changes  of  the  judicial  establishment,  is  the  road  to  socialization  of 
the  law.  First  of  all,  there  must  be  a  definition  of  social  justice  to 
replace  the  individualistic  or  so-called  legal  justice  which  we  have; 
there  must  be  a  definition  of  social  interests  and  a  study  of  how  far 
these  are  subserved  by  securing  the  several  individual  interests  which 
the  law  has  worked  out  so  thoroughly  in  the  past ;  there  must  be  a 
study  of  the  means  of  securing  these  social  interests  otherwise  than 
by  the  methods  which  the  past  had  worked  out  for  purely  individual 
interests.  Second,  there  must  be  a  study  of  the  actual  social  effects 
of  legal  institutions  and  legal  doctrines.  Courts  cannot  do  this,  nor 
can  law  teachers  or  law  writers,  except  within  narrow  limits.  The 
futility  of  a  self-sufficing,  self-centered  science  of  law  has  become 
apparent  to  jurists. 

335.     Law  and  Social  Statics'' 

BY  OLIVER  W.  HOLMES 

This  case  is  decided  upon  an  economic  theory  which  a  large  part 
of  the  country  does  not  entertain.  If  it  were  a  question  whether  I 
agreed  with  the  theory  I  should  desire  to  study  further  and  long 
before  making  up  my  mind.  But  I  do  not  conceive  that  to  be  my 
duty,  because  I  strongly  believe  that  my  agreement  or  disagreement 
has  nothing  to  do  with  the  right  of  the  majority  to  embody  their 
opinion  in  law. '  It  is  settled  that  state  constitutions  and  laws  may 

^Lochner  v.  New  York,  198  U.S.  74-  This  is  the  well-known  "bake-shop 
case."  A  statute  passed  by  the  New  York  legislature,  regulating  the_ hours 
of  labor  in  bake  shops,  was  declared  unconstitutional.  The  selection  given  is 
an  excerpt  from  a  dissenting  opinion  (1904)- 


7S8  CURRENT  ECONOMIC  PROBLEMS 

regulate  life  in  many  ways  that  we  as  legislators  might  think  inju- 
dicious, or  if  you  like,  as  tyrannical  as  this,  and  which  equally  inter- 
fere with  the  liberty  of  contract.  This  liberty  of  the  citizen  to  do 
as  he  likes  so  long  as  he  does  not  interfere  with  the  like  liberty  of 
others  to  do  the  same,  which  has  been  a  shibboleth  for  many  well- 
known  writers,  is  interfered  with  by  school  laws,  by  the  post-office, 
by  every  state  and  municipal  institution  which  takes  his  money  for 
purposes  thought  desirable,  whether  he  likes  it  or  not.  The  Four- 
teenth Amendment  does  not  enact  Herbert  Spencer's  Social  Statics. 
A  constitution  is  not  intended  to  embody  a  particular  economic  theory, 
whether  of  paternalism  and  the  organic  relations  of  a  citizen  to  the 
state,  or  of  laissez  faire.  It  is  made  for  people  of  fundamentally 
differing  views.  ^ 

General  propositions  do  not  solve  concrete  problems.  The  decision 
will  depend  on  a  judgment  or  intuition  more  subtle  than  any  articulate 
major  premise.  Every  opinion  tends  to  become  law.  I  think  that  the 
word  liberty  in  the  Fourteenth  Amendment  is  perverted  when  it  is 
held  to  prevent  the  natural  outcome  of  a  dominant  opinion,  unless  it 
can  be  said  that  a  rational  and  fair  minded  man  would  necessarily 
admit  that  the  proposed  statute  would  infringe  fundamental  prin- 
ciples as  they  have  been  understood  by  the  traditions  and  the  laws  of 
our  people. 

336.     The  Social  Function  of  Lav^r* 

BY  HOMER  HOYT 

The  critics  of  the  current  legal  system  seem  to  be  agreed  as  to 
the  baneful  effect  of  its  static  character.  Law  is  said  to  be  a  sur- 
vival of  eighteenth-century  philosophy  which  cannot  be  justly  applied 
to  twentieth-century  society.  The  favorable  hearing  which  this  plea 
is  receiving  indicates  that  it  is  in  keeping  with  the  growing  tendency 
of  an  age  of  industrial  change  to  emphasize  the  dynamic  and  evolu- 
tionary elements  of  its  institutions.  The  demand  for  relative  stand- 
ards of  jurisprudence  becomes  more  insistent,  as  people  become  more 
convinced  of  the  unique  and  marvelous  character  of  their  own  epoch. 
We  are  told  that  legal  codes  should  be  developed  out  of  the  experience 
of  the  society  to  which  they  are  to  be  applied,  and  that  any  law  whose 
basis  is  broader  than  the  time  and  place  in  which  it  is  now  established, 
to  the  extent  that  it  fails  of  this  coincidence,  is  clearly  unjust.  In 
particular,  our  present  society,  which  is  so  different  from  other  so- 
cieties both  in  degree  of  complexity  and  in  kind  of  organization, 
necessarily  requires  rules  of  conduct  which  are  adapted  to  its  insti- 
tutions. The  scope  of  laws  is  not  only  to  be  narrowed  to  a  brief 
time  unit,  but  their  application  to  different  classes  of  individuals  at 

*ioi5- 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  759 

the  same  moment  is  to  be  carefully  restricted.  As  commonly  ex- 
pressed, justice  consists  in  giving  to  every  person  a  square  deal,  and 
this  is  generally  interpreted  to  mean  judgment  of  the  individual  by  the 
rules  of  the  game  which  were  set  for  his  particular  social  environ- 
ment. Perfect  justice  could  be  secured  in  every  case,  according  to 
these  critics,  by  discarding  past  standards  and  by  deciding  each  case 
upon  its  merits.  This  involves  nothing  less  than  the  abandonment 
of  objective  rules  of  judgment,  and  the  substitution  in  their  place 
of  the  subjective  test  of  the  psychological  laboratory.  The  indictment 
is  thus  chiefly  directed  against  the  social  value  of  static  standards  of 
law. 

The  apologists  for  the  existing  legal  institutions  assert  that  stable 
standards  of  law  are  necessary  to  secure  this  very  special  consid- 
eration of  the  merits  of  each  individual  case,  which  constitutes  the 
very  essence  of  individual  justice.  They  would  remind  their  critics 
that  legal  principles  originate  in  social  intercourse,  and  are  concerned 
with  the  conduct  of  individuals  in  relationships  where  some  com- 
munity of  understanding  is  indispensable.  The  social  conventions 
and  institutions  are  the  relatively  static  elements  in  society,  and  it  is 
necessary  for  their  function  as  media  of  social  communication  that 
they  should  be  so.  Their  purpose  is  to  furnish  a  convenient  agency 
of  mutual  expression,  which  can  be  acquired  with  a  minimum  of 
effort  on  the  part  of  the  individual,  and  to  establish  an  agreement 
among  diverse  and  heterogeneous  interests  in  regard  to  matters  where 
unanimity  is  of  great  advantage  to  the  individual.  Law  acquires  its 
static  character  by  becoming  so  familiar  that  it  no  longer  requires 
conscious  attention.  Men  form  habits  in  regard  to  their  legal  insti- 
tutions, for  the  same  purpose  that  they  form  habits  in  regard  to 
language — to  economize  the  time  and  effort  of  carrying  on  relations 
with  their  fellows.  Legal  standards  thus  enter  indissolubly  into  the 
thoughts,  acts,  and  characters  of  men  as  a  part  of  their  fundamental 
assumptions,  which  they  accept  without  question.  Individual  acts 
inevitably  carry  forward  the  theory  of  law  which  existed  prior  to 
their  performance,  and  thus  tend  to  perpetuate  the  same  principles. 
The  prohibition  of  retroactive  laws  is  universally  considered  neces- 
sary to  prevent  confiscation  of  property,  and  forfeiture  of  vested 
rights,  but  it  accomplishes  its  purpose  by  guaranteeing  a  certain 
degree  of  stability  in  our  legal  system.  Justice  to  the  individual, 
according  to  the  conception  entertained  in  the  preceding  paragraph, 
can  be  assured  only  by  recognizing  the  social  value  of  static  laws  in 
setting  up  guideposts  to  direct  individuals  to  the  legal  road.  The  com- 
plexity of  modern  civilization  confuses  and  bewilders  one  who  has  no 
definite  knowledge  of  its  laws.    As  an  immigrant  in  a  strange  land 


76o  CURRENT  ECONOMIC  PROBLEMS 

feels  helpless  and  insecure  because  of  ignorance  of  the  unfamiliar 
social  organization,  so  the  native  citizen  is  nonplused  by  shifting  and 
unstable  legal  standards.  The  consequences  of  action  may  be  that  the 
individual  is  subjected  to  extraordinary  civil  and  criminal  liability, 
for  society  imputes  legal  responsibilty  to  one  definte  act  of  the  many 
which  have  co-operated  to  produce  the  final  result.  The  criminal  act 
itself  is  criminal  in  view  of  the  social  attitude  which  prevails  at  the 
time,  and  the  justice  of  enforcing  the  social  attitude  is  dependent  upon 
announcement  of  it  beforehand  in  terms  sufficiently  definite  to  put 
individuals  upon  their  guard. 

Uncertainty  as  to  what  is  legal,  when  the  consequences  of  guess- 
ing wrongly  may  result  in  heavy  penalties,  blights  forward  action 
in  its  very  inception,  at  the  moment  when  the  individual  is  deciding 
to  make  the  positive  step  required  to  overcome  the  safety  and  cer- 
tainty of  doing  nothing.  At  this  point  the  society  whose  duty  it  was 
to  establish  laws  and  administer  justice  finds  itself  deeply  concerned, 
for  upon  the  decision  of  the  individuals  depends  its  progress  as  a 
group.  Activity  of  individuals  is  even  more  necessary  to  society  than 
regulatory  measures  whose  purpose  is  to  secure  the  best  type  of 
activity.  But  when  the  rules  of  law  depart  from  fixed  standards  to 
suit  the  exigencies  of  particular  cases  to  such  an  extent  that  they 
cease  to  be  trustworthy  guides  for  future  action,  then  law,  instead  of 
creating  an  attitude  favorable  to  progress,  deadens  individual  activity. 
In  society  as  at  present  organized  the  social  advantages  of  continued 
production  and  the  opening  of  new  lines  of  enterprise  would  be 
destroyed,  were  law  made  immediately  responsive  to  social  condi- 
tions, by  the  very  agency  which  is  designed  to  increase  social  efficiency. 
A  fairly  stable  and  certain  standard  of  law  must  necessarily  be  estab- 
lished to  tempt  individual  initiative,  and  this  implies  that  individual 
standards  of  justice  must  give  way  to  a  common  standard  of  justice, 
which  all  individuals  having  social  dealings  can  understand  and 
interpret.  Otherwise  the  plea  of  unusual  circumstances  or  peculiar 
temperament  will  readily  lend  itself  to  arbitrary  and  capricious  rules 
of  law,  the  very  possibility  of  which  will  foster  suspicion  and  distrust 
of  judicial  processes.  It  is  only  because  men  are  fairly  certain  that 
the  main  bases  of  property  and  contract  rights  will  not  be  suddenly 
and  substantially  altered  to  their  disadvantage,  that  they  strike  out 
into  new  fields  of  enterprise.  It  is  only  because  individuals  are  con- 
fident that  the  court  will  not  construct  special  standards  to  apply  to 
their  acts,  that  they  will  proceed  with  decision  upon  tomorrow's 
work.  If  all  things  were  subject  to  change,  would  anyone  confine  his 
attention  to  one  task  even  for  a  moment  ?  Entrepreneurs  may  be  able 
to  calculate  with  some  degree  of  accuracy  the  probable  changes  in  the 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  761 

factors  which  will  affect  future  markets  for  their  products,  but  if 
the  very  standards  by  which  they  have  made  their  calculations  vary  at 
the  discretion  of  a  future  court,  how  accurately  can  they  allow  for 
these  unprecedented  psychological  factors  ? 

Definite  rules  of  law  are  formulated  by  court  decisions  as  well 
as  by  statutory  enactment.  In  the  case  of  court-made  law  the  recog- 
nition of  precedents  is  indispensable  to  the  existence  of  the  law,  for 
a  legal  principle  is  not  established  until  it  comes  to  be  acknowledged 
as  binding  upon  the  facts  to  which  it  applies.  As  fast  as  new  laws 
are  developed,  the  number  of  doubtful  questions  is  diminished,  and 
the  road  is  cleared  for  fresh  consideration  of  new  situations  which 
arise  out  of  the  dynamic  progress  of  society.  It  is  as  necessary, 
therefore,  that  the  courts  be  relieved  of  the  enormous  burden  of 
reconsidering  old  issues,  as  it  is  for  the  individual  to  find  definiteness 
in  the  law.  As  individuals  accept  the  greater  part  of  the  questions 
arising  out  of  their  social  relations  as  definitely  settled,  and  proceed 
to  expend  money  and  effort  upon  the  assumption  that  the  definite 
rules  will  not  be  reversed,  so  the  courts  resolve  new  cases  by  com- 
paring them  with  cases  already  decided.  In  thus  basing  their  de- 
cisions on  precedent,  the  courts  are  often  unfairly  accused  of  apply- 
ing a  blind  rule  of  thumb  to  avoid  the  trouble  of  exerting  ingenuity 
and  using  wisdom  in  devising  methods  of  equitable  relief.  But  it  is 
manifestly  far  more  unjust  to  reverse  the  settled  principles  upon  the 
faith  of  which  men  have  acquired  power  and  governed  their  courses 
of  action  in  the  past  than  to  enact  into  law  the  court's  own  unfettered 
opinion  as  to  the  justice  of  the  case,  which  may  or  may  not  coincide 
with  what  is  generally  accepted.  Considerations  of  practicability 
enforce  this  course  upon  the  courts.  The  task  of  reconciling  con- 
flicting precedents  itself  gives  the  widest  leeway  for  the  exercise 
of  ingenuity,  and  the  frequency  with  which  cases  are  decided  by  a 
divided  opinion  indicates  the  difficulty  involved  in  finding  a  definite 
course.  The  application  of  legal  principles  is  consequently  far  more 
than  the  readaptation  of  past  rules  to  present  situations.  The  growth 
of  new  social  environments  changes  the  force  of  old  arguments  and 
compels  a  modification  of  many  rules.  The  precedent  which  was  at 
first  stated  in  a  broad  and  abstract  form  is  given  definite  meanings 
by  concrete  applications.  Its  logical  relationship  to  other  precedents 
is  developed  as  occasion  requires,  and  the  extent  of  its  scope  is 
definitely  determined  by  an  interaction  with  other  precedents.  Into 
the  old  rules  is  infused  the  spirit  of  the  new  developments ;  the  out- 
worn and  archaic  elements  are  cast  out  and  new  elements  are  added. 
The  whole  system  of  jurisprudence  is  made  to  grow  by  mingling  into 
the  substance  of  the  law  the  viewpoints  of  each  successive  age. 


762  CURRENT  ECONOMIC  PROBLEMS 

B.     PRIVATE  PROPERTY 
337.     Progress  and  Property^ 

BY  PAUL  ELMER  MORE 

Not  even  a  Rousseau  could  cover  up  the  fact  of  the  initial  in- 
equality of  men  by  the  decree  of  that  great  Ruler  or  Law  which 
makes  one  vessel  for  dishonor  and  another  for  honor.  This  is  the 
so-called  injustice  of  nature.  And  it  is  equally  a  fact  that  property 
means  the  magnifying  of  that  natural  injustice  into  that  which  you 
may  deplore  as  unnatural  injustice,  but  which  is  a  fatal  necessity, 
nevertheless.  This  is  the  truth,  hideous  if  you  choose  to  make  it  so 
to  yourself,  true  to  those,  whether  the  favorites  of  fortune  or  not, 
who  are  themselves  true — ineluctable  at  least. 

Unless  we  are  willing  to  pronounce  civilization  a  grand  mistake, 
as,  indeed,  religious  enthusiasts  have  ever  been  prone  to  do  (and 
humanitarianism  is  more  a  perverted  religion  than  a  false  eco- 
nomics), unless  our  material  progress  is  all  a  grand  mistake,  we  must 
admit,  sadly  or  cheerfully,  that  any  attempt  by  government  to  ig- 
nore that  inequality  may  stop  the  wheels  of  progress  or  throw  the 
world  back  into  temporary  barbarism,  but  will  surely  not  be  the 
cause  of  v/ider  or  greater  happiness.  It  is  not  heartlessness,  there- 
fore, to  reject  the  sentiment  of  the  humanitarian,  and  to  avow  that 
the  security  of  property  is  the  first  and  all-essential  duty  of  a  civil- 
ized community. 

And  we  may  assert  this  truth  more  bluntly,  or,  if  you  please,  more 
paradoxically.  Although,  probably,  the  rude  government  of  bar- 
barians, when  the  person  was  scantily  covered  or  surrounded  by 
property,  may  have  dealt  principally  with  wrongs  to  persons,  yet  the 
main  care  of  advancing  civilization  has  been  for  property.  One 
reason,  of  course,  is  that  the  right  of  life  is  so  obvious,  and  in  the 
nature  of  things  has  been  so  long  and  universally  recognized.  But, 
after  all,  life  is  a  very  primitive  thing.  Nearly  all  that  makes  it  more 
significant  to  us  than  to  the  beast  is  associated  with  property.  To 
the  civilized  man  the  rights  of  property  are  more  important  than 
the  right  to  life. 

In  our  private  dealings  with  men,  we  may  ignore  the  laws  of 
civilization  with  no  harm  resulting  to  society ;  but  it  is  diflferent  when 
we  undertake  to  lay  down  general  rules  of  practice.  We  are  essen- 
tially, not  legislators,  but  judges.  What  then,  you  ask,  are  human 
laws  ?  In  sober  sooth,  it  is  not  we  who  create  laws ;  we  are  rather 
iinders  and  interpreters  of  natural  laws,  and  our  decrees  are  merely 

^Adapted  from  an  article  entitled  "Property  and  Law,"  Unpopular  Review, 
III.  259-68.    Copyright,  1915. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  763 

the  application  of  our  knowledge,  or  our  ignorance,  to  particular  con- 
ditions. When  our  decrees  are  counter  to  natural  law,  they  become 
at  best  dead  letters,  and  at  worst,  agents  of  trouble  and  destruction. 
Law  is  but  a  rule  for  regulating  the  relations  of  society  for  practical 
purposes.  We  are  bound  to  deal  with  man  as  he  actually  is.  So,  if 
our  laws  are  to  work  for  progress,  they  must  recognize  property  as 
the  basis  of  civilization,  and  must  admit  the  consequent  inequality 
of  conditions  among  men.  They  will  have  relatively  little  regard  for 
labor  in  itself  or  for  the  laborer  in  himself,  but  they  will  provide 
rigidly  that  labor  shall  receive  the  recompense  it  has  bargained  for, 
and  that  the  laborer  shall  be  secure  in  the  possession  of  what  he  has 
received.  We  may  try  to  teach  him  to  produce  more,  or  to  bargain 
better,  but  in  the  face  of  all  appeals  of  sentiment  society  must  learn 
again  today  that  it  cannot  legislate  contrary  to  the  decree  of  fate. 
Law  is  concerned  primarily  with  the  rights  of  property. 

So  directly  is  the  maintenance  of  civilization  and  peace  and  all 
our  welfare  dependent  upon  this  truth — that  it  is  safer,  in  the  ut- 
terance of  law,  to  err  on  the  side  of  natural  equality  than  on  the 
side  of  ideal  justice.  We  can  do  something  to  control  the  power  of 
cunning  and  rapacity,  and  to  make  the  distribution  of  material  ad- 
vantages fall  more  in  conformity  with  superiority  of  character  and 
culture.  We  can  go  a  little  way,  and  very  slowly,  in  the  endeavor 
to  equalize  conditions  by  the  regulation  of  property ;  but  the  ele- 
ments of  danger  are  always  near  at  hand  and  insidious ;  and  un- 
doubtedly any  legislation  that  deliberately  releases  labor  from  the 
obligations  of  contract,  and  permits  it  to  make  war  on  property  with 
impunity,  must  be  regarded  as  running  counter  to  the  first  demands 
of  society.  It  is  an  ugly  fact  that,  under  cover  of  the  natural  in- 
equality of  property,  evil  and  greedy  men  will  act  in  a  way  that  can 
only  be  characterized  as  legal  robbery.  The  state  should  prevent  such 
action  so  far  as  it  safely  can.  Yet  even  here,  in  view  of  the  mag- 
nitude of  the  interests  involved,  it  is  better  that  legal  robbery  should 
exist  along  with  the  maintenance  of  law,  than  that  legal  robbery 
should  be  suppressed  at  the  expense  of  law. 

You  may  to  a  certain  extent  control  property  and  make  it  sub- 
servient to  the  ideal  nature  of  man ;  but  the  moment  you  deny  its 
rights,  or  undertake  to  legislate  in  defiance  of  them,  you  may  for  a 
time  unsettle  the  very  foundations  of  society,  you  will  certainly  in 
the  end  render  property  your  despot  and  so  produce  a  materialized 
and  debased  civilization.  Manifestly,  the  mind  will  be  free  to  en- 
large itself  in  immaterial  interests  only  when  the  material  basis  is 
secure,  and  without  a  certain  degree  of  such  security  a  man  must 
be  anxious  over  material  things  and  preponderantly  concerned  with 


764  CURRENT  ECONOMIC  PROBLEMS 

them.  And,  manifestly,  if  this  security  is  dependent  upon  the  right 
of  property,  and  these  rights  are  denied  or  beHttled  in  the  name  of 
some  impossible  ideal,  it  follows  that  the  demands  of  intellectual 
leisure  will  be  regarded  as  abnormal  and  anti-social. 

No  doubt  the  ideal  society  would  be  that  in  which  every  man 
should  be  filled  with  noble  aspirations.  But  I  am  not  here  con- 
cerned with  Utopian  visions.  My  desire  is  to  confirm  in  the  dic- 
tates of  their  own  reason  those  who  believe  that  the  private  owner- 
ship of  property  is,  with  very  limited  reservations,  essential  to  the 
material  stability  and  progress  of  society.  We  who  have  this  con- 
viction need  to  remind  ourselves  that  laws  which  would  render  cap- 
ital insecure,  and,  by  a  heavy  income  tax  or  other  discrimination  in 
favor  of  labor,  would  deprive  property  of  its  power  of  easy  self- 
perpetuation,  though  they  speak  loudly  in  the  name  of  humanity, 
will  in  the  end  be  subversive  of  those  conditions  under  which  alone 
any  true  value  of  human  life  can  be  realized. 

This,  I  take  it,  is  the  reason  that  the  church  and  the  university 
have  almost  invariably  stood  as  strongly  reactionary  against  any  in- 
novation which  threatened  the  entrenched  rights  of  property.  It  is 
not  at  bottom  the  greed  of  possession  that  moves  them,  nor  are  we 
justified  in  casting  into  their  teeth  the  reproach  that  they  who  pro- 
fess to  stand  for  spiritual  things  are  in  their  corporate  capacity  the 
most  tenacious  upholders  of  worldly  privilege.  They  are  guided  by 
an  instinctive  feeling  that  in  this  mixed  and  mortal  state  of  our  ex- 
istence, the  safety  and  usefulness  of  the  institutions  they  control  are 
finally  bound  up  with  the  inviolability  of  property  which  has  been 
devoted  to  unworldly  ends.  For  if  property  is  secure  it  may  be  a 
means  to  an  end,  whereas  if  it  is  insecure  it  will  be  the  end  itself. 

338.     Mine — Property  and  Rights^ 

BY  DAVID  M.   PARRY 

1.  ^  Man  must  work  for  a  living.  He  would  have  no  intelligence 
if  he  lived  in  a  Garden  of  Eden,  because  if  Nature  provided  all  his 
needs  ready  to  hand  for  his  use,  there  would  be  no  reason  for  him  to 
do  any  thinking,  and  the  result  would  be  that  he  wouldn't  think. 
Therefore  it  is  in  order  to  make  him  develop  his  intelligence  that 
man  is  compelled  to  wrestle  with  nature  for  his  livelihood. 

2.  Each  man  is  entitled  to  the  results  of  his  own  exertions.  To 
say  otherwise  would  be  to  assert  that  some  men  have  the  right  to 
live  on  the  fruits  of  the  toil  of  other*  without  working  themselves, 
which  would  be  contrary  to  our  first  proposition.     Hence  personal 

^Adapted  from  To  Organised  Labor  (1903),  pp.  16-18. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  765 

ownership  of  property  is  a  necessary  deduction  from  the  law  that 
man  must  work  for  a  living. 

3.  Each  individual  is  entitled  to  freedom  of  action.  Being 
assured  that  what  he  produces  is  his  own  he  is  constantly  spurred  on 
to  develop  his  capacity  to  produce.  Being  assured  also  that  he  can- 
not profit  by  another's  exertions  he  realizes  that  he  is  responsible  to 
himself  alone  for  what  he  makes  out  of  himself.  Therefore  each 
man  has  an  undeniable  right  to  dispose  of  his  own  time  and  labor  as 
he  sees  fit,  or  in  other  words  to  work  out  his  own  destiny.  The  eft'ect 
of  this  is  to  develop  strong,  self-reliant  and  intelligent  men.  It 
brings  into  play  the  creative  faculty  of  man,  his  highest  faculty,  and 
the  faculty  that  constitutes  him  a  free  agent  in  so  far  as  he  is  such  an 
agent. 

4.  It  is  right  and  just  that  one  man  should  obtain  more  of  this 
world's  goods  than  another.  Since  personal  ownership  of  property 
and  individual  freedom  are  both  vaHd  deductions  from  the  first 
premise  that  all  men  shall  work,  then  no  complaint  can  honestly  be 
made  because  one  man  by  superior  exertion  or  ability  manages  to 
produce  more  than  another,  and  consequently  has  more  to  show  for 
his  labor  than  another.  The  fact  that  one  man  succeeds  in  making 
himself  a  better  living  than  others  is  itself  a  spur  to  other  men  to 
try  all  the  harder.  This  is  what  causes  progress  and  the  evolution  of 
the  race. 

5.  Capital  arises  by  reason  of  the  fact  that  one  man  can  produce 
and  own  more  than  another.  Some  men  find  that  they  can  produce 
more  than  they  absolutely  need  for  themselves,  and  therefore  they 
store  up  some  of  their  labor  in  making  a  machine,  and  this  machine 
is  capital.  Here  is  your  frightful  "bugbear,"  capital,  coming  into 
existence  as  the  direct  and  legitimate  result  of  the  so-called  primal 
curse  that  man  must  labor.  It  is  born  as  the  result  of  the  industry, 
thrift,  self-sacrifice,  and  intelligence  of  the  few  as  compared  to  the 
many. 

6.  Industrial  ownership  of  capital  is  not  only  the  direct  deduc- 
tion from  the  right  of  every  man  to  that  which  he  possesses,  but  it  is 
also  necessary  for  its  creation.  Men  will  waste  their  property  in 
fast  living  or  they  will  work  only  part  of  the  time  if  they  find  that 
there  is  no  profit  in  saving.  If  a  man  employs  men  to  make  a  machine 
and  pays  them  out  of  his  savings,  certainly  these  men  have  no  valid 
title  to  the  machine,  for  they  have  received  for  their  toil  as  much,  if 
not  a  little  more,  than  they  would  have  received  for  any  other  labor 
they  could  have  performed.  Neither  have  the  men  who  are  subse- 
quently employed  to  run  the  machine  any  title  of  ownership  in  it,  for 
they  certainly  cannot  claim  to  have  made  it.  The  ownership  correctly 
lies  in  the  man  who  paid  for  the  making  of  it,  and  the  fact  that  men 


766  CURRENT  ECONOMIC  PROBLEMS 

can  convert  their  savings  into  a  productive  machine  that  will  grind 
out  more  savings  is  the  incentive  that  causes  men  to  have  machinery 

made. 

7.  Capital,  despite  individual  ownership,  benefits  the  many  much 
more  than  it  does  the  few.  It  is  in  fact  emancipating  man  from 
drudgery  and  poverty.  Capital  brings  to  the  assistance  of  man  the 
forces  of  nature  in  producing  commodities.  It  not  only  enables  him 
to  produce  the  things  he  needs  or  desires  with  the  expenditure  of 
less  labor  than  formerly,  but  it  constantly  tends  to  lift  him  up  from 
lower  to  higher  pursuits. 

8.  Wages  are  dependent  upon  the  aggregate  production.  If  a 
nation  produces  but  little  there  is  but  little  to  divide.  The  opposite 
is  true  if  it  produces  a  great  deal.  Now  the  utilization  of  capital  is 
the  only  method  of  greatly  increasing  the  production  per  capita. 
Strikes,  organized  idleness,  boycotts,  etc.,  cannot  fail  in  reducing 
instead  of  increasing  the  general  rate  of  wages,  and  that  because  they 
decrease  the  aggregate  production  instead  of  increasing  it.  Since 
they  cause  less  to  be  made  than  would  have  been  made,  it  is  a  clear 
mathematical  proposition  that  some  are  going  to  suffer  when  it  comes 
to  casting  up  the  balance  sheet. 

9.  The  law  of  supply  and  demand  is  the  great  law  regulating 
industry  under  this  individualistic  or  capitalistic  regime.  It  operates 
(i)  to  direct  the  energies  of  the  nation  along  channels  that  will 
be  the  most  profitable  to  all;  (2)  it  makes  on  the  whole  the  highest 
possible  use  of  every  individual  according  to  his  capability  and  the 
need  that  exists  for  various  kinds  of  services  he  can  perform;  (3) 
it  regulates  the  accumulation  of  capital,  tending  to  increase  its  ac- 
cumulation more  at  one  time  than  at  another,  dependent  upon  the 
urgency  of  the  need  for  it;  (4)  it  increases  nominal  wages  and  de- 
creases the  prices  of  commodities  as  it  becomes  more  utilized,  thus 
automatically  giving  to  labor  the  benefits  of  capital  as  fast  as  it  is 
to  the  interest  of  labor  that  it  should  be  done. 

339.     My  Apology 

BY   p.    PROPERTY 

What  have  I  to  say  why  judgment  should  not  be  passed  against 
me?  why  I  should  not  be  banished  from  human  society?  why,  with 
creatures  of  darkness,  I  should  not  be  cast  into  the  outer  void?  I 
have  little  to  say.  But  my  long  and  effective  services  to  society 
speak  eloquently  for  themselves,  and  I  may  as  usual  content  myself 
with  few  words.  I  need  only  enumerate  in  briefest  form  the  rec- 
ord of  my  accomplishments,  and  I  feel  that  my  defense  is  complete. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  767 

I  mention  my  achievements  not  boastfully,  being  as  modest  as  my 
first  name  Private  signifies,  but  only  as  earnests  of  what  society  may 
expect  from  me  in  the  future. 

For  society,  and  in  furtherance  of  civilization,  I,  Private  Prop- 
erty, assert  that  I  have  performed  these  services,  to-wit : 

First,  I  have  rendered  the  fundamental  conditions  of  social  and 
industrial  life  safe  and  secure.  Before  I  came  into  my  own,  the 
power  to  seize  and  hold  summed  up  the  ethics  of  ownership.  Ener- 
gies that  might  have  gone  into  more  productive  employments  were 
used  in  defending  one's  own  or  in  appropriating  one's  neighbor's. 
But  I  established  and  secured  social  sanction  and  universal  respect 
for  the  right  of  possession. 

Second,  the  security  thus  aflforded  had  caused  the  energies  of 
men  to  be  diverted  from  the  acquisition  to  the  production  of  wealth. 
It  has  led  to  the  utilization  of  natural  resources,  and  has  provided 
opportunity  for  the  use  of  long-continued  and  consistent  industrial 
policies  which  have  caused  material  goods  to  increase  verily  a  hun- 
dred fold. 

Third,  such  security  has  furnished  an  incentive  to  man  as  a 
worker  to  utilize  his  productive  capacities  to  the  full.  It  has  caused 
him  to  sow,  because  it  has  promised  that  he,  and  not  another,  should 
reap.  It  has  led  him  to  sacrifice  immediate  gain  in  establishing  new 
processes  and  in  devising  new  instruments  of  production  to  the  end 
that  the  earth  might  be  crowned  with  abundance. 

Fourth,  I  plead  innocent  of  the  charge  of  having  favored  a  priv- 
ileged "leisure  class,"  upon  whom  I  have  showered  plenty  that  has 
been  wasted  in  riotous  living.  It  is  true  that  I  have  conferred 
wealth  upon  a  few.  But  these  few  I  have  not  particularly  favored 
I  have  chosen  them  for  highly  important  and  extremely  dangerous 
social  service.  I  have  assigned  to  them  the  task  of  experimentation 
in  consumption.  Whatever  bad  they  have  found  they  have  dis- 
carded. The  good  that  they  have  discovered  has  in  time  been  made 
the  property  of  the  masses.  They  are  the  vanguard  of  my  army 
which  is  engaged  in  raising  the  standard  of  living.  The  goods  sup- 
plied to  them  are  not  rewards;  they  consist  only  of  the  laboratory 
materials  necessary  to  the  work  which  they  are  doing.  Witness 
their  suflfering,  their  costs,  and  you  can  appreciate  the  heroism 
which  makes  them  willing  to  serve  society  in  so  dangerous  and 
important  an  undertaking.  The  extent  to  which,  through  their 
pioneer  service,  the  formerly  rigid  boundaries  of  consumption  have 
been  extended  attests  my  wisdom. 

Fifth,  I  have  greatly  increased  the  product  of  industry  by  the 
use  of  vast  stores  of  capital.     The  economic  inequality  which  I 


768  CURRENT  ECONOMIC  PROBLEMS 

have  perpetuated  has  been  the  cause  of  the  existence  of  so  fruitful 
a  fund.  For  its  bulk  has  come  from  the  very  large  incomes  whose 
source  I  am.  The  savings  which  become  the  capital  that  turns  the 
wheels  of  our  mills,  runs  our  machines,  and  speeds  our  trains  across 
the  continent  on  their  missions  of  service  are  possible  only  because 
of  me.  And,  but  for  the  security  which  I  offer,  the  investment  of 
these  savings  would  be  impossible. 

Sixth,  I  supply  the  people  with  abundance  and  contribute  to  the 
fullness  of  their  lives.  The  security  which  I  have  brought  about 
has  almost  eliminated  risks.  The  result  is  decreased  costs,  which  I 
generously  offer  to  the  public  in  decreased  prices.  The  long-time 
productive  operations,  the  improvements  in  technique,  and  the  cumu- 
lative investment  of  capital,  which  I  have  brought  about,  confer  the 
favors  of  plenty,  variety,  and  cheapness  upon  all  sorts  and  condi- 
tions of  men.  My  aristocratic  methods  have  been  mere  devices  for 
securing  democratic  ends.  I  have  forced  my  owners  to  use  me 
productively.    I  have  made  them  stewards  of  the  commonweal. 

Seventh,  I  have  led  society  in  its  development  to  higher  and 
higher  planes.  Out  of  my  abundance  they  have  been  able  to  satisfy 
more  and  more  of  their  material  wants.  The  certainty  with  which 
I  have  endowed  the  satisfaction  of  the  necessary  material  wants  has 
enabled  those  who  choose  to  give  of  their  time,  energy,  and  means 
to  the  immaterial  things  of  life.  Our  culture,  with  its  wide  horizon 
and  its  varied  content,  is  my  handiwork.  That  civilization  is  not 
coarse  and  material  and  brutal  is  my  doing. 

Eighth,  I  have  prevented  a  passing  sentimentalism  from  sacri- 
ficing these  more  permanent  values  to  the  passing  fancy  of  the 
moment.  I  have,  at  the  cost  of  much  misunderstanding  and  malig- 
nant criticism,  prevented  the  wealth  that  was  needed  for  a  richer 
life  for  the  generations  of  the  future  from  being  wasted  in  satisfy- 
ing the  immediate  wants  of  a  few  surplus  individuals  who  promised 
no  contribution  to  culture.  I  have  preferred  to  have  such  wealth 
used  in  enlarging  capital,  thus  making  for  bounty  of  goods,  and  in 
social  experimentation  whose  end  was  to  lead  men  to  richer  and 
fuller  life.  I  have  seen  clearly  that  a  deficiency  of  human  life  could 
easily  be  supplied  within  a  generation,  but  that  a  deficiency  in  capital 
can  never  be  made  up ;  that  cumulatively  it  becomes  greater  as  the 
years  pass ;  and  that  it  must  deny  life  to  many  yet  unborn  and  rob 
others  of  comforts  which  otherwise  would  have  made  their  lives  less 
vain  and  hollow. 

Ninth,  I  have  proved  myself  the  custodian  of  peace  and  have 
laid  the  foundations  of  a  world-wide  Christian  community.  The 
system  of  vested  interests  with  which  I  have  surrounded  labor  and 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  769 

capital  has  done  more  for  the  cause  of  peace  than  all  other  agencies 
combined.  For  I  have  increased  many  fold  the  costs  to  all  classes 
of  engaging  in  war.  The  world-wide  industrial  system  which  I  have 
wrought  is  more  powerful  than  all  armaments  combined  in  pro- 
tecting a  state  against  the  encroachments  of  another  state  and  it 
contributes  more  to  nation's  understanding  of  nation  than  the  whole 
world-wide  system  of  diplomacy.  My  success  has  not. been  com- 
plete, but  that  merely  makes  my  continued  presence  and  activity  all 
the  more  necessary. 

I  would  not  detract  one  whit  from  the  good  intentions  of  my 
malefactors.  I  bear  them  no  malice.  My  only  plea  is  that  I  be 
judged  according  to  my  fruits.    I  am  done. 

340.     The  Constitutional  Position  of  Property  in  America^ 

BY  ARTHUR  T.  HADLEY 

European  observers  who  study  either  the  specific  industrial  ques- 
tions which  have  come  before  the  American  people  for  their  solution, 
or  the  general  relations  between  the  industrial  activity  of  the  govern- 
ment and  that  of  private  individuals,  are  surprised  at  a  certain  weak- 
ness of  public  action  in  all  these  matters.  Our  legislatures  are  often 
ready  to  pass  drastic  measures  of  regulation ;  they  are  rarely  willing 
to  pursue  a  consistent  and  carefully  developed  policy  for  the  attain- 
ment of  an  industrial  end.  The  people  often  declaim  against  the 
extent  of  the  powers  of  private  capital ;  they  are  seldom  willing  to  put 
that  capital  under  the  direct  management  of  the  government  itself. 
The  man  who  talks  loudest  of  the  abuses  of  private  railroad  manage- 
ment shrinks  from  the  alternative  of  putting  railroads  into  the  direct 
control  and  ownership  of  the  state. 

The  fact  is,  that  private  property  in  the  tjnited  States,  in  spite 
of  all  the  dangers  of  unintelligent  legislation,  is  constitutionally  in  a 
stronger  position,  as  against  the  government  and  the  government 
authority,  than  is  the  case  in  any  country  of  Europe.  However  much 
public  feeling  may  at  times  move  in  the  direction  of  socialistic  meas- 
ures, there  is  no  nation  which  by  its  constitution  is  so  far  removed 
from  socialism  or  from  a  socialistic  order.  This  is  partly  because 
the  governmental  means  provided  for  the  control  of  limitation  of 
private  property  are  weaker  in  America  than  elsewhere,  but  chiefly 
because  the  rights  of  private  property  are  more  formally  established 
in  the  Constitution  itself. 

^  From  an  article  with  the  foregoing  caption  in  the  Independent,  April  16, 
1908.     Copyright. 


770  CURRENT  ECONOMIC  PROBLEMS 

This  may  seem  a  startling  proposition ;  but  I  think  a  very  brief 
glance  at  the  known  facts  of  history  will  be  sufficient  to  support  and 
sustain  it.  For  property  in  the  modern  sense  was  a  comparatively 
recent  development  in  the  public  law  of  European  communities.  In 
the  United  States,  on  the  contrary,  property  in  the  modern  sense 
represents  the  basis  on  which  the  whole  social  order  was  established 
and  built  up. 

Down  to  about  the  thirteenth  century  the  system  of  land  tenure  in 
every  country  of  Europe  was  a  feudal  one.  It  was  based  upon  mili- 
tary service.  A  man  held  a  larger  or  smaller  amount  of  land  on 
account  of  his  larger  or  smaller  amount  of  fighting  efficiency.  There 
were  many  rival  claimants  for  the  land.  The  majority  of  those  who 
wanted  to  cultivate  the  soil  were  unable  to  protect  themselves  against 
the  dangers  of  war.  In  the  absence  of  an  efficient  protector  or  over- 
lord no  amount  of  industry  was  effective  and  no  large  accumulation 
of  capital  was  possible.  The  services  of  the  military  chief  were  in- 
dispensable as  a  basis  for  the  toil  of  the  laborer  or  the  forethought 
of  the  capitalist.  It  was  the  military  chief,  therefore,  who  enjoyed 
not  only  the  largest  measure  of  respect,  but  the  strongest  position 
under  the  law.  As  the  condition  of  public  security  grew  better  these 
things  changed.  From  the  fourteenth  century  to  the  nineteenth 
Europe  has  witnessed  the  gradual  substitution  of  industrial  tenures 
for  military  tenures,  the  gradual  development  of  a  system  of  property 
law  intended  to  encourage  the  activities  of  the  laborers  and  the  capi- 
talists, rather  than  to  reward  the  services  of  the  successful  military 
chieftain.  But  down  to  the  end  of  the  eighteenth  century  this  new 
sort  of  private  property  represented  a  superadded  element  rather  than 
an  integral  basis  of  the  constitution  of  society.  And  even  the  develop- 
ments of  the  last  hundred  years  in  constitutional  law  and  industrial 
activity  have  not  been  able  to  obliterate  a  certain  sense  of  newness 
when  we  contrast  the  position  of  the  aristocracy  of  wealth  with  that 
of  the  aristocracy  of  military  rank. 

In  the  American  colonies,  on  the  other  hand,  where  the  public 
law  of  the  United  States  first  took  its  rise,  conditions  were  wholly 
different.  People  wanted  no  military  chieftain  to  protect  them,  no 
i)verlord  to  rule  them.  Each  man  was  familiar  with  the  use  of  a  gun 
'-how  familiar,  the  overwhelming  losses  of  the  British  troops  in  the 
Revolutionary  War,  when  brought  face  to  face  with  untrained 
farmers,  testify  very  clearly — and  was  ready  to  take  his  share  in 
protecting  the  community  against  the  attacks  of  the  Indians  or  their 
French  leaders.  There  was  plenty  of  land  for  all — plenty  of  oppor- 
tunity for  the  exercise  of  labor  and  the  use  of  capital.  That  man  did 
the  most  for  society  who  worked  hardest  and  saved  most.    Under 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  771 

such  circumstances  the  laws  were  so  framed  and  interpreted  as  to 
give  the  maximum  stimulus  to  labor  and  the  maximum  rights  to 
capital.  There  was  no  military  aristocracy  which  stood  in  the  way. 
Governors  were  at  times  sent  over  from  England  who  tried  their 
best  to  assert  Crown  rights  for  themselves  and  their  subordinates. 
But  the  net  effect  of  the  activity  of  these  governors  was  probably 
to  weaken  rather  than  to  strengthen  the  claims  of  feudal  authority, 
because  they  made  themselves  so  unpopular  that  they  united  the 
spirit  of  the  colonists  in  their  resistance  to  all  such  claims  and  pre- 
tensions. 

At  the  time,  therefore,  when  the  United  States  separated  from 
England,  respect  for  industrial  property  right  was  a  fundamental 
principle  in  the^Jaw  and  public  opinion  of  the  land.  It  was  natural 
enough  that  this  should  be  so  at  a  period  when  every  man  either  held 
property  or  hoped  to  do  so.  The  strange  thmg  is  that  this  principle 
should  have  survived  with  so  little  change  down  to  the  present  day. 
But  there  were  certain  circumstances  connected  with  the  adoption 
of  the  Constitution  of  the  United  States  which  provided  for  the  per- 
petuation of  this  state  of  things — which  made  it  difficult  for  public 
opinion  in  another  and  later  age,  when  property-holding  was  the  less 
widely  distributed,  to  alter  the  legal  conditions  of  the  earlier  period. 

During  the  War  of  the  Revolution,  from  1775  to  1782,  and  in  the 
years  immediately  thereafter,  the  American  Union  had  been  a  league 
of  independent  states,  and  a  very  loose  one.  They  had  formed  an 
organization  for  mutual  protection  in  carrying  on  the  War,  But  this 
organization,  even  while  the  war  lasted,  was  very  weak  indeed.  The 
imminence  of  a  common  danger,  which  threatened  to  involve  all,  and 
the  personality  of  a  few  leaders,  of  whom  George  Washington  was 
the  most  conspicuous,  were  the  only  things  that  enabled  the  different 
colonies  to  act  together.  When  independence  was  conceded  by  Eng- 
land in  1782,  and  the  restraints  of  common  danger  were  removed,  the 
hopeless  weakness  of  the  central  government  became  obvious.  From 
1783  to  1789  the  United  States  had  no  means  of  securing  concert  of 
action  at  home  or  respect  and  consideration  abroad.  Clear-headed 
men  felt  the  absolute  necessity  of  centralization.  The  Constitution 
of  1788  was  the  result  of  a  set  of  contracts,  agreements,  and  com- 
promises bet^ 'een  two  pretty  evenly  balanced  parties — a  states  rights 
party,  which  wished  to  limit  the  powers  of  the  federal  government, 
and  a  national  party,  which  was  anxious  to  set  some  practical  control 
on  the  autonomy  of  the  state  government. 

The  delegates  to  the  convention  of  1787  were  concerned  with 
questions  of  constitutional  law  in  the  narrower  sense.  They  were  not 
thinking  of  the  legal  position  of  private  property.    But  it  so  happened 


772  CURRENT  ECONOMIC  PROBLEMS 

that  in  making  mutual  limitations  upon  the  powers  of  the  federal  and 
the  state  government  they  unwittingly  incorporated  into  the  Constitu- 
tion itself  certain  very  extraordinary  immunities  to  the  property 
holders  as  a  body. 

It  was  in  the  first  place  provided  that  there  should  be  no  taking 
of  private  property  without  due  process  of  law.  The  states  rights 
men  feared  that  the  federal  government  might,  under  the  stress  of 
military  necessity,  pursue  an  arbitrary  policy  of  confiscation.  The 
Federalists,  or  national  party,  feared  that  under  the  influence  of 
sectional  jealousy  one  or  more  of  the  states  might  pursue  the  same 
policy.  This  constitutional  provision  prevented  the  legislature  or 
executive,  either  of  the  nation  or  of  the  individual  states,  from  taking 
property  without  judicial  inquiry  as  to  the  necessity,  and  without 
making  full  compensation  even  in  case  the  result  of  such  inquiry 
was  favorable  to  the  government.  No  man  foresaw  the  subsequent 
effect  of  this  provision  in  preventing  a  majority  of  voters,  acting  in 
the  legislature  or  through  the  executive,  from  disturbing  existing 
arrangements  with  regard  to  railroad  building  or  factory  operation 
until  the  railroad  stockholders  or  factory  owners  had  had  the  oppor- 
tunity to  have  their  case  tried  in  the  courts. 

There  was  another  equally  important  clause  in  the  Constitution 
providing  that  no  state  should  pass  a  law  impairing  the  obligation  of 
contracts.  In  this  case  also  a  provision  which  was  at  first  intended 
to  prevent  sectional  strife  and  to  protect  the  people  of  one  locality 
against  arbitrary  legislation  in  another  became  a  means  of  strengthen- 
ing vested  rights  as  a  whole  against  the  possibiHty  of  legislative  or 
executive  interference.  Nor  was  the  direct  effect  of  these  two  clauses 
in  preventing  specific  acts  on  the  part  of  the  legislature  the  most  im- 
portant result  of  their  existence.  They  were  a  powerful  means  of 
establishing  the  American  courts  in  that  position  of  supremacy  which 
they  enjoy  under  the  Constitution.  For  whenever  an  act  of  the 
legislature  or  the  executive  violated,  or  even  seemed  to  violate,  one 
of  these  clauses,  it  came  before  the  courts  for  review.  If  the  Federal 
courts  said  that  the  act  of  a  legislature  violated  one  of  these  provisions 
it  was  blocked — rendered  powerless  by  a  dictum  of  the  judges.  I  do 
not  mean  that  these  two  clauses  in  the  Constitution  were  the  chief 
source  of  judicial  power.  That  power  has  been  due  primarily  to  the 
traditional  respect  for  the  judicial  office  existing  in  the  United 
States,  which  has  rendered  it  almost  impossible  for  any  but  men  of 
learning  and  character  to  aspire  to  it ;  and,  secondarily,  to  the  very 
great  ability  that  certain  of  the  early  American  judges — notably 
Marshall,  Story  and  Kent — showed  in  expounding  the  law  in  such 
manner  as  to  command  universal  approval.    But  if  these  provisions 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  JJ^ 

did  not  He  at  the  foundation  of  the  positive  authority  of  the  judges, 
they  were  unquestionably  a  most  powerful  instrument  in  practically 
limiting  the  authority  of  legislatures,  and  to  that  extent  in  strengthen- 
ing the  rights  of  the  property  holders. 

The  rights  of  individual  owners  against  legislative  interference 
were  thus  most  fully  protected.  But  how  was  it  when  property  was  in 
the  hands  of  corporations  ? 

Here  also  the  power  of  control  by  the  government  was  weakened 
and  the  rights  and  immunities  of  the  property  holders  correspondingly 
strengthened  by  two  events,  whose  effect  upon  the  modern  industrial 
situation  may  be  fairly  characterized  as  fortuitous.  One  of  these 
was  the  decision  in  the  celebrated  Dartmouth  College  case  in  1819; 
the  other  was  the  passage  of  the  Fourteenth  Amendment  to  the  Con- 
stitution of  the  United  States  in  1868. 

I  call  their  effects  fortuitous,  because  neither  the  judges  who 
decided  the  Dartmouth  College  case  nor  the  legislators  who  passed 
the  Fourteenth  Amendment  had  any  idea  how  these  things  would 
affect  the  modern  industrial  situation.  The  Dartmouth  College  case 
dealt  with  an  educational  institution,  not  with  an  industrial  enter- 
prise. The  Fourteenth  Amendment  was  framed  to  protect  the  negroes 
from  oppression  by  the  whites,  not  to  protect  corporations  from  op- 
pression by  the  legislature.  It  is  doubtful  whether  a  single  one  of 
the  members  of  Congress  who  voted  for  it  had  any  idea  that  it  would 
touch  the  question  of  corporate  regulation  at  all.  Yet  the  two  to- 
gether have  had  the  effect  of  placing  the  modern  industrial  corpora- 
tion in  an  almost  impregnable  constitutional  position. 

In  1816  the  New  Hampshire  legislature  attempted  to  take  away 
the  charter  rights  of  Dartmouth  College.  Daniel  Webster  was  em- 
ployed by  the  college  in  its  defense,  and  his  reasoning  so  impressed  the 
court  that  they  committed  themselves  to  the  position  that  a  charter  was 
a  contract ;  that  a  state  having  induced  people  to  invest  money  by  cer- 
tain privileges  and  immunities,  could  not  at  will  modify  those  privi- 
leges and  immunities  thus  granted.  Whether  the  court  would  have 
taken  so  broad  a  position  if  the  matter  had  come  before  it  thirty  or 
forty  years  later,  when  the  abuses  of  ill-judged  industrial  charters 
had  become  more  fully  manifest,  is  not  sure,  but,  having  once  taken 
this  position  and  maintained  it  in  a  series  of  decisions,  the  court 
could  not  well  recede  from  it.  Inasmuch  as  many  of  the  corporate 
charters  granted  by  state  legislation  had  an  unlimited  period  to  run, 
the  theory  that  these  instruments  were  contracts  binding  the  state  for 
all  time  had  a  very  important  bearing  in  limiting  the  field  within 


774  CURRENT  ECONOMIC  PROBLEMS 

which  a  legislature  could  regulate  the  activity  of  such  a  body,  or  an 
executive  interfere  with  it. 

Again,  by  the  Fourteenth  Amendment  to  the  Constitution  of  the 
United  States  every  state  was  forbidden  to  interfere  with  the  civil 
rights  of  any  person  or  to  treat  different  persons  in  an  unequal  way. 
This  amendment  to  the  Constitution,  passed  just  after  the  close  of  the 
Civil  War,  was  intended  to  prevent  the  Southern  states  readmitted,  or 
on  the  point  of  being  readmitted,  to  the  Union  from  abridging  the 
rights  of  the  negro  members  of  the  commonwealth.  A  number  of 
years  elapsed  before  the  effect  of  the  amendment  upon  the  constitu- 
tional position  of  railroad  and  industrial  corporations  seems  to  have 
been  fully  realized.  But  in  1882  the  Southern  Pacific  Railroad  Com- 
pany, having  been,  as  it  conceived,  unfairly  taxed  by  the  assessors  of 
a  certain  county  in  California,  took  the  position  that  a  law  of  the 
state  of  California  taxing  the  property  of  a  corporation  at  a  different 
rate  from  that  under  which  similar  property  of  an  individual  would 
be  taxed  was  in  effect  a  violation  of  the  Fourteenth  Amendment  to 
the  Constitution,  because  a  corporation  was  a  person  and  therefore 
entitled  to  equal  treatment.  This  view,  after  careful  consideration, 
was  upheld  by  the  Federal  courts.  A  corporation,  therefore,  under 
the  law  of  the  United  States,  is  entitled  to  the  same  immunities  as 
any  other  person ;  and  since  the  charter  creating  it  is  a  contract,  whose 
obligation  cannot  be  impaired  by  the  one-sided  act  of  the  legislature, 
its  constitutional  position  as  a  property  holder  is  much  stronger  than 
anywhere  in  Europe. 

Under  the  circumstances,  it  is  evident  that  large  powers  and 
privileges  have  been  constitutionally  delegated  to  private  property 
in  general  and  to  corporate  property  in  particular.  I  do  not  mean 
that  property  owners,  and  specifically  the  owners  of  corporate  prop- 
erty, have  more  practical  freedom  from  interference  in  the  United 
States  than  they  do  in  some  other  countries,  notably  in  England. 
Probably  they  do  not  have  as  much.  But  their  theoretical  position — 
the  sum  of  the  conditions  which  affect  their  standing  for  the  long 
future  and  not  for  the  immediate  present — is  far  stronger  in  the 
United  States.  The  general  status  of  the  property  owner  under  the 
law  cannot  be  changed  by  the  action  of  the  legislature  or  the  executive, 
or  the  people  of  a  state  voting  at  the  polls,  or  all  three  put  together. 
It  cannot  be  changed  without  either  a  consensus  of  opinion  among 
the  judges,  which  should  lead  them  to  retract  their  old  views,  or  an 
amendment  of  the  Constitution  of  the  United  States  by  the  slow  and 
cumbersome  machinery  provided  for  that  purpose,  or,  last — and  I 
hope  most  improbable — a  revolution. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  'JTS 

When  it  is  said,  as  it  commonly  is,  that  the  fundamental  division 
of  powers  in  the  modern  state  is  into  legislative,  executive  and  judi- 
cial, the  student  of  American  institutions  may  fairly  note  an  excep- 
tion. The  fundamental  division  of  powers  in  the  Constitution  of  the 
United  States  is  between  voters  on  the  one  hand  and  property  owners 
on  the  other.  The  forces  of  democracy  on  one  side,  divided  between 
the  executive  and  the  legislative,  are  set  over  against  the  forces  of 
property  on  the  other  side,  with  the  judiciary  as  arbiter  between  them ; 
the  Constitution  itself  not  only  forbidding  the  legislature  and  execu- 
tive to  trench  upon  the  rights  of  property,  but  compelling  the  judi- 
ciary to  define  and  uphold  those  rights  in  a  manner  provided  by  the 
Constitution  itself. 

This  theory  of  American  politics  has  not  often  been  stated.  But 
it  has  been  universally  acted  upon.  One  reason  why  it  has  not  been 
more  frequently  stated  is  that  it  has  been  acted  upon  so  universally 
that  no  American  of  earlier  generations  ever  thought  it  necessary  to 
state  it.  It  has  had  the  most  fundamental  and  far-reaching  effects 
upon  the  policy  of  the  country.  To  mention  but  one  thing  among 
many,  it  has  allowed  the  experiment  of  universal  suffrage  to  be  tried 
under  conditions  essentially  different  from  those  which  led  to  its 
ruin  in  Athens  or  in  Rome.  The  voter  was  omnipotent — within  a 
limited  area.  He  could  make  what  laws  he  pleased,  as  long  as  those 
laws  did  not  trench  upon  property  right.  He  could  elect  what  officers 
he  pleased,  as  long  as  those  officers  did  not  try  to  do  certain  duties 
confided  by  the  Constitution  to  the  property  holders.  Democracy 
was  complete  as  far  as  it  went,  but  constitutionally  it  was  bound  to 
stop  short  of  social  democracy.  I  will  not  go  so  far  as  to  say  that 
this  set  of  limitations  on  the  political  power  of  the  majority  in  favor 
of  the  political  power  of  the  property  owner  has  been  a  necessary 
element  in  the  success  of  universal  suffrage  in  the  United  States.  I 
will  say  unhesitatingly  that  it  has  been  a  decisive  factor  in  determin- 
ing the  political  character  of  the  nation  and  the  actual  development 
of  its  industries  and  institutions. 

C.     INDUSTRIAL  LIBERTY 
341.     The  Mediatory  Character  of  Freedom* 

BY  THOMAS   HILL  GREEN 

We  shall  probably  all  agree  that  freedom,  rightly  understood,  is 
the  greatest  of  blessings.     But  when  we  thus  speak  of  freedom,  we 

^Adapted  from  the  "Lecture  on  Liberal  Legislation  and  Freedom  of  Con- 
tract," Works,  III,  370-73-    Edited  by  R.  L.  Nettleship,  1880. 


776  CURRENT  ECONOMIC  PROBLEMS 

do  not  mean  freedom  from  restraint  or  compulsion.  We  do  not 
mean  merely  freedom  to  do  as  we  like  quite  irrespective  oi  what  it 
is  that  we  like.  We  do  not  mean  a  freedom  that  can  be  enjoyed  by 
one  man  at  a  cost  of  a  loss  of  freedom  to  others.  We  mean  rather 
a  positive  power  of  doing  or  enjoying  something  that  is  worth  doing 
or  enjoying,  and  that,  too,  something  that  we  do  or  enjoy  in  com- 
mon with  others.  We  mean  by  it  a  power  which  each  man  exercises 
through  the  help  or  security  given  him  by  his  fellow-men,  and  which 
in  turn  he  helps  to  secure  for  them.  When  we  measure  the  prog- 
ress of  a  society  by  its  growth  in  freedom,  we  measure  it  by  the 
increasing  development  on  the  whole  of  those  powers  of  contributing 
to  social  good  with  which  we  believe  the  members  of  the  society  to 
be  endowed ;  in  short,  by  the  greater  power  on  the  part  of  the  citi- 
zens to  make  the  most  and  best  of  themselves. 

Thus,  though  there  can  be  no  freedom  among  men  who  act  under 
compulsion,  yet  the  mere  removal  of  compulsion  is  in  itself  no  con- 
tribution to  true  freedom.  In  one  sense  no  man  -is  so  well  able  to 
do  what  he  likes  as  the  wandering  savage.  He  has  no  master.  There 
is  no  one  to  say  him  nay.  Yet  we  do  not  count  him  really  free,  be- 
cause the  freedom  of  savagery  is  not  strength,  but  weakness.  The 
actual  powers  of  the  noblest  savage  do  not  compare  with  those  of  the 
humblest  citizen  of  a  law-abiding  state.  He  is  not  the  slave  of 
man,  but  he  is  the  slave  of  nature.  Of  compulsion  by  natural  neces- 
sity he  has  plenty  of  experience,  though  of  restraint  by  society  none 
at  all.  Nor  can  he  deliver  himself  from  that  compulsion  except 
by  submitting  to  this  restraint.  So  to  submit  is  the  first  step  in 
true  freedom,  because  the  first  step  in  the  exercise  of  the  faculties 
with  which  man  is  endowed. 

But  we  rightly  refuse  to  recognize  the  highest  development  on 
the  part  of  an  exceptional  individual  or  exceptional  class,  as  an 
advance  toward  the  true  freedom  of  man,  if  it  is  founded  on  a 
refusal  of  the  same  opportunity  to  other  men.  The  powers  of  the 
human  mind  have  probably  never  attained  such  force  and  keenness 
as  among  the  small  groups  of  men  who  possessed  civil  privileges 
in  the  small  republics  of  antiquity.  But  the  civilization  and  free- 
dom of  the  ancient  world  were  short-lived  because  they  were  partial 
and  exceptional.  If  the  ideal  of  true  freedom  is  the  maximum  of 
power  for  all  the  members  of  human  society  to  make  the  best  of 
themselves,  we  are  right  in  ranking  modern  society,  with  all  its  con- 
fusion and  ignorant  license  and  waste  of  efiFort,  above  the  most 
splendid  of  ancient  republics. 

If  I  have  given  a  true  account  of  that  freedom  which  forms 
the  goal  of  social  effort,  we  shall  see  that  freedom  of  contract  is 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  777 

valuable  only  as  a  means  to  an  end.  That  end  is  what  I  call  free- 
dom in  the  positive  sense,  the  liberation  of  the  powers  of  all  men 
equally  for  contribution  to  a  common  good. 

342.     Contract  and  Personal  Responsibility® 

BY  ARTHUR  T.   HADLEY 

A  Statement  of  the  history  of  modern  freedom,  and  one  that 
ought  to  command  assent  in  the  twentieth  century,  is  that  it  repre- 
sents a  passage  from  a  system  of  obligations  imposed  by  the  com- 
munity to  a  system  of  self-imposed  obligations.  Duty,  in  the  early 
stages  of  society,  is  enforced  by  lynch  law.  In  the  later  stages  it  is 
enforced  by  the  individual  conscience.  It  is  not  that  the  obliga- 
tions recognized  are  narrower  or  less  exacting  in  the  latter  case  than 
in  the  former.  They  tend  to  become  wider  and  more  exacting.  But 
the  method  of  enforcement  allows  the  individual  to  get  at  things  in 
his  own  way.  We  have  passed  from  a  system  of  status,  where  each 
man  was  born  into  a  set  of  legal  rules  and  duties  imposed  upon  him 
for  all  time,  to  a  system  of  contract,  where  each  man's  rights  and 
duties  are  largely  those  which  he  has  made  for  himself.  This  change 
has  not  enabled  man  to  relieve  himself  of  obligations  to  his  fellow- 
men.  It  has  allowed  these  obligations  to  take  forms  suited  to  the 
varied  powers  of  the  individual  and  the  varied  needs  of  society. 
We  can  trace  at  least  some  of  the  stages  in  this  process  of  evolution. 

The  system  of  caste,  or  status,  is  a  survival  of  the  old  tribal 
organization,  where  law  and  morals  were  undistinguished ;  where 
social  arrangements  existed  by  the  authority  of  the  gods ;  and  where 
any  attempt  to  disturb  them  was  an  act  of  sacrilege.  In  course  of 
time,  however,  there  came  about  an  alteration  in  character  of  the 
legal  penalties.  Where  one  man  had  wronged  another  unintention- 
ally, it  became  possible  not  only  to  inflict  punishment,  but  to  exact 
compensation.  Instead  of  the  fine  which  was  exacted  for  an  offense 
against  public  order,  the  community  could  compel  the  payment  of 
damages  to  make  good  the  loss  to  the  person  injured.  Even  where 
the  wrong  was  intentional  the  idea  of  compensation  could  enter  into 
the  penalty.  When  once  the  legal  authorities  grasped  this  possibility 
of  using  a  civil  remedy,  instead  of  a  criminal  one,  it  became  possible 
to  allow  to  any  man  who  could  pay  substantial  damages  a  degree  of 
personal  liberty  which  was  not  possible  under  a  system  where  every 
infraction  of  others'  rights  must  be  treated  as  a  crime  and  visited  by 
criminal  penalties. 

^Adapted  from  The  Relations  between  Freedom  and  Responsibility  in 
the  Evolution  of  Democratic  Gov^'-nnient,  pp.  74-83.  Copyright  by  Yale  Uni- 
versity Press,  1903. 


778  CURRENT  ECONOMIC  PROBLEMS 

From  the  development  of  civil  damages  it  was  but  a  short  step 
to  the  system  of  contracts.  The  essential  idea  of  a  contract  is  that 
one  or  both  parties  agree  to  perform  a  certain  service  at  a  future 
time.  The  obligation  which  a  man  assumes  in  a  contract  is  volun- 
tary until  he  has  made  the  agreement.  After  that  society  will  compel 
him  to  pay  damages  for  its  breach,  just  as  it  would  compel  him  to 
pay  damages  for  the  breach  of  any  of  the  other  rights  of  his  fellow 
citizens.  It  is  therefore,  in  its  very  essence,  a  combination  of  free- 
dom and  responsibility.  It  is  a  means  which  the  community  can 
adopt  for  getting  work  done  by  the  voluntary  assumption  of  obliga- 
tions on  the  part  of  its  members.  These  obligations  they  can  be 
compelled  to  perform  or  to  furnish  compensation  to  the  other  party. 
Among  the  many  brilliant  contributions  of  the  Roman  lawyers  to 
the  progress  of  civilization,  there  was  probably  none  so  far-reaching 
as  their  development  of  the  theory  of  contract.  For,  wherever  this 
theory  was  applied,  it  taught  people  that  the  exercise  of  freedom 
involved  the  assumption  of  responsibility,  and  could  safely  be  com- 
bined with  it. 

The  lesson  was  not  easy  to  learn,  and  the  Roman  lawyers  did 
not  succeed  in  teaching  it  to  the  civilized  world  for  all  time.  The 
irruption  of  the  barbarians  into  Europe  brought  with  it,  under  the 
feudal  system,  a  nearly  complete  return  to  the  old  theory  of  a  status. 
But  with  the  close  of  the  feudal  period  the  ideas  of  the  Roman  law 
were  taken  up  and  widely  expanded.  The  power  of  making  a  con- 
tract, under  the  old  Roman  law,  had  been  practically  limited  to  the 
few  men  who  could  furnish  security  for  the  performance  of  their 
obligations.  It  belonged  chiefly  to  the  minority  of  freemen  who 
enjoyed  the  benefits  of  slavery.  At  the  close  of  the  Middle  Ages, 
however,  the  reintroduction  of  the  idea  of  contractual  obligation  as 
a  basis  for  social  order  was  accompanied  by  a  system  of  emancipa- 
tion which  gave  the  laborer  a  certain  amount  of  property  right  in 
the  product  of  his  toil.  The  substitution  of  industrial  for  military 
tenure  put  a  much  larger  number  of  people  in  a  position  to  furnish 
security.  It  enabled  the  people  as  a  whole,  instead  of  the  privileged 
few,  to  enjoy  the  system  of  education  in  responsibility  which  marks 
the  growth  of  contract  law. 

For  our  modern  law  of  contract  is  a  most  valuable  system  of 
moral  education,  operating  alike  upon  lawyers  and  upon  laymen, 
and  enabling  us  to  make  progress  both  in  our  judicial  ethics  and  in 
our  general  tone  of  public  morality.  The  whole  English  commercial 
law  of  the  seventeenth  and  eighteenth  centuries,  with  its  distinctions, 
sometimes  fine  drawn  but  always  well  drawn  in  matters  like  agency 
or  warranty,  competence  or  negligence,  involves  a  systematic  enforce- 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  779 

ment  of  responsibility  under  the  forms  of  freedom.  If  we  wish  to 
see  what  this  legal  development  has  accomplished  in  the  way  of 
introducing  responsibility,  we  have  only  to  contrast  our  standards 
of  practice  anji  ethics  in  those  lines  where  commercial  law  has  been 
developing  for  centuries  with  those  where  its  application  is  compara- 
tively new.  If  I  sell  a  cow  on  the  basis  of  certain  representations, 
which  prove  to  be  false,  the  law  holds  me  to  an  implied  contract  of 
warranty,  even  if  I  have  explicitly  disclaimed  any  intention  to 
warrant  the  animal.  If  I  sell  a  railroad  under  similar  circumstances 
the  law  offers  the  sufferer  no  corresponding  remedy ;  and  no  small 
section  of  the  public  applauds  the  seller  for  the  shrewdness  which 
he  has  displayed  in  the  transaction.  If  I  use  an  individual  position 
of  trust  to  enrich  myself  at  the  expense  of  others,  the  law  will 
compel  me  to  make  restitution,  even  where  criminal  intent  was 
absent.  But  if  I  profit  by  similar  errors  in  the  management  of  a 
corporate  trust,  the  difficulty  of  bringing  the  responsibility  home  is 
great  indeed. 

It  is  the  ideal  of  a  free  community  to  give  liberty  wherever 
people  are  sufficiently  advanced  to  use  it  in  ways  which  shall  benefit 
the  public,  instead  of  ways  which  will  promote  their  own  pleasure 
at  the  public  expense.  And  it  has  been  the  practice  of  the  most 
successful  communities  to  go  farther  than  this,  and  give  freedom 
somewhat  in  advance  of  this  ethical  development.  Liberty  is  directly 
advantageous  wherever  the  ethical  development  of  the  community 
fits  people  for  its  use ;  it  is  likely  to  prove  indirectly  advantageous 
wherever  there  is  a  fair  prospect  that  they  can  be  taught  to  improve 
their  ethical  standards  in  the  immediate  future. 

343.     Labor  and  Freedom  of  Contract^" 

What  "Freedom  of  Contracf  Has  Meant  to  Labor 

1.  Denial  of  eight-hour  law  for  women  in  Illinois. 

2.  Denial  of  eight-hour  law  for  city  labor  or  for  mechanics  and 
ordinary  laborers. 

3.  Denial  of  ten-hour  law  for  bakers, 

4.  Inability  to  prohibit  tenement  labor. 

5.  Inability  to  prevent  by  law  employer  from  requiring  em- 
ployee as  condition  of  securing  work,  to  assume  all  risk  from  injury 
while  at  work. 

6.  Inability  to  prohibit  employer  selling  goods  to  employees  at 
greater  profit  than  to  non-employees. 

i°Adapted  from  a  bulletin  used  at  the  Chicago  Industrial  Exhibit  in  1906. 


78o  CURRENT  ECONOMIC  PROBLEMS 

7.  Inability  to  prohibit  mine  owners  screening  coal  which  is 
mined  by  weight  before  crediting  same  to  employees  as  basis  of 

wages. 

8.  Inability  to  legislate  against  employer  using  coercion  to  pre- 
vent employee  becoming  a  member  of  a  labor  union. 

9.  Inability  to  restrict  employer  in  making  deductions  from 
wages  of  employees. 

10.  Inability  to  compel  by  law  payment  of  wages  at  regular 

intervals. 

11.  Inability  to  provide  by  law  that  laborers  on  public  works 
shall  be  paid  prevailing  rate  of  wages. 

12.  Inability  to  compel  by  law  payment  of  extra  compensation 
for  overtime. 

13.  Inability  to  prevent  by  law  employer  from  holding  back 
part  of  wages. 

14.  Inability  to  compel  payment  of  wages  in  cash ;  so  that  em- 
ployer may  pay  in  truck  or  scrip  not  redeemable  in  lawful  money. 

15.  Inability  to  forbid  alien  labor  on  municipal  contracts. 

16.  Inability  to  secure  by  law  union  label  on  city  printing. 

344.     Static  Assumptions  of  Contractual  Freedom" 

BY  ROSCOE  POUND 

"The  right  of  a  person  to  sell  his  labor,"  says  Mr.  Justice  Har- 
lan, "upon  such  terms  as  he  deems  proper  is,  in  its  essence,  the  same 
as  the  right  of  the  purchaser  of  labor  to  prescribe  the  conditions 
upon  which  he  will  accept  such  labor  from  the  person  offering  to 
sell  it.  So  the  right  of  the  employee  to  quit  the  service  of  the  em- 
ployer, for  whatever  reason,  is  the  same  as  the  right  of  the  employer, 
for  whatever  reason,  to  dispense  with  the  services  of  such  employee. 
In  all  such  particulars  the  employer  and  employee  have  equality 
of  right,  and  any  legislation  that  disturbs  that  right  is  an  arbitrary 
interference  with  the  liberty  of  contract,  which  no  government  can 
legally  justify  in  a  free  land."^^  With  this  positive  declaration  of  a 
lawyer,  the  culmination  of  a  line  of  cases  now  nearly  twenty-five 
years  old,  a  statement  which  a  recent  writer  on  the  science  of  juris- 
prudence has  deemed  so  fundamental  as  to  deserve  quotation  and 
exposition  at  an  unusual  length,  let  us  compare  the  equally  positive 
statement  of  a  sociologist:     "Much  of  the  discussion  about  'equal 

^^Adapted  from  "Liberty  of  Contract,"  in  18  Yale  Law  Journal  (1909), 
pp.  454-87. 

^^Adair  v.  US.,  208  U.S.  161. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  781 

rights'  is  utterly  hollow.  All  this  ado  about  the  system  of  contract 
is  surcharged  with  fallacy." 

To  everyone  acquainted  with  the  facts  at  first  hand  the  latter 
statement  goes  without  saying.  Why,  then,  do  the  courts  persist 
in  the  fallacy?  Why  do  so  many  of  them  force  upon  legislation  an 
academic  theory  of  equality  in  the  face  of  practical  inequality? 
Why  do  we  find  a  great  and  learned  court  in  1908  taking  a  long 
step  into  the  past  of  dealing  with  the  relations  between  employer  and 
employee  in  railway  transportation,  as  if  the  parties  were  individ- 
uals, as  if  they  were  farmers  haggling  over  the  sale  of  a  horse? 
Why  is  the  legal  conception  of  the  relation  of  employer  and  employee 
so  at  variance  with  the  common  knowledge  of  mankind?  Surely 
the  cause  of  such  doctrine  must  lie  deep.  Let  us  enquire  then  what 
these  causes  are  and  how  they  have  operated  to  bring  about  the 
present  state  of  the  law  of  freedom  of  contract. 

There  is  no  doubt  that  the  theory  of  "natural  rights"  is  at  the 
basis  of  modern  conceptions  of  freedom  of  contract.  This  began 
as  a  doctrine  of  political  economy,  as  a  phase  of  Adam  Smith's  doc- 
trine which  we  commonly  call  laissez  faire.  It  was  propounded  as 
a  utilitarian  principle  of  politics  and  legislation  by  Mill.  Spencer 
derived  it  from  his  formula  of  justice.  In  this  way  it  became  a  chief 
article  in  the  creed  of  those  who  sought  to  minimize  the  functions 
of  the  state,  to  insist  that  the  most  important  of  its  functions  was 
to  enforce  by  law  the  obligations  created  by  contract.  This  theory 
has  shown  itself  present  in  both  legislation  and  judicial  decisions. 
As  a  consequence  the  doctrine  of  liberty  of  contract  is  bound  up  in 
the  decisions  of  our  courts  with  a  narrow  view  as  to  what  consti- 
tutes special  or  class  legislation,  that  greatly  limits  effective  law 
making.  For  one  thing  there  is  the  doctrine  that  apart  from  consti- 
tutional restrictions  there  are  individual  rights  resting  on  a  natural 
basis,  to  which  the  courts  must  give  effect,  beyond  the  control  of 
the  state.  "In  the  judicial  discussions  of  liberty  of  contract  this  idea 
has  been  very  prominent.  One  court  reminds  us  that  natural  per- 
sons do  not  derive  their  right  to  contract  from  the  law."^^  Another 
court  in  passing  adversely  upon  legislation  against  company  stores, 
says  any  classification  is  arbitrary  and  unconstitutional  unless  it  pro- 
ceeds on  "the  natural  capacity  of  persons  to  contract."^*  Another,  in 
passing  on  a  similar  statute,  denies  that  contractual  capacity  can  be 
restricted  except  for  physical  or  mental  disabilities.^^  Another  holds 
that  the  legislature  cannot  take  notice  of  the  de  facto  subjection  of 

13  58  Ark.  407. 

1*  115  Mo.  307.  «  33  W.  Va.  188. 


782  CURRENT  ECONOMIC  PROBLEMS 

one  class  of  persons  to  another  in  making  contracts  of  employment 
in  certain  industries,  but  must  be  governed  by  the  theoretical  jural 
equality. ^^ 

Not  only,  however,  is  natural  law  the  fundamental  assumption 
of  our  law  and  legal  philosophy,  but  we  must  not  forget  that  it  is 
the  theory  of  our  bill  of  rights.  Not  unnaturally  the  courts  have 
clung  to  it  as  being  the  orthodox  theory  of  constitutions.  But  the 
fact  that  the  framers  held  that  theory  by  no  means  demonstrates 
that  they  intended  to  impose  the  theory  on  us  for  all  time.  They 
laid  down  principles,  not  rules,  and  rules  can  only  be  illustrations  of 
principles  so  long  as  the  facts  and  opinions  remain  what  they  were 
at  the  time  when  the  rules  were  announced.  Forgetfulness  of  this 
latter  fact  and  an  intense  zeal  for  natural  rights  theory  has  led  to  a 
desire  to  extend  this  freedom  as  far  as  possible  and  to  limit  as  much 
as  possible  whatever  would  tend  to  interfere  with  this,  such  as  the 
number  and  kinds  of  incapacities  which  would  justify  a  restraint  of 
this  liberty.  The  decisions  of  the  courts  plainly  reveal  this.  •  They 
agree  that  the  term  "liberty"  is  broader  than  Coke's  use  of  it,  that 
the  fact  that  Coke  confined  it  to  freedom  of  physical  motion  and 
locomotion  does  not  exclude  a  broader  interpretation  today.  Yet 
the  same  courts  that  recognize  that  liberty  must  include  more  today 
than  it  did  as  used  in  Coke's  Second  Institute,  lay  it  down  that  the 
incapacities  are  to  remain  what  the^  were  at  the  common  law,  that 
new  incapacities  of  fact,  arising  out  of  present  industrial  situations, 
may  not  be  recognized  by  legislation.  Restraints  upon  that  freedom 
must  find  some  justification  in  the  existence  of  like  limitations  recog- 
nized at  the  old  common  law. 

This  appears  perhaps  no  more  clearly  than  in  the  efiforts  of  the 
courts  to  reconcile  the  existence  of  usury  laws  with  their  notion  of 
liberty  of  contract.  As  was  said  in  113  Pa.  St.  427,  "The  right  to 
regulate  the  rate  of  interest  existed  at  the  time  the  constitution  was 
adopted,  and  cannot,  therefore,  be  considered  either  an  abridgment 
or  restraint  upon  the  rights  of  the  citizen,  guaranteed  by  the  con- 
stitution. The  power  to  pass  usury  laws  exists  by  immemorial  usage  ; 
but  such  is  not  the  case  with  such  acts  as  we  are  considering."  That 
narrow  assumptions  underlie  conceptions  of  contractual  capacities 
also  receives  exemplification  in  connection  with  judicial  discussions 
of  usury  laws.  For  instance  in  Frorer  v.  People,^''  the  court  said, 
"Usury  laws  proceed  upon  the  theory  that  the  lender  and  the  bor- 
rower of  money  do  not  occupy  toward  each  other  the  same  relations 
of  equality  that  parties  do  in  contracting  with  each  other  in  regard 

18  61  Kas.  140.  "  141  111.  171. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  783 

to  the  loan  or  sale  of  other  kinds  of  property,  and  that  the  bor- 
rower's necessities  deprive  him  of  freedom  in  contracting  and  place 
him  at  the  mercy  of  the  lender,  and  such  laws  may  be  found  on  the 
statute  books  of  all  civilized  nations  of  the  world,  both  ancient  and 
modern."  It  does  not  even  set m  to  have  occurred  to  Justice  Schol- 
field  that  the  necessities  of  the  miner  or  factory  employee  might 
impair  his  freedom  of  contract  as  well.  And  instances  might  be 
multiplied,  showing  the  purely  individualistic  character  of  all  natural 
law  theories,  and  the  legal  decisions  based  upon  them. 

345.     Contractual  Rights — Legal  and  ReaP^ 

BY  THORSTEIN  VEBLIN 

The  movement  of  opinion  on  natural-rights  grounds  converged 
to  an  insistence  on  the  system  of  natural  liberty,  so-called.  But  this 
insistence  on  natural  liberty  did  not  contemplate  the  abrogation  of 
all  conventional  prescription.  "The  simple  and  obvious  system  of 
natural  liberty"  meant  freedom  from  restraint  on  any  other  pre- 
scriptive ground  than  that  afforded  by  the  rights  of  ownership.  In 
its  economic  bearing  the  system  of  natural  liberty  meant  a  system 
of  free  pecuniary  contract.  "Liberty  does  not  mean  license";  which 
in  economic  terms  would  be  transcribed,  "The  natural  freedom  of 
the  individual  must  not  traverse  the  prescriptive  rights  of  property." 
Property  rights  being  included  among  natural  rights,  they  had  t^ie 
indefeasibility  which  attaches  to  natural  rights.  Natural  liberty  pre- 
scribes freedom  to  buy  and  sell,  limited  only  by  the  equal  freedom 
of  others  to  buy  and  sell ;  with  the  obvious  corollary  that  there  must 
be  no  interference  with  others'  buying  and  selling,  except  by  means 
of  buying  and  selHng. 

Presently,  when  occasion  arose  in  America,  the  metaphysics  of 
natural  liberty  was  embodied  in  set  form  in  constitutional  enact- 
ments. It  is,  therefore,  involved  in  a  more  authentic  form  and  with 
more  incisive  force  in  the  legal  structure  of  this  community  than 
in  that  of  any  other.  Freedom  of  contract  is  the  fundamental  tenet 
of  the  legal  creed,  so  to  speak,  inviolable  and  inalienable ;  and  within 
the  province  of  law  and  equity  no  one  has  competence  to  penetrate 
behind  this  first  premise  or  to  question  the  merits  of  the  natural- 
rights  metaphysics  on  which  it  rests.  The  only  principle  which  may 
contest  its  primacy  in  civil  matters  is  the  vague  "general  welfare" 
clause,  and  even  this  can  effectively  contest  its  claims  only  under 
exceptional  circumstances.     Under  the  application  of  any  general 

i^Adapted  from  The  Theory  of  Business  Enterprise,  pp.  271-78.  Copy- 
right by  Charles  Scribner's  Sons,  1904. 


784  CURRENT  ECONOMIC  PROBLEMS 

welfare  clause  the  presumption  is,  and  always  must  be,  that  the  prin- 
ciple of  free  contract  be  left  intact  so  far  as  the  circumstances  will 
permit.  The  citizen  may  not  be  deprived  of  life,  liberty,  or  property 
without  due  process  of  law,  and  the  due  process  proceeds  on  the 
premise  that  property  rights  are  inviolable.  In  its  bearing  upon  eco- 
nomic relations  between  individuals  this  comes  to  mean,  in  effect,  not 
only  that  one  individual  or  group  of  individuals  may  not  legally 
bring  any  other  than  pecuniary  pressure  to  bear  upon  another  in- 
dividual or  group,  but  also  that  pecuniary  pressure  cannot  be  barred. 

Now,  through  gradual  change  of  the  economic  conditions,  this 
conventional  principle  of  unmitigated  and  inalienable  freedom  of 
contract  began  to  grow  obsolete  from  the  moment  when  it  was  fairly 
installed;  obsolescent,  of  course,  not  in  point  of  law,  but  in  point 
of  fact.  The  machine  process  has  invaded  the  field.  The  standard- 
ization and  the  constraint  of  the  system  of  machine  industry  differs 
from  what  went  before  it  in  that  it  has  no  cenventional  recognition, 
no  meaphysical  authentication.  The  machine  process  has  not  itself 
become  a  legal  fact.  Therefore  it  neither  can  or  need  be  taken  ac- 
count of  by  the  legal  mind.    It  does  not  exist  de  jure  but  de  facto. 

The  "natural,"  conventional  freedom  of  contract  is  sacred  and  in- 
violable. The  de  facto  freedom  of  choice  is  a  matter  about  which 
the  law  and  the  courts  are  not  competent  to  enquire.  By  force  of 
the  concatenation  of  industrial  processes  and  the  dependence  of  men's 
comforts  or  subsistence  upon  the  orderly  working  of  these  processes, 
the  exercise  of  the  rights  of  ownership  in  the  interests  of  business 
may  traverse  the  de  facto  necessities  of  a  group  or  class ;  it  may 
even  traverse  the  needs  of  the  community  at  large,  for  example, 
in  the  conceivable  case  of  an  advisedly  instituted  coal  famine ;  but 
since  the  necessities  or  comforts  of  livelihood  cannot  be  formulated 
in  terms  of  the  natural  freedom  of  contract,  they  can,  in  the  nature 
of  the  case,  give  rise  to  no  cognizable  grievance  and  find  no  legal 
remedy. 

D.     THE  COURTS  AND  LABOR 
346.     Limitation  of  the  Working-Day 

a)  The  Supremacy  of  Freedom  of  Contract  ^^ 

Does  the  provision  in  question  restrict  the  right  to  contract? 
The  words  "no  female  shall  be  employed"  import  action  on  the  part 
of  two  persons.    There  must  be  a  person  who  does  the  act  of  em- 

^Ritchie  v.  People,  115  111.  98  (1893).    This  is  an  excerpt  from  the  opinion 
u  11  1  ^^^^^  ^'^^^^  declaring  unconstitutional  a  law  providing  that  "no  female 
shall  be  employed  in  any  factory  or  workshop  more  than  eight  hours  in  any 
one  day,  or  forty-eight  hours  in  any  one  week." 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  785 

ploying  and  a  person  who  consents  to  the  act  of  being  emplyed. 
The  prohibition  of  the  statute  is  twofold:  first,  that  no  manufac- 
turer or  proprietor  of  a  workshop  shall  employ  any  female  therein 
more  than  eight  hours  in  one  day ;  and,  second,  that  no  female  shall 
consent  to  be  so  employed.  It  thus  prohibits  employer  and  employee 
from  uniting  their  minds  upon  any  longer  service  during  one  day 
than  eight  hours.  They  are  prohibited,  the  one  from  contracting 
to  employ,  and  the  other  from  contracting  to  be  employed,  other- 
wise than  as  directed.  Section  2  of  Article  2  of  the  constitution  of 
Illinois  provides  that  "no  person  shall  be  deprived  of  life,  liberty, 
or  property  without  due  process  of  law."  The  privilege  of  contract- 
ing is  both  a  liberty  and  a  property  right.  Liberty  includes  the 
right  to  acquire  property,  and  that  means  the  right  to  make  and  en- 
force contracts.  The  legislature  has  no  right  to  deprive  one  class 
of  persons  of  privileges  allowed  to  other  persons  under  like  con- 
ditions. Women  employed  by  manufacturers  are  forbidden  to  make 
contracts  to  labor  longer  than  eight  hours  in  a  day,  while  women 
employed  as  saleswomen,  bookkeepers,  stenographers,  or  other  occu- 
pations are  at  liberty  to  contract  for  as  many  hours  of  labor  a  day 
as  they  choose.  The  manner  in  which  this  section  discriminates 
against  one  class  of  employers  and  employees,  and  in  favor  of  all 
others,  places  it  in  opposition  to  the  constitutional  guarantees  here- 
inbefore discussed,  and  so  renders  it  invalid. 

But  aside  from  its  partial  and  discriminating  character,  this  en- 
actment is  a  purely  arbitrary  restriction  upon  the  fundamental  rights 
of  the  citizen  to  control  his  or  her  time  and  facilities.  It  substi- 
tutes the  judgment  of  the  legislature  for  the  judgment  of  the  em- 
ployer and  employee  in  a  matter  about  which  they  are  competent  to 
agree  with  each  other.  Where  the  legislature  thus  undertakes  to 
impose  an  unreasonable  and  unnecessary  burden  upon  any  one  citizen 
or  class  of  citizens  it  transcends  the  authority  intrusted  to  it  by  the 
constitution. 

b)  Maternity  and  State  Regulation  -'^ 

That  woman's  physical  structure  and  the  performance  of  ma- 
ternal functions  place  her  at  a  disadvantage  in  the  struggle  for  sub- 
sistence is  obvious.  By  the  abundant  testimony  of  the  medical 
fraternity  continuance  for  a  long  time  on  her  feet  at  work  and  repeat- 
ing this  from  day  to  day  tends  to  injurious  effects  upon  the  body ; 
and  as  healthy  mothers  are  essential  to  a  vigorous  offspring,  the 
physical  well-being  of  woman  becomes  an  object  of  public  interest, 
and  care,  in  order  to  preserve  the  strength  and  vigor  of  the  race. 

^^Muller  V.  Oregon,  208  U.S.  412  (1907). 


786  CURRENT  ECONOMIC  PROBLEMS 

c)  Supremacy  of  the  Police  Power  ^^ 

It  is  enough  for  our  decision  if  the  legislation  under  review  was 
passed  in  the  exercise  of  an  admitted  power  of  government ;  and  that 
it  is  not  as  complete  as  it  might  be,  not  as  rigid  in  its  prohibitions  as 
it  might  be,  gives  perhaps  evasion  too  much  play,  is  lighter  in  its  pen- 
alties than  it  might  be,  is  no  impeachment  of  its  legality.  This  may  be 
a  blemish,  giving  opportunity  for  criticism  and  difference  in  character- 
ization, but  the  constitutional  validity  of  legislation  cannot  be  deter- 
mined by  the  degree  of  exactness  of  its  provisions  or  remedies.  New 
policies  are  usually  tentative  in  their  beginnings,  advance  in  firmness 
as  they  advance  in  acceptance.  They  do  not  at  a  particular  moment 
of  time  spring  full-perfect  in  extent  or  means  from  legislative  brain. 
Time  may  be  necessary  to  fashion  them  to  precedent  customs  and 
conditions  and  as  they  justify  themselves  or  otherwise  they  pass  from 
militancy  to  triumph  or  from  question  to  repeal. 

But  passing  general  considerations  and  coming  back  to  our  im- 
mediate concern,  which  is  the  validity  of  the  particular  exertion  of 
power  in  the  Oregon  law,  our  judgment  is  that  it  does  not  transcend 
constitutional  Hmits. 

The  case  is  submitted  by  plaintiff  in  error  upon  the  contention 
that  the  law  is  a  wage  law,  not  an  hours-of-service  law,  and  he  rests 
his  case  on  that  contention.  To  that  contention  we  address  our 
decision  and  do  not  discuss  or  consider  the  broader  contentions  of 
counsel  for  the  State  that  would  justify  the  law  even  as  a  regulation 
of  wages. 

There  is  a  contention  made  that  the  law,  even  regarded  as  regulat- 
ing hours  of  service,  is  not  either  necessary  or  useful  "for  preserva- 
tion of  the  health  of  employees  in  mills,  factories,  and  manufacturing 
establishments."  The  record  contains  no  facts  to  support  the  con- 
tention, and  against  it  is  the  judgment  of  the  legislature  and  the 
Supreme  Court  (of  Oregon),  which  said,  "In  view  of  the  well-known 
fact  that  the  custom  of  our  industries  does  not  sanction  a  longer 
service  than  lo  hours  per  day,  it  cannot  be  held,  as  a  matter  of  law, 
that  the  legislative  requirement  is  unreasonable  or  arbitrary  as  to 
hours  of  labor.  Statistics  show  that  the  average  daily  working  time 
among  workingmen  in  different  countries  is,  in  Australia,  8  hours ; 
in  Great  Britain,  9;  in  the  United  States,  9%;  in  Denmark,  9^; 

2iAdapted  from  the  opinion  of  the  United  States  Supreme  Court  in  the 
case  of  Bunting  v.  Oregon,  243  U.S.  426,  decided  April  9,  1917.  The  opinion 
declared  constitutional  a  statute  of  the  state  of  Oregon  providing  that  "no 
person  shall  be  employed  in  any  mill,  factory,  or  manufacturing  establishment 
m  this  state  more  than  ten  hours  in  any  one  day,"  except  under  particular  cir- 
cumstances. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  787 

in  Norway,  10;  Sweden,  France,  and  Switzerland,  10J/2 ;  Germany, 
10^  ;  Belgium,  Italy,  and  Austria,  11 ;  and  in  Russia,  12  hours." 

347.     Reciprocal  Nature  of  Employer's  and  Employee's  Rights^^ 

1.  The  defendants  acted  within  their  right  when  they  went  out 
on  a  strike.  Whether  with  good  cause,  or  without  any  cause  or  rea- 
son, they  had  the  right  to  quit  work,  and  their  reasons  for  quitting 
work  were  reasons  they  need  not  give  to  anyone.  And  that  they 
all  went  out  in  a  body,  by  agreement  or  preconcerted  arrangement, 
does  not  militate  against  them  or  affect  this  case  in  any  way. 

2.  Such  rights  are  reciprocal,  and  the  company  had  the  right  to 
discharge  any  or  all  of  the  defendants,  with  or  without  cause,  and 
it  cannot  be  inquired  into  as  to  what  the  cause  was. 

3.  It  is  immaterial  whether  the  defendants  are  not  now  in  the 
service  of  the  company  because  of  a  strike  or  a  lockout. 

4.  The  defendants  have  the  right  to  combine  and  work  together 
in  whatever  way  they  believe  will  increase  their  earnings,  shorten 
their  hours,  lessen  their  labor,  or  better  their  condition,  and  it  is  for 
them,  and  them  only,  to  say  whether  they  will  work  by  the  day  or 
by  piecework.  All  such  is  part  of  their  liberty.  And  they  can  so 
conclude  as  individuals,  or  as  organizations,  or  as  unions. 

5.  And  the  right  is  also  reciprocal.  The  railroad  company  has 
the  right  to  have  its  work  done  by  the  premium  or  piece  system, 
without  molestation  or  interference  by  defendants  or  others.  This 
is  liberty  for  the  company,  and  the  company  alone  has  the  right  to 
determine  as  to  the  matter. 

6.  When  the  defendants  went  on  strike,  or  when  put  out  on 
a  lockout,  their  relations  with  the  company  were  at  an  end :  they 
were  no  longer  employees  of  the  company ;  and  the  places  they  once 
occupied  in  the  shops  were  no  longer  their  places,  and  never  can 
be  again,  excepting  by  mutual  agreement  between  the  defendants 
and  the  company. 

7.  No  one  of  the  defendants  can  be  compelled  by  any  law,  or 
by  any  order  of  any  court,  to  work  again  for  the  company  on  any 
terms  or  under  any  conditions. 

8.  The  company  cannot  be  compelled  to  employ  again  any  of 
the  defendants,  or  any  other  persons,  by  any  law,  or  by  any  order 
of  any  court,  or  on  any  terms,  or  on  any  conditions. 

9.  Each,  all,  and  every  of  the  foregoing  matters  between  the 

company  and  the  defendants  are  precisely  the  same,  whether  applied 

to  the  company  or  to  the  defendants. 

22Adapted  from  the  opinion  of  the  court  in  Union  Pacific  Railway  Co.  v. 
Ruef,  120  Fed.  102  (1903). 


ygg  CURRENT  ECONOMIC  PROBLEMS 

10.  The  company  has  the  right  to  employ  others  to  take  the 
places  once  filled  by  defendants ;  and  in  employing  others  the  defend- 
ants are  not  to  be  consulted,  and  it  is  of  no  lawful  concern  to  them, 
and  they  can  make  no  lawful  complaint  by  reason  thereof.  And  it 
makes  no  difference  whether  such  new  employees  are  citizens  of 
Omaha  or  of  some  other  city  or  state. 

11.  Defendants  have  the  right  to  argue  or  discuss  with  the 
new  employees  the  question  whether  the  new  employees  should 
work  for  the  company.  They  have  the  right  to  persuade  them  if 
they  can.  But  in  presenting  the  matter,  they  have  no  right  to  use 
force  or  violence.  They  have  no  right  to  terrorize  or  intimidate 
the  new  employees.  The  new  employees  have  the  right  to  come  and 
go  as  they  please,  without  fear  or  molestation,  and  without  being 
compelled  to  discuss  this  or  any  other  question,  and  without  being 
guarded  or  picketed,  and  persistent  and  continued  and  objectionable 
persuasion  by  numbers  is  of  itself  intimidating,  and  not  allowable. 

12.  Picketing  in  proximity  to  the  shops  or  elsewhere  on  the 
streets  of  the  city,  if  in  fact  it  annoys  or  intimidates  the  new  em- 
ployees, is  not  allowable.  The  streets  are  for  public  use,  and  the 
new  emplo3'^ee  has  the  same  right,  neither  more  nor  less,  to  go  back 
and  forth,  freely  and  without  molestation  and  without  being  haras- 
sed by  so-called  arguments,  and  without  being  picketed,  as  has  a 
defendant  or  other  person.  In  short,  the  rights  of  all  parties  are  one 
and  the  same. 

348.     Unionism  and  the  Conditions  of  Employment-^ 

Included  in  the  right  of  personal  liberty  and  the  right  of  private 
property — partaking  of  the  nature  of  each — is  the  right  to  make 
contracts  for  the  acquisition  of  property.  Chief  among  such  con- 
tracts is  that  of  personal  employment,  by  which  labor  and  other 
services  are  exchanged  for  money  or  other  forms  of  property.  If 
this  right  be  struck  down  or  arbitrarily  interfered  with,  there  is 
substantial  impairment  of  liberty  in  the  long-established  constitu- 
tional sense.  The  right  is  as  essential  to  the  laborer  as  to  the  capi- 
talist, to  the  poor  as  to  the  rich ;  for  the  vast  majority  of  persons 
have  no  other  honest  way  to  begin  to  acquire  property,  save  by 
working  for  money. 

28Adapted  from  the  opinion  of  the  court  in  the  case  of  Coppage  v.  State 
of  Kansas,  236  U.S.  i  (1915).  A  workman  was  discharged  for  refusing  to 
sever  his  connection  with  a  labor  organization.  A  law  of  the  state  of  Kansas, 
where  the  suit  originated,  forbade  employers  requiring  of  employees  an  agree- 
ment not  to  become  or  remain  members  of  labor  organizations  as  a  condition 
of  securing  or  retaining  employment.  The  Kansas  statute,  involved  in  this  case, 
was  declared  unconstitutional. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  789 

An  interference  with  this  Hberty  so  serious  as  that  now  under 
consideration,  and  so  disturbing  of  equahty  of  right,  must  be  deemed 
to  be  arbitrary,  unless  it  be  supportable  as  a  reasonable  exercise  of 
the  police  power  of  the  state.  But,  notwithstanding  the  strong  gen- 
eral presumption  in  favor  of  the  validity  of  state  laws,  we  do  not 
think  the  statute  in  question,  as  construed  and  applied  in  this  case, 
can  be  sustained  as  a  legitimate  exercise  of  that  power. 

The  act,  as  the  construction  given  to  it  by  the  state  court  shows, 
is  intended  to  deprive  employers  of  a  part  of  their  liberty  of  contract, 
to  the  corresponding  advantage  of  the  employed  and  the  unbuilding 
of  the  labor  organizations.  But  no  attempt  is  made,  or  could  rea- 
sonably be  made,  to  sustain  the  purpose  to  strengthen  these  voluntary 
organizations  any  more  than  other  voluntary  associations  of  persons, 
as  a  legitimate  object  for  the  exercise  of  the  police  power.  They 
are  not  public  institutions  charged  by  law  with  public  or  govern- 
mental duties,  such  as  would  render  the  maintenance  of  their  mem- 
bership a  matter  of  direct  concern  to  the  general  welfare.  If  they 
were,  a  different  question  would  be  presented. 

As  to  the  interest  of  the  employed,  it  is  said  by  the  Kansas 
Supreme  Court  to  be  a  matter  of  common  knowledge  that  "Employees, 
as  a  rule,  are  not  financially  able  to  be  as  independent  in  making 
contracts  for  the  sale  of  their  labor  as  are  employers  in  making  a 
contract  of  puThase  thereof."  No  doubt,  wherever  the  right  of 
private  property  exists,  there  must  and  will  be  inequalities  of  for- 
tune ;  and  thus  it  naturally  happens  that  parties  negotiating  about  a 
contract  are  not  equally  unhampered  by  circumstances.  This  applies 
to  all  contracts  and  not  merely  to  that  between  employer  and  em- 
ployee. Indeed  a  little  reflection  will  show  that  wherever  the  right 
of  private  property  and  the  right  of  free  contract  coexist,  each  party 
when  contracting  is  inevitably  more  or  less  influenced  by  the  question 
whether  he  has  much  property,  or  little,  or  none ;  for  the  contract  is 
made  to  the  very  end  that  each  may  gain  something  that  he  needs 
or  desires  more  urgently  than  that  which  he  proposes  to  give  in  ex- 
change. And,  since  it  is  self-evident  that  unless  all  things  are  held 
in  common,  some  persons  must  have  more  property  than  others,  it  is 
from  the  nature  of  things  impossible  to  uphold  freedom  of  contract 
and  the  right  of  private  property  without  at  the  same  time  recognizing 
as  legitimate  those  inequalities  of  fortune  that  are  the  necessary  re- 
sult of  the  exercise  of  those  rights. 

It  is  said  in  the  opinion  of  the  state  court  that  membership  in  a 
labor  organization  does  not  necessarily  affect  a  man's  duty  to  his 
employer ;  that  the  employer  has  no  right  by  virtue  of  the  relation, 


790  CURRENT  ECONOMIC  PROBLEMS 

"to  dominate  the  life  nor  to  interfere  with  the  liberty  of  the  employee 
in  matters  that  do  not  lessen  or  deteriorate  the  service,"  and  that 
"the  statute  implies  that  labor  unions  are  lawful  and  not  inimical 
to  the  rights  of  employers."  The  same  view  is  presented  in  the 
brief  of  counsel  for  the  state,  where  it  is  said  that  membership  in 
a  labor  organization  is  the  "personal  and  private  afifair''  of  the  em- 
ployee. To  this  line  of  argument  it  is  sufficient  to  say  that  it  cannot 
be  judicially  declared  that  membership  in  such  an  organization  has 
no  relation  to  a  member's  duty  to  his  employer;  and  therefore,  if 
freedom  of  contract  is  to  be  preserved,  the  employer  must  be  left 
at  liberty  to  decide  for  himself  whether  such  membership  by  his 
employee  is  consistent  with  the  satisfactory  performance  of  the 
duties  of  the  employment. 

Of  course  we  do  not  intend  to  say,  nor  to  intimate,  anything 
inconsistent  with  the  right  of  individuals  to  join  labor  unions,  nor 
do  we  question  the  legitimacy  of  such  organizations  so  long  as  they 
conform  to  the  laws  of  the  land  as  others  are  required  to  do.  Con- 
ceding the  full  right  of  the  individual  to  join  the  union,  he  has  no 
inherent  right  to  do  this  and  still  remain  in  the  employ  of  one  who 
is  unwilling  to  employ  a  union  man,  any  more  than  the  same  indi- 
vidual has  the  right  to  join  the  union  without  the  consent  of  the 
organization.  Can  it  be  doubted  that  a  labor  organization — a  volun- 
tary association  of  workingmen — has  the  inherent  and  constitutional 
right  to  deny  membership  to  any  man  who  will  not  agree  that  during 
such  membership  he  will  not  accept  or  retain  employment  in  com- 
pany with  non-union  men?  Or  that  a  union  man  has  the  constitu- 
tional right  to  decline  proffered  employment  unless  the  employer 
will  agree  not  to  employ  any  non-union  man? 

And  can  there  be  one  rule  of  liberty  for  the  labor  organization 
and  its  members,  and  a  different  and  more  restrictive  rule  for  em- 
ployers? We  think  not;  and  since  the  relation  of  employer  and 
employee  is  a  voluntary  relation,  as  clearly  as  it  is  between  the  mem- 
bers of  a  labor  organization,  the  employer  has  the  same  inherent 
right  to  prescribe  the  terms  upon  which  he  will  consent  to  the 
relationship,  and  to  have  them  fairly  understood  and  expressed  in 
advance. 

When  a  man  is  called  upon  to  agree  not  to  become  or  remain 
a  member  of  the  union  while  working  for  a  particular  employer,  he 
is  in  effect  only  asked  to  deal  openly  and  frankly  with  his  employer, 
so  as  not  to  retain  the  employment  upon  terms  to  which  the  latter 
is  not  willing  to  agree.  And  the  liberty  of  making  contracts  does 
not  include  a  liberty  to  procure  employment  from  an  unwilling  em- 
ployer, or  without  a  fair  undersatnding.     Nor  may  the  employer 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  791 

be  foreclosed  by  legislation  from  exercising  the  same  freedom  of 
choice  that  is  the  right  of  the  employee. 

To  ask  a  man  to  agree,  in  advance,  to  refrain  from  affiliation 
with  the  union  while  retaining  a  certain  position  of  employment,  is 
not  to  ask  him  to  give  up  any  part  of  his  constitutional  freedom. 
He  is  free  to  decline  the  employment  on  those  terms,  just  as  the 
employer  may  decline  to  offer  employment  on  any  other ;  for  "it 
takes  two  to  make  a  bargain."  Having  accepted  employment  on 
those  terms,  the  man  is  still  free  to  join  the  union  when  the  period 
of  employment  expires ;  or,  if  employed  at  will,  then  any  time  upon 
simply  quitting  the  employment.  And  if  bound  by  his  own  agree- 
ment to  refrain  from  joining  during  a  stated  period  of  employment, 
he  is  in  no  different  situation  from  that  which  is  necessarily  incident 
to  term  contracts  in  general.  For  constitutional  freedom  of  contract 
does  not  mean  that  a  party  is  to  be  as  free  after  making  a  contract 
as  before  ;  he  is  not  free  to  break  it  without  accountability.  Freedom 
of  contract,  from  the  very  nature  of  the  thing,  can  be  enjoyed  only 
by  being  exercised  ;  and  each  particular  exercise  of  it  involves  making 
an  engagement  which,  if  fulfilled,  prevents  for  the  time  any  incon- 
sistent course  of  conduct. 

349.     The  Legality  of  Unionizing  a  Shop-* 

BY  LOUIS  D.   BRANDEIS 

Unionizing  a  shop  does  not  mean  inducing  employees  to  become 
members  of  the  union.  It  means  inducing  the  employer  to  enter  into 
a  collective  agreement  with  the  union  governing  the  relations  of  the 
employer  to  the  employees.  Unionizing  implies,  therefore,  at  least 
formal  consent  of  the  employer.  But  plaintiff  and  defendants  in- 
sisted upon  exercising  the  right  to  secure  contracts  for  a  closed  shop. 
The  plaintiff  sought  to  secure  the  closed  non-union  shop  through 
individual  agreements  with  employees.  The  defendants  sought  to 
secure  the  closed  tmion  shop  through  a  collective  agreement  with 
the  union.  Since  collective  bargaining  is  legal,  the  fact  that  the 
workmen's  agreement  is  made  not  by  individuals  directly  with  the 
employer,  but  by  the  employees  with  the  union  and  by  it,  on  their 

2*From  a  dissenting  opinion  in  the  case  of  Hitchman  Coal  and  Coke  Co. 
V.  Mitchell,  245  U.S.  229.  In  this  Mr.  Brandeis  was  joined  by  Mr.  Holmes  and 
Mr.  Clarke.  The  issues  in  this  case  are  somewhat  involved.  But  the  main 
issue  is  clear.  The  company  had  an  agreement  with  its  men  not  to  join  a 
union  while  in  its  employ.  The  suit  is  brought  by  the  company  to  secure  an 
injunction  restraining  Mitchell  and  other  officers  of  the  United  Mine  Workers 
of  America  from  soliciting  its  employees  to  join  that  organization.  In  a 
decision  made  on  December  10,  1917,  the  United  States  Supreme  Court  con- 
firmed an  injunction  to  this  eflect  granted  by  a  lower  court. 


792  CURRENT  ECONOMIC  PROBLEMS 

behalf,  with  the  employer,  is  of  no  significance  in  this  connection. 
The  end  being  lawful,  defendant's  efforts  to  unionize  the  mine  can 
be  illegal  only  if  the  methods  or  means  pursued  were  unlawful. 

It  is  urged  that  a  union  agreement  curtails  the  liberty  of  the  oper- 
ator. Every  agreement  curtails  the  liberty  of  those  who  enter  it. 
The  test  of  legaHty  is  not  whether  an  agreement  curtails  liberty,  but 
whether  the  parties  have  agreed  upon  something  which  the  law  pro- 
hibits or  declares  otherwise  to  be  inconsistent  with  the  public  welfare. 
The  operator  by  the  union  agreement  binds  himself  (i)  to  employ 
only  members  of  the  union;  (2)  to  negotiate  with  union  officers, 
instead  of  with  employees  individually,  the  scale  of  wages  and  the 
hours  of  work;  (3)  to  treat  with  the  duly  constituted  representatives 
of  the  union  to  settle  disputes  concerning  the  discharge  of  men  and 
other  controversies  arising  out  of  employment.  These  are  the  chief 
features  of  a  unionizing  by  which  the  employer's  liberty  is  curtailed. 
Each  of  them  is  legal.  To  obtain  any  of  them  or  all  of  them  men 
may  lawfully  strive  and  even  strike.  And,  if  the  union  may  legally 
strike  to  obtain  each  of  the  things  for  which  the  agreement  provided, 
why  may  it  not  strike  or  use  equivalent  economic  pressure  to  secure  an 
agreement  to  provide  them? 

It  is  also  urged  that  defendants  are  seeking  to  "coerce"  plaintiff 
to  "unionize"  its  mine.  But  coercion,  in  a  legal  sense,  is  not  exerted 
when  a  union  merely  endeavors  to  induce  employees  to  join  a  union 
with  the  intention  thereafter  to  order  a  strike  unless  the  employer 
consents  to  unionize  his  shop.  Such  pressure  is  not  coercion  in  a 
legal  sense.  The  employer  is  free  either  to  accept  the  agreement  or 
the  disadvantage.  Indeed,  the  plaintiff's  whole  case  is  rested  upon 
agreements  secured  under  similar  pressure  of  economic  necessity 
or  disadvantage.  If  it  is  coercion  to  threaten  to  strike  unless  plaintiff 
consents  to  a  closed  union  shop,  it  is  coercion  also  to  threaten  not  to 
give  one  employment  unless  the  applicant  will  consent  to  a  closed 
non-union  shop.  The  employer  may  sign  the  union  agreement  for 
fear  that  labor  may  not  be  otherwise  obtainable ;  the  workman  may 
sign  the  individual  agreement  for  fear  that  employment  may  not  be 
otherwise  obtainable.  But  such  fear  does  not  imply  coercion  in  a 
legal  sense. 

In  other  words,  an  employer,  in  order  to  effectuate  the  closing 
of  his  shop  to  union  labor,  may  exact  an  agreement  to  that  effect 
from  his  employees.  The  agreement  itself  being  a  lawful  one,  the 
employer  may  withhold  from  the  men  an  economic  need — employ- 
ment— until  they  assent  to  make  it.  Likewise  an  agreement  closing 
a  shop  to  non-union  labor  being  lawful,  the  union  may  withhold  from 
an  employer  an  economic  need— labor — until  he  assents  to  make  it. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  793 

In  a  legal  sense  an  agreement  entered  into,  under  such  circumstances, 
is  voluntarily  entered  into ;  and  as  the  agreement  is  in  itself  legal  no 
reason  appears  why  the  general  rule  that  a  legal  end  may  be  pursued 
by  legal  means  should  not  be  applied ;  or,  putting  it  in  other  words, 
there  is  nothing  in  the  character  of  the  agreement  which  should  make 
unlawful  means  used  to  attain  it,  which  in  other  connections  are 
recognized  as  lazvftd. 

350.     The  Legal  Issue  in  the  Minimum  Wage^** 

BY  THOMAS  REED  POWELL 

The  theory  of  the  minimum  wage  is  that  there  is  a  public  interest 
in  having  those  who  give  their  whole  strength  to  an  employer  receive 
enough  from  that  employer  to  maintain  that  strength.  It  is  that 
there  is  a  public  interest  in  having  an  industry  support  itself  instead 
of  relying  on  outside  subsidies.  The  opponents  do  not  say  that  there 
is  no  such  public  interest.  They  say  in  effect  that  the  promotion  of 
such  public  interest  by  minimum-wage  legislation  will  cause  loss  to 
individual  employees.  So  it  may.  But  individual  loss  results  from 
the  promotion  of  most  if  not  of  all  public  interests.  It  results  from 
war,  from  taxation,  from  discharges  in  bankruptcy,  from  exercises 
of  the  police  power.  The  question  is  whether  the  public  interest  is 
sufficient  to  justify  the  individual  loss.  The  individuals  who  sufifer 
loss  are  a  part  of  the  public.  If  they  do  not  share  in  the  public  gain 
which  accompanies  their  individual  loss,  they  share  in  other  public 
gains  which  depend  for  their  attainment  on  the  principle  that  they 
shall  not  be  defeated  by  fear  of  attendant  individual  loss. 

The  only  specific  public  interest  to  which  the  opponent  of  the  law 
adverts  is  the  claim  that  "the  statutory  minimum  wage  is  a  protection 
of  the  morals  of  women  workers."  "This  sensational  claim,"  he 
says,  "has  been  practically  abandoned.  Of  course,  if  insufficient 
wages  during  employment  produce  immorality,  then  lack  of  employ- 
ment would  tend  to  produce  it  all  the  more."  Yes,  if  all  women  now 
underpaid  shall  as  a  result  of  the  minimum-wage  statute  lose  em- 
ployment entirely.  But  if  the  greater  part  of  the  women  now  receiv- 
ing wages  less  than  the  cost  of  subsistence  are  raised  to  a  standard 
which  will  support  them,  the  number  of  those  who  must  rely  on 
outside  subsidies  will  be  greatly  diminished.  In  so  far  then  as  im- 
morality is  fostered  by  the  necessity  of  adding  to  wages  some  other 
source  of  income,  the  number  of  those  who  are  in  this  predicament 
will  be  greatly  diminished  by  the  minimum  wage. 

25Adapted  from  "The  Constitutional  Issue  in  Minimum- Wage  Legislation," 
The  Minnesota  Law  Review  (1917),  II,  18-23. 


794  CURRENT  ECONOMIC  PROBLEMS 

What  is  true  of  the  relation  of  the  minimum  wage  to  morality 
is  true  also  of  the  relation  of  the  minimum  wage  to  ill-health  due 
to  insufficient  nourishment  and  improper  living  conditions.  The 
purpose  and  result  of  minimum-wage  legislation  is  to  insure  that 
those  who  give  a  day's  work  receive  a  day's  support  in  return.  The 
purpose  is  a  public  purpose,  because  the  evils  which  result  from 
poverty  and  weakness  and  premature  death  are  public  evils.  They 
are  the  public  evils  which  all  our  health  laws  seek  to  avert.  They 
are  the  public  evils  which  public  charity  seeks  to  avert.  Men  are 
compelled  to  pay  money  in  taxes  to  prevent  these  evils.  They  must 
pay  to  provide  food  and  lodging  and  medical  care  for  those  who 
stand  in  no  relation  to  them  except  that  of  fellow-citizens.  There 
can  be  no  dispute  that  the  end  sought  by  minimum-wage  legislation  is 
a  legitimate  public  end.  The  only  question  is  the  appropriateness 
of  the  means. 

The  objection  of  the  employer  is  in  substance  that  he  is  not  his 
brother's  keeper.  The  statute  says  that  he  shall  be  his  employee's 
keeper,  that  he  shall  not  have  his  employee  kept  for  him  by  others. 
It  leaves  him  free  to  decide  whether  any  person  shall  be  his  employee. 
He  has  a  freedom  which  is  not  accorded  to  those  who  are  taxed  to 
support  others  who  do  not  receive  from  private  sources  enough  to 
support  themselves.  But  if  the  employer  chooses  to  take  the  daily 
labor  of  a  woman,  he  is  compelled  to  pay  that  woman  enough  to 
make  that  labor  possible.  He  pays  only  the  cost  of  that  from  which 
he  chooses  to  reap  the  benefits.  He  pays  what  the  common  law 
makes  men  pay  in  judgments  in  quasi-contract.  The  obligation 
which  the  law  imposes  on  him  in  respect  to  wages  is  similar  to 
that  which  it  imposes  on  him  in  respect  to  injuries  arising  in  the 
course  of  employment.  Under  our  modern  workmen's  compensa- 
tion statutes  the  employer  pays  for  injuries  to  employees,  not  be- 
cause his  negligence  has  caused  the  injuries,  but  because  the  injuries 
were  incident  to  the  employment  and  the  employer  chose  to  make  the 
contract  that  gave  rise  to  the  employment.  Injuries  are  only  a  possi- 
ble or  likely  incident  of  the  employment.  The  support  of  the  worker 
is  a  necessary  and  certain  incident  of  the  employment.  It  is  a  condi- 
tion without  which  the  employment  cannot  exist.  The  employer 
must  pay  for  the  fuel  for  his  furnaces,  as  the  farmer  pays  for  fodder 
and  shelter  for  his  kine.  But  when  a  statute  commands  an  employer 
to  pay  enough  for  clothing,  food  and  shelter  to  those  whose  labor  he 
uses  in  his  factory,  it  is  alleged  to  be  a  violation  of  the  principles  of 
our  government.  Yet  by  common  law  and  by  many  approved  statutes 
those  who  accept  benefits  are  made  to  bear  the  attendant  burdens. 


SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS  795 

The  only  employees  who  can  complain  of  minimum-wage  legis- 
lation are  those  whom  the  employer  rejects.  It  must  be  recognized 
that  a  serious  defect  in  minimum-wage  legislation  is  the  absence  of 
specific  provision  for  caring  for  the  unemployables.  But  a  statute  is 
not  invalid  because  it  takes  only  the  first  step  in  dealing  with  a  situa- 
tion and  leaves  other  steps  to  be  adopted  as  experience  shall  advise. 
"Constitutional  law,  like  other  mortal  contrivances,  must  take  some 
chances,"  Mr.  Holmes  has  reminded  us.  Minimum-wage  statutes 
will  tend  to  sort  out  the  unemployables.  They  will  remedy  the  evils 
due  to  the  fact  that  industry  is  not  now  maintaining  the  employees 
whom  it  requires  and  must  continue  to  require.  Those  whom  indus- 
try does  not  require  must  be  subjected  to  special  treatment  later. 

This  is  not,  however,  all  that  may  be  said  in  answer  to  the  objec- 
tion of  the  employee  who  loses  her  chance  to  work  because  her  em- 
ployer will  not  retain  her  at  the  wage  prescribed  by  the  statute.  She 
must  be  regarded  not  as  an  isolated  individual  but  as  a  member  of  a 
class.  The  class  of  women  workers  as  a  whole  will  derive  such  bene- 
fits from  the  raising  of  their  wages  to  the  cost  of  subsistence,  that  the 
loss  to  the  unemployables  is  overbalanced  by  the  gain  to  those  whom 
industry  cannot  dispense  with.  As  a  compulsory  vaccination  statute 
cannot  be  defeated  because  some  will  sufifer  from  its  enforcement,  so 
a  statute  raising  wages  should  not  be  defeated  because  some  laborers 
will  suffer  from  its  enforcement.  The  class  to  which  they  belong  will 
gain.  Therefore  there  is  no  loss  to  the  class  to  be  weighed  against 
the  general  public  benefits  which  the  statute  will  promote. 

The  immateriality  of  loss  to  individual  employees  from  the  opera- 
tion of  minimum-wage  legislation  would  seem  to  be  sufficiently  estab- 
lished by  the  instances  already  given  in  which  the  courts  have  sus- 
tained legislation  establishing  standards  of  fitness,  of  rates  of  interest, 
and  of  pay.  Such  loss  is  regrettable,  but  it  does  not  make  the  statute 
unconstitutional.  It  is,  however,  to  be  hoped  that  the  states  which 
adopt  minimum-wage  legislation  will  soon  add  provisions  for  dealing 
with  the  needs  of  the  unemployed  and  the  unemployable.  Such  needs 
are  of  course  provided  for  in  a  measure  by  our  systems  of  public 
charity  and  by  institutions  for  the  care  and  training  of  defectives. 
To  the  extent  to  which  public  funds  are  released  by  the  effect  of 
minimum-wage  statutes  on  those  who  remain  in  employment,  the 
care  of  the  unemployed  will  involve  no  increase  of  the  tax  burden. 
And  to  the  extent  to  which  the  statutes  operate  to  sift  the  defectives 
from  the  mass  of  workers,  substantial  aid  will  be  given  to  the  move- 
ment for  mental  hygiene  which  has  already  won  recognition  as  an 
essential  governmental  function. 


796  CURRENT  ECONOMIC  PROBLEMS 

The  economic  wisdom  or  folly  of  minimum-wage  legislation  can 
of  course  be  better  demonstrated  by  experience  than  by  theoretical 
argument.  The  judicial  determination  of  such  questions  should  not 
be  based  upon  fantastic  or  at  best  highly  speculative  predictions  of 
dire  results.  When  the  results  are  known,  their  appraisal  will  be  in 
large  part  dependent  upon  views  of  social  policy.  Under  the  de- 
velopment of  our  constitutional  system  such  question  of  policy  are 
passed  upon  by  the  courts.  The  considerations  which  influence  the 
judicial  decisions  of  such  questions  are  not  always  susceptible  of  easy 
determination.  It  is  apparent,  however,  that  the  courts  are  rapidly 
abandoning  the  general  notions  of  individualism  and  of  laisscz  faire 
which  underlie  the  arguments  of  opponents  of  minimum-wage  legis- 
lation. Experience  is  demonstrating  the  superior  wisdom  of  legis- 
lative prescription  of  social  standards  over  the  anarchaic  chaos  of  un- 
fettered individual  action. 

Legislation  compelling  employers  to  pay  a  wage  equal  to  the  cost 
of  subsistence  differs  in  detail  from  other  legislation  already  sustained 
as  constitutional.  But  the  public  ends  to  be  gained  by  the  statutory 
minimum  wage  are  akin  to,  if  not  identical  with,  the  public  ends 
secured  by  legislation  which  has  already  successfully  run  the  gauntlet 
of  judicial  consideration.  The  private  detriment  which  minimum- 
wage  statutes  may  cause  is  less  serious  and  more  easily  justified  than 
are  the  burdens  imposed  by  statutes  which  have  long  been  part  of  our 
system  of  legal  legislation.  A  judicial  declaration  that  minimum- 
wage  legislation  is  a  deprivation  of  property  without  due  process  of 
law  would  be  inconsistent  with  the  necessary  implication  of  the  group 
of  decisions  on  similar  statutes  and  with  the  social  philosophy  which 
those  decisions  exemplify. 


SOCIAL  REFORM  AND  TAXATION  799 

it  private?  Is  the  co-operation  desired  to  be  secured  by  coercion  or 
through  voluntary  association  ?  One  cannot  emphasize  too  strongly 
the  contrast  between  these  two  forms  of  social  activity  in  their  in- 
fluence upon  the  aggregate  of  public  expenditures. 

It  is  exceedingly  difficult  to  express  in  a  few  words  the  char- 
acteristic features  of  the  social  theories  which,  under  various  forms 
and  with  many  and  constant  modifications,  give  color  to  the  politi- 
cal and  social  fabric  of  various  states.  These  differences  may,  how- 
ever, be  suggested  by  observing  that  the  one  theory  is  a  modification 
of  the  view  of  the  state  assumed  by  Roman  law,  and  exemplified  in 
a  general  way  by  most  of  the  Continental  peoples ;  while  the  other 
is  a  development  of  the  Teutonic  and  Saxon  ideas  of  personal  lib- 
erty ;  and  shows  its  most  natural  unfolding  among  peoples  in  English 
historical  descent.  The  former  makes  the  state  the  center  of  all 
collective  life,  and  defines  the  rights  of  individuals  in  terms  of 
national  importance;  the  latter  places  the  individual  at  the  center 
of  thought,  and  conceives  of  the  state  as  one  of  several  means  to 
individual  attainment  and  development.  Under  the  influence  of  that 
philosophy  which  subordinates  the  individual  to  the  state  it  is  natural 
for  those  intrusted  with  the  administration  of  the  government  to 
regard  all  questions  as  properly  adjusted  when  the  interests  of  the 
state  are  conserved.  Especially  will  this  be  true  if  to  such  a  theory  of 
society  there  be  added  the  influence  of  the  monarchial  form  of  ad- 
ministration. It  is  logical,  for  example,  that  they  who  represent 
monarchial  governments  should  accept  the  necessities  of  the  state 
as  the  true  measure  of  legitimate  expenditures,  without  having  very 
much  regard  for  the  concurrent  needs  of  individuals.  It  is  easy,  also, 
under  such  a  social  theory,  for  the  spirit  of  paternalism  to  show 
itself  in  many  of  the  items  of  a  budget,  and  for  the  thought  that  the 
state  is  an  industrial  corporation  as  well  as  a  political  organization  to 
swell  the  proportion  of  public  expenditures. 

The  view  of  social  relations  which  underlies  English  common 
law,  on  the  other  hand,  works  upon  national  expenditure  in  quite 
another  manner,  at  least  so  far  as  those  appropriations  are  concerned 
which  minister  to  pride  and  foster  bureaucracy,  or  which  are  related 
to  the  exercise  of  paternal  functions.  According  to  this  theory  a 
condition  of  liberty  is  conceived  to  be  a  heritage  of  the  individual. 
The  state  is  not  regarded  as  an  organism  in  the  sense  that  it  pos- 
sesses soul,  conscience,  and  sensibilities  of  its  own ;  it  is  rather  a 
form  of  association,  and  differs  mainly  from  ordinary  associations 
in  the  character  of  the  service  it  has  to  perform,  and  in  the  fact 
that  these  services  are  of  such  a  sort  as  require  the  state  to  be  the 


goo  CURRENT  ECONOMIC  PROBLEMS 

depository  of  coercive  power.  Public  concessions  are  judged  from 
the  point  of  view  of  the  interest  of  the  individual,  and  are  approved 
or  disapproved  according  as  they  bear  upon  his  prospects.  The 
result  of  this  philosophy  of  social  relations  among  peoples  who 
practice  self-government  is  to  insist  that  the  government  prove  its 
case  beyond  the  possibility  of  a  doubt  whenever  it  demands  increased 
expenditures  for  approved  services  or  the  approval  of  expenditures 
for  an  unusual  service.  Greater  reliance  is  placed  upon  voluntary 
association  for  the  attainment  of  collective  interests  than  upon 
coercive  association.  And  this  results  inevitably  in  charging  the 
cost  of  many  lines  of  service  to  the  income  account  of  private  cor- 
porations rather  than  to  that  of  the  state.  In  this  manner,  there- 
fore, public  expenditures  are  curtailed  by  virtue  of  individualistic 
philosophy  applied  to  governmental  affairs. 

352.     The  Individualistic  Theory  of  Taxation- 

BY  WILLIAM  KENNEDY 

The  social  attitude  of  the  eighteenth  century  was  not  based  upon 
one  political  theory,  but  it  was  nevertheless  based  predominantly  on 
one  poltical  theory.  This  was  the  "freeholder,"  non- functional  con- 
ception of  society.  Men  entered  into  society  in  order  to  secure  them- 
selves in  the  rights  which  individually  belonged  to  them;  the  state 
existed  to  provide  this  security ;  the  rights  to  be  secured  were  theoret- 
ically "natural"  rights,  in  practice  conceived  as  the  more  general  and 
characteristic  rights  guaranteed  by  English  law ;  and  all  men  having 
rights  to  be  protected  which,  though  different  in  extent,  were  essen- 
tially similar  in  kind,  every  man  was  a  free  man  and  a  citizen.  The 
basis  of  political  obligation  was  that  the  state  was  necessary  to,  and 
in  effect  did,  protect  men's  rights.  Men  were  born  not  to  functions 
or  services,  but  to  rights  and  enjoyments.  They  were  born  free- 
holders or  free  merchant  adventurers. 

The  more  abstract  political  speculation  of  the  century  illustrates 
very  clearly  the  predominance  of  this  conception  of  society.  On 
the  one  hand  it  was  put  forward  in  strict  Lockian  form  by  Black- 
stone.  In  his  Commentaries  he  explains  that  the  individual  possessed 
some  "absolute"  rights — chiefly  those  of  personal  security,  personal 
liberty,  and  private  property — which  appertained  to  him  merely  as 
an  individual,  independently  of  his  membership  in  society ;  but  that 
no  absolute  duties  pertained  to  the  individual  (at  least  such  as  law 
could  explain  and  enforce) — all  duties  were  relative  only,  and  that 
"the  principal  aim  of  society  is  to  protect  individuals  in  the  enjoy- 

^Adapted  from  English  Taxation,  1640-1799:  An  Essay  on  Policy  and 
Opinion,  pp.  180  ff.    Copyright  by  G.  Bell  &  Sons,  1913. 


SOCIAL  MFOkM  AND  TAXATION  801 

ment  of  those  absolute  rights  which  were  vested  in  them  by  the  im- 
mutable laws  of  nature."  Blackstone's  essential  justification  for  the 
existence  of  a  propertied  aristocracy,  had  he  thought  it  necessary  to 
discuss  such  a  question,  would  therefore  have  been  that  they  had 
natural  or  absolute  rights  to  property  like  other  people,  and  not  that 
they  governed  England  or  did  anything  in  particular  for  anyone  or 
anything  but  themselves. 

On  the  other  hand,  the  freeholder  conception  was  equally  involved 
in  the  speculation  of  those  who,  prior  to  Bentham,  attempted  to  add 
to  Locke's  theory  a  vague  utiHtarian  explanation  of  rights,  such  as 
that  the  right  of  private  property  is  beneficial  in  society.  This  was 
the  position  of  the  philosophers  Hutcheson  and  Hume,  the  econo- 
mists Adam  Smith  and  Sir  James  Steuart,  and  the  whig  lawyer  Sir 
James  Mackintosh.  These  thinkers  had  no  idea  of  a  connection  be- 
tween rights  and  functions.  Adam  Smith,  for  instance,  discussed 
the  causes  of  the  subordination  of  the  classes  in  society,  and  all  he 
saw  was,  first,  that  birth  and  fortune  seemed  to  be  the  two  circum- 
stances which  principally  set  one  man  over  another ;  and,  second,  that 
the  reason  for  subordination  seemed  to  lie  in  the  need  for  the  defense 
of  great  private  properties.  The  sixteenth-century  theorist  would 
have  said  that  subordination  and  great  properties  existed  so  that  the 
subordinate  classes  might  be  well  governed. 

Finally  the  freeholder  conception  dominated  the  feeling  of  those 
who  were  led,  by  the  implications  which  the  French  Revolution  em- 
phasized in  Lockian  ideas,  to  repudiate  the  doctrine  of  natural  rights, 
and  with  Burke  to  canonize  the  actual  property  and  other  rights 
which  tradition  had  sanctified  in  England.  Even  Burke,  in  spite  of 
his  splendid  inconsistencies,  did  not  succeed  in  any  direct  way  in 
embodying  ideas  of  function  in  his  defense  of  the  English  social 
order.  He  made  men  feel  the  complex  and  organic  and  traditional 
character  of  a  real  society,  but  he  advanced  very  little  in  compre- 
sension  of  the  structure  of  its  organism. 

Now  it  follows  directly  on  this  conception  of  society  as  held  to- 
gether by  the  protection  of  individual  rights,  that  all  men,  rich  and 
poor,  should  pay  taxes,  that  is,  share  in  the  cost  of  the  protecting 
organization.  The  logical  alternative,  as  Burke  said,  was  loss  of  citi- 
zenship. This  was  the  doctrine  which  underlay  even  the  sentiment  in 
favor  of  exempting  the  poor  from  taxation.  This  view  was  not  a 
functional  one  which  demanded  public  service  of  the  individual. 

No  political  theory  could  have  had  such  widespread  influence 
upon  public  opinion  as  the  freeholder  theory  had  in  the  eighteenth 
century,  except  by  representing  some  real  and  important  aspect  of 
the  state  of  contemporary  society.     And  the  freeholder  theory  did 


8o2  CURRENT  ECONOMIC  PROBLEMS 

represent  such  an  aspect— namely,  the  fact  that  the  rights  which  the 
governing  class  in  particular  possessed  were  rights  attaching  not  to 
an  office  but  to  ownership  of  property.  They  received  incomes 
whether  or  not  they  performed  services  in  return.  But  the  theory 
also  misrepresented  the  state  of  society,  for  it  treated  this  legal  mean- 
ing of  the  right  of  property  as  its  whole  significance.  The  theory 
ignored  the  fact  that  the  governing  class  did  perform  services  in 
society,  and  that  it  was  not  composed  merely  of  "idle  rich  consumers." 
This  other  aspect  of  English  society  was  represented  by  the  second 
but  much  less  important  political  theory  which  influenced  the  social 
attitude  of  the  eighteenth  century.  It  was  the  theory  of  class  duty 
and  of  the  mutual  dependence  of  classes,  and  was  expressed  in  gen- 
eral terms  by  all  kinds  of  men,  but  was  voiced  chiefly  by  the  Church, 
which  at  all  times  insisted  upon  a  functional  theory  which  treated 
rights  not  as  their  own  justification  but  as  the  conditions  of  duties. 

353.     Canons  of  Taxation* 

BY  ADAM   SMITH 

It  is  necessary  to  premise  the  four  following  maxims  with  regard 
to  taxes  in  general: 

I.  The  subjects  of  every  state  ought  to  contribute  toward  the 
support  of  the  government,  as  nearly  as  possible,  in  proportion  to 
their  respective  abilities ;  that  is,  in  proportion  to  the  revenue  which 
they  respectively  enjoy  under  the  protection  of  the  state.  The  ex- 
pense of  government  to  the  individuals  of  a  great  nation,  is  like  the 
expense  of  management  to  the  joint  tenants  of  a  great  estate,  who 
are  all  obliged  to  contribute  in  proportion  to  their  respective  inter- 
ests in  the  estate.  In  the  observation  or  neglect  of  this  maximum  con- 
sists, what  is  called,  the  equality  or  inequality  of  taxation. 

II.  The  tax  which  each  individual  is  bound  to  pay  ought  to  be 
certain,  and  not  arbitrary.  The  time  of  payment,  the  manner  of 
payment,  the  quantity  to  be  paid,  ought  all  to  be  clear  and  plain 
to  the  contributor,  and  to  every  other  person.  The  certainty  of  what 
each  individual  ought  to  pay  is,  in  taxation,  a  matter  of  so  great 
importance  that  a  very  considerable  degree  of  inequality,  it  appears, 
I  believe,  from  the  experience  of  all  nations,  is  not  nearly  so  great 
an  evil  as  a  very  small  degree  of  uncertainty. 

III.  Every  tax  ought  to  be  levied  at  the  time,  or  in  the  manner, 
in  which  it  is  most  likely  to  be  convenient  for  the  contributor  to 
pay  it.  A  tax  upon  the  rent  of  land  or  of  houses,  payable  at  the  same 
term  at  which  such  rents  are  usually  paid,  is  levied  at  the  time  when 
it  is  most  likely  to  be  convenient  for  the  contributor  to  pay ;  or  when 

"Adapted  from  The  Wealth  of  Nations  (1776),  Book  V,  chap,  ii,  Part  IL 


SOCIAL  REFORM  AND  TAXATION  803 

he  is  most  likely  to  have  wherewithal  to  pay.  Taxes  upon  such 
consumable  goods  as  are  articles  of  luxury  are  all  finally  paid  by 
the  consumer,  and  generally  in  a  manner  that  is  very  convenient  for 
him.  He  pays  them  by  little  and  little,  as  he  has  occasion  to  buy  the 
goods.  As  he  is  at  liberty  too,  either  to  buy,  or  not  to  buy,  as  he 
pleases,  it  must  be  his  own  fault  if  he  ever  suffers  any  considerable 
inconvenience  from  such  taxes. 

IV.  Every  tax  ought  to  be  so  contrived  as  both  to  take  out  and 
to  keep  out  of  the  pockets  of  the  people  as  little  as  possible  over 
and  above  what  it  brings  into  the  public  treasury  of  the  state. 

354.     The  Burden  of  Taxation* 

BY  S.  J.  CHAPMAN 

As  regards  taxation,  the  first  thing  to  settle  is  the  principle  ac- 
cording to  which  its  burden  should  be  distributed.  It  is  commonly 
agreed  at  the  present  time  that  taxation  should  be  designed  so  as  to 
cause  equal  proportional  sacrifice  among  the  taxpayers.  When  there 
is  equality  of  proportional  sacrifice,  people  are  left  in  the  same  rela- 
tive positions  after  being  taxed  as  before. 

This  principle  has  been  called  the  principle  of  equality  of  sac- 
rifice. It  is  better,  however,  to  call  it  the  principle  of  proportional 
sacrifice,  because  equality  of  sacrifice  might  be  interpreted  to  mean 
equality  of  absolute  sacrifice  and  not  of  proportional  sacrifice.  If 
the  utility  of  income  were  constant  and  the  same  for  all — as  it  is 
not — and  a  man  with  ii,ooo  a  year  and  a  man  with  i5CX)  a  year  con- 
tributed £10  a  year  each  in  taxes,  equal  amounts  of  sacrifice  would 
be  entailed,  but  the  man  with  £500  would  be  involved  in  a  greater  pro- 
portional sacrifice.  The  proportional  sacrifice  of  the  man  with  £500 
a  year  would  be  the  same  as  that  made  by  a  man  with  i  1,000  a  year 
who  paid  £10  in  taxes,  if  the  former  paid  not  iio  but  £5,  on  the 
assumptions  made  as  regards  the  utility  of  income. 

It  is  repeatedly  affirmed  that  the  right  theory  of  taxation  is  the 
faculty  theory.  Generally  speaking,  the  faculty  theory  lays  it  down 
that  a  person  should  pay  taxes  in  proportion  to  his  power  to  do  so. 
Whether  the  faculty  theory  is  the  correct  theory  or  not,  according 
to  the  consensus  of  expert  opinion,  depends  upon  the  exact  meaning 
that  we  read  into  it.  Let  us  take  an  example  from  a  primitive  com- 
munity. The  state  needs  a  particular  piece  of  work  to  be  done. 
Then,  some  say,  for  the  whole  community  to  turft  out  to  do  the 
work,  and  for  each  person  to  work  according  to  his  strength  would 
be  for  each  to  contribute  to  the  service  of  the  state  according  to 

■♦Adapted  from  Outlines  of  Political  Economy,  pp.  376-79.  Copyright  by 
Longmans,  Green  &  Co.,  191 1. 


8o4  CURRENT  ECONOMIC  PROBLEMS 

faculty.  But  would  this  be  the  equitable  thing?  If  all  worked  ten 
days,  the  man  of  great  capacity  would  be  doing  absolutely  more  for 
the  state  than  the  man  of  little  capacity.  But  the  latter  would  be 
making  a  greater  proportional  sacrifice  than  the  former.  He  would 
be  doing  so  because  the  man  of  great  capacity,  who  could  make 
much  in  a  year,  in  yielding  up  ten  days  of  his  time  would  be  sur- 
rendering comparative  superfluities,  whereas  the  man  of  little  capac- 
ity in  yielding  up  ten  days  of  his  time  would  be  surrending  compara- 
tive necessities.  The  force  of  this  argument  will  be  more  fully  appre- 
ciated when  it  is  put  in  terms  of  money.  Equal  sacrifices  of  time 
are  equivalent  to  proportional  sacrifices  of  money  income,  but  pro- 
portional sacrifices  of  money  income  are  not  equivalent  to  propor- 
tional sacrifices  of  real  income,  that  is  of  the  utility  of  income, 
which  is  the  thing  that  ultimately  counts.  However,  the  faculty 
theory  may  be  interpreted  in  such  a  way  as  to  be  made  identical  with 
the  theory  of  proportional  sacrifice. 

The  so-called  ability  theory  is  either  the  faculty  theory  in  the 
form  first  analyzed  above,  or  the  theory  of  proportional  sacrifice. 
If  we  mean  by  any  theory  that  proportional  sacrifice  alone  is  equit- 
able, it  is  best  to  call  it  the  "theory  of  proportional  sacrifice"  so  as 
to  prevent  any  misunderstanding. 

Taxation  which  embodies  the  principle  of  proportional  sacrifice 
must  be  progressive.  By  the  principle  of  progression  is  meant  in 
general  that  the  higher  the  clear  net  income  of  a  person  the  greater 
must  be  the  rate  at  which  he  is  taxed.  The  need  of  progression  is 
derived  from  the  known  facts  as  regards  the  variation  of  the  utility 
of  income  with  its  amount.  In  view  of  the  rate  at  which  the  mar- 
ginal utility  of  income  falls,  it  is  practically  certain  that  taxation 
proportional  to  income  exacts  a  greater  proportional  sacrifice  from 
the  poorer  of  any  two  persons,  other  things  being  equal. 

The  great  obstructions  in  the  way  of  applying  the  principle  of 
progression  with  scientific  accuracy  are  (i)  that  utility  varies  with 
income  differently  for  different  persons,  and  even  for  the  same  per- 
son at  different  times,  and  (2)  that  the  variations  of  utility  with 
income  cannot  be  accurately  measured. 

B.     NATURE  OF  WAR  FINANCE 
355.     Conscription  of  Income^ 

BY  0.  W.  W.  SPRAGUE 

Conscription  of  men  should  logically  and  equitably  be  accom- 
panied by  something  in  the  nature  of  conscription  of  current  income 
^Adapted  from  "The  Conscription  of  Income,"  Economic  Journal  (March. 


SOCIAL  REFORM  AND  TAXATION  805 

above  that  which  is  absolutely  necessary.  The  obligation  that  each 
citizen  furnish  the  state  in  time  of  war  a  large  portion  of  his  current 
income  manifestly  would  impose  no  more  oppressive  burden  than  the 
obligation  of  military  service.  To  be  sure,  the  pressing  necessity 
which  leads  to  compulsory  service  is  absent,  since  it  is  possible  to 
finance  a  war  by  means  of  borrowing.  Yet  as  a  permanent  war- 
finance  policy  borrowing  has  limitations  which  should  exclude  it  from 
any  comprehensive  scheme  of  military  preparedness.  Modern  wars 
are  so  enormously  costly  that  a  country  which  resorts  to  borrowing 
has  not  merely  created  for  itself  a  difficult  problem  of  taxation  after 
the  return  of  peace;  it  has  also  placed  itself  in  a  financial  position 
which  will  make  it  exceedingly  difficult  to  find  the  money  to  maintain 
and  improve  its  military  establishment  in  future  years.  Purely  as  a 
military  measure,  then,  the  conscription  of  income  during  a  war 
should  be  adopted,  unless  such  policy  would  prove  in  any  way  a 
«;erious  obstacle  to  the  effective  conduct  of  hostilities. 

The  injustice  of  treating  those  who  provide  the  funds  for  war 
purposes  more  generously  than  those  who  risk  life  itself  will  not  be 
questioned.  Consider  for  a  moment  the  contrast  under  the  borrowing 
method  of  war  finance  between  a  soldier  in  receipt  of  an  income  of 
500  pounds  before  a  war  and  his  neighbor  who  remains  at  home  in 
continued  receipt  of  a  similar  amount.  The  civilian  reduces  his 
expenditure  in  every  possible  way  and  subscribes  a  total  of  800 
pounds  to  a  war  loan.  He  is  rewarded  with  a  high  rate  of  interest,  to 
which  his  soldier  neighbor  must  contribute  his  quota  in  higher  taxes 
if  he  is  fortunate  enough  to  return  from  the  front.  The  contrast 
becomes  still  greater  if,  as  often  happens,  the  income  of  the  stay-at- 
home  increases  during  the  war  and  if  he  is  able  to  secure  a  superior 
position.  On  the  other  hand,  the  soldier  often  finds  it  difficult  to 
secure  a  position  as  good  as  that  from  which  he  was  taken  at  tljp 
beginning  of  the  war. 

356.     Destruction  of  Capital :  A  Business  View" 

There  are  sound  reasons  why  an  important  share  of  the  expenses 
of  the  war  should  be  raised  by  taxation  during  the  war.  Most  lines 
of  business  are  under  extraordinary  stimulus,  profits  are  larger  than 
usual,  wages  are  generally  higher,  and  the  employment  of  the  people 
is  very  complete.  Therefore  the  country  can  afford  to  pay  taxes  now 
better  perhaps  than  it  will  be  able  to  in  the  years  following  the  war, 
when  it  may  be  sufifering  from  reaction.     Moreover  the  industrial 

^Adapted  from  the  monthly  bulletin  of  the  National  City  Bank  of  New 
York  on  Economic  Conditions,  Governmental  Finance,  etc.,  June,  1917. 


8o6  CURRENT  ECONOMIC  PROBLEMS 

capacity  and  labor  supply  of  the  country  are  occupied  with  war  busi- 
ness to  such  an  extent  that  it  is  impossible  to  go  ahead  with  construc- 
tive work  in  other  lines  as  usual.  The  current  income  of  the  country 
must  of  necessity  be  given  over  largely  to  the  government,  either 
through  loans  or  taxation,  to  enable  it  to  carry  on  the  war,  and  the 
proportion  between  loans  and  taxation  should  not  be  governed  by  a 
desire  either  to  favor  or  to  penalize  wealth,  but  by  the  probable 
effects  upon  the  general  welfare,  through  the  results  upon  industry, 
employment,  and  the  ability  of  the  country  to  meet  conditions  after 
the  war.  No  taxation  conceivably  possible  after  the  war  will  be  as 
important  to  the  masses  of  the  people  as  the  possible  difference 
between  a  state  of  general  industrial  activity,  with  full  employment 
to  all  the  people,  and  a  state  of  industrial  depression  such  as  this 
country  experienced  in  the  winter  of  1914-15.  Everybody  will  be 
able  to  pay  his  share  of  the  taxes  if  the  industries  are  busy  and  still 
have  a  better  living  than  he  will  have  if  the  industries  are  depressed. 

The  catch  phrases  which  are  used  show  the  same  want  of  compre- 
hension of  the  fundamental  relations  of  society  which  is  responsible 
for  most  of  the  ill-feeling  and  friction  in  the  industrial  world.  The 
agitation  is  all  based  upon  the  assumption  that  private  wealth  is 
devoted  to  the  owners,  and  that  if  it  is  taken  away  from  them,  even 
though  destroyed,  nobody  else  is  a  loser.  The  whole  idea  is  that 
the  proposed  taxation  will  reach  hidden  hoards,  or  possibly  curtail  the 
luxurious  living  of  the  rich,  with  apparently  no  appreciation  of  the 
fact  that  it  will  fall  upon  the  industrial  fund,  the  capital  available  for 
the  support  of  industry. 

Is  the  public  interested  in  the  industrial  fund?  Is  it  interested 
in  the  production  of  things  for  the  public  market?  This  is  an  oppor- 
tune time  to  ask  if  it  is  interested  in  the  supply  and  price  of  things  of 
Qommon  consumption.  Is  the  public  interested  in  the  development 
and  improvement  of  industry,  in  the  multiplication  of  power  plants, 
and  the  enlargement  of  industrial  capacity  and  output?  Is  it  inter- 
ested in  the  facilities  for  transportation?  If  it  is  agreed  that  the 
public  is  interested  in  these  things  then  the  proposal  to  withdraw 
capital  in  great  amounts  from  these  purposes  should  be  considered 
with  regard  to  its  effect  upon  public  interests  instead  of  being  treated 
as  though  the  individual  title-holders  were  alone  concerned. 

If  this  reasoning  is  correct  the  community  should  beware  how  ' 
seizes  for  current  use  upon  the  capital  which  is  certainly  destined  fui 
the  industrial  fund.    To  a  very  great  extent  it  must  be  done,  but  ii. 
IS  not  to  be  done  in  the  spirit  of  eager  confiscation  with  which  in  some 
quarters  it  is  advocated  at  the  present  time.     It  would  be  folly  10 


SOCIAL  REFORM  AND  TAXATION  807 

seize  it  upon  the  theory  that  the  public  is  really  acquiring  anything 
at  the  expense  of  the  rich  owner,  for  under  no  conceivable  circum- 
stances will  the  taxation  encroach  upon  the  portion  of  his  income 
which  is  devoted  to  his  own  support.  Indeed  the  common  argument 
for  the  seizing  of  large  incomes  is  that  it  will  involve  no  sacrifice  to  the 
owners.  This  is  true ;  the  sacrifice  is  from  the  fund  destined  to  public 
use,  and  at  the  expense  of  society  as  a  whole  in  the  future. 

357.     The  War  Burden  Upon  the  Common  Man^ 

BY  HERBERT  J.  DAVENPORT 

If  a  great  war  is  to  go  on  the  burden  of  it  has  to  be  drastically 
severe  upon  the  poor  as  well  as  on  the  rich.  Whatever  the  fiscal 
forms  of  collection,  a  high  rate  of  charge  must  trench  upon  even  the 
relatively  meager  incomes.  Only  when  the  masses  contribute,  and 
greatly,  can  the  fiscal  return  be  considerable. 

Assume,  for  example,  the  pre-war  level  of  prices ;  a  national  in- 
come of  $40,000,000,000;  a  war  budget  of  $15,000,000,000,  approxi- 
mately two-fifths  of  the  current  national  income.  The  income  tax 
returns  for  the  year  1914  reported  less  than  400,000  incomes  above 
$3,000.  A  100  per  cent  income  tax  on  all  these  incomes,  averaged  as 
at  $3,000  without  even  a  minimum  exemption,  would  afford  less  than 
$1,250,000,000  of  revenues.  Assume  the  incomes  to  have  averaged 
$6,000  each,  without  exemption — $2,400,000,000  of  fiscal  returns. 
Double  the  incomes  as  allowance  for  under-statement — $5,000,000,000 
in  all.  Double  the  number  of  income  receivers  as  allowance  for  eva- 
sions— $10,000,000,000.  The  average  family  income  for  our  23,000,- 
000  families,  as  deduced  from  the  1916  returns,  appears  to  have  been 
approximately  $1800,  inclusive  of  corporate  holdings  and  business 
gains.  Eight  hundred  thousand  families  had  incomes  of  upwards  of 
$2500  exclusive  of  corporate  and  business  gain.  The  total  income  of 
all  these  800,000  families  (exclusive  again  of  corporate  and  business 
holdings  averaged  at  $400  for  each  of  the  27,000,000  families) ,  was 
$9,750,000,000.  Assume  now  that  three-fourths  of  all  corporate  and 
business  returns  accrued  to  these  800,000  families — $9,000,000,000. 
A  tax  then  that  should  take  100  per  cent  of  all  these  incomes,  without 
exemption  of  any  sort,  would  provide  $19,000,000,000  of  revenue  out 
f  an  estimated  total  national  income  of  $50,000,000,000.  Allowing 
,,"^2,000  exemption,  the  total  remaining  incomes  for  the  800,000  fam- 
i^pcs  would  be  approximately  $17,000,000,000.    At  an  average  tax  of 

"f-  '^Adapted  from  "The  War-Tax  Paradox,"  American  Economic  Review, 
l^.,  39-41.    Copyright,  1919. 


8o8  CURRENT  ECONOMIC  PROBLEMS 

33  per  cent  on  the  taxable  revenues  the  yield  would  be  less  than  $6,- 
000,000,000.  At  the  actual  rates  as  they  were  imposed  for  the  year 
1916  the  yield  of  all  income,  corporate  and  profits  taxes  was  $345,- 
000,000;  for  1917,  $3,000,000,000. 

Quite  obviously,  then,  a  war  absorbing  two-fifths  of  the  current 
national  resources  of  goods  and  services  is  possible  only  on  terms 
of  great  sacrifices  imposed  on  the  relatively  meager  incomes.  Af- 
ter the  rich  and  the  well-to-do  have  paid  all  that  they  can,  there 
is  still  an  enormous  payment  necessary  from  the  masses.  A  great 
war  calls  on  all  for  all  that  they  can  spare.  The  income  tax  re- 
turns for  1914  showed  only  one  $3,000  income  out  of  seventy  families. 
It  is  safe  to  say  that  to  nineteen  men  out  of  twenty  belongs  the  vague 
word  poor;  they  are  artisans,  wage-earners,  laborers.  The  support 
of  a  great  war  requires  their  grievous  contributions. 

Somehow,  therefore,  the  masses  of  citizens  must  and  do  con- 
tribute to  a  great  war.  When  the  average  income  for  civil  con- 
sumption falls  by  two-fifths,  the  incomes  of  the  masses  must  fall. 
Real  wages  in  the  average  must  suffer  relatively  to  product,  pre- 
cisely because  two-fifths  of  the  national  product  is  being  diverted 
from  civil  consumption.  The  average  income  must  suffer  quanti- 
tatively also,  unless  it  be  true  that  the  efficiency  of  civil  produc- 
tion is  so  speeded  up  as  to  offset  not  only  all  the  displacement  of  men 
and  of  capital  and  of  civil  production,  but  also  whatever  degree  of 
rapid  consumption  is  peculiar  to  the  new  war  activities — shipping, 
coal,  oil,  munitions,  ammunition,  motor  cars,  strategic  railroads, 
warehouses — and  finally  also  the  amount  by  which  the  consumption 
of  food  and  apparel  is  exceptionally  large.  That  the  per  capita 
expenditure  in  civil  consumption  declines  relatively  to  the  per  capita 
product,  rests  in  the  mathematical  necessities  of  the  case.  And  that 
the  per  capita  civil  consumption  must  decline  in  quantitative  com- 
mand of  goods  is  practically  clear.  Out  of  short  crops  an  unusually 
large  amount  was  exported.  Iron  was  scant  for  civil  consumption, 
also  leather,  fuel,  woolens,  and  perhaps  especially,  cotton.  This 
scarcity  was  indeed  established  by  the  very  fact  that  old  things  were 
made  to  do  duty  in  place  of  new,  purchases  being  deferred  in  count- 
less lines.  This  restriction  of  consumption,  and  measurably  also  of 
new  construction,  was  the  means  by  which  ultimately  the  sacrifices  of 
war  were  borne.  There  is  little  evidence  that  the  per  diem  output 
of  labor  was  appreciably  increased,  a  very  considerable  body  of  evi- 
dence to  the  contrary.  There  has  been  much  deliberate  waste  ol 
time  in  a  wide  range  of  industries.  And  the  very  fact  of  a  wide- 
spread redistribution  of  laborers  into  novel  occupations  involves  the 
cancellation  of  much  specialized  skill.    The  new  economic  activities 


SOCIAL  REFORM  AND  TAXATION  809 

of  women  counted  for  disappointingly  and  shamefully  small  results 
in  the  total.  Whatever,  therefore,  the  technical  form  of  payment, 
the  income  of  laborers  had  to  suffer.  The  actual  rate  approached 
the  charge  upon  the  most  princely  of  American  incomes;  the  general 
rise  of  prices  has  far  outstripped  the  general  rise  of  wages.  In  thii 
lag  of  real  wages  was  the  laborers'  contribution.  There  is  slight  pros- 
pect of  such  rates  in  future  income  taxes  for  the  retirement  of  the 
war  bonds  as  shall  offset  the  abnormal  apportionment  of  burdens 
under  the  present  methods.  More  probable  is  it  that  the  future  taxes 
will  be  more  distinctly  regressive,  relatively  to  paying  capacity,  than 
are  the  present  methods. 

358.     The  Evils  of  Inflation^ 

BY  A.  C.  MILLER 

The  danger  of  the  loan  policy  is  that,  by  deluding  itself  with  a 
notion  that  it  is  putting  the  burden  onto  the  future,  it  will,  through 
resort  to  fatuous  and  easy  expedients,  put  the  burden  both  on  the 
present  and  on  the  future.  This  will  happen  if  the  loan  policy,  failing 
to  induce  a  commensurate  increase  in  the  savings  fund  of  the  nation, 
degenerates,  through  the  abuse  of  banking  credit,  into  inflation — 
raising  prices  against  the  great  body  of  consumers  as  well  as  against 
the  government,  thus  needlessly  augmenting  the  public  debt  and 
increasing  the  cost  of  living  just  as  taxes  would.  The  policy  of 
financing  war  by  loans,  therefore,  will  be  but  a  fragile  and  deceptive 
and  costly  support  unless  every  dollar  obtained  by  the  government  is 
matched  by  a  dollar  of  spending  power  relinquished  by  the  commu- 
nity— in  other  words,  will  fail  and  develop  into  inflation  unless  the 
dollars  which  are  subscribed  to  the  bonds  of  the  government  are  real 
dollars,  the  result  of  real  savings  and  of  real  retrenchment.  The 
danger  to  be  feared  in  undertaking  to  finance  our  war  by  credit  is  that 
sophistry  and  financial  legerdemain  may  lead  us  to  attempt  to  carry 
the  operation  through  as  an  operation  in  banking  finance  instead  of 
an  opertaion  in  saving  and  investment.  The  doctrine  is  already 
current  in  the  country,  with  the  sanction  of  some  leading  bankers, 
that  our  war  cannot  be  financed  except  by  credit  expansion  running 
to  the  limits  of  inflation.  Being  dealers  in  banking  credit,  they 
naturally  take  the  view  that  the  expansion  of  credit  in  question  will 
properly  have  to  be  an  inflation  of  banking  credit ;  for  this  is  the  new 
and  most  recent  form  of  inflation  which  the  gigantic  war  in  Europe 
has  been  bringing  to  the  front  as  a  device  in  war  finance. 

^Adapted  from  "War  Finance  and  the  Federal  Reserve  Banks,"  Financial 
Mobilisation  for  War  (1917),  pp.  145-49. 


8io  CURRENT  ECONOMIC  PROBLEMS 

Inflation  as  an  expedient  of  public  finance  has  long  been  practiced, 
although  it  has  never  had  the  sanction  and  approval  of  those  whose 
business  it  has  been  to  lay  down  canons  of  finance  rather  than  to 
engage  in  the  practice  of  finance.  The  record  of  our  own  great  wars 
and  the  records  of  the  great  wars  of  other  nations  in  modern  times 
show  pretty  uniformly  that  timidity  in  facing  the  serious  realities  of 
war  finance  has  usually  developed  a  situation  from  which  escape  was 
finally  sought  through  the  desperate  and  costly  expedient  of  govern- 
ment currency  inflation.  Such  was  our  disastrous  experience  in  the 
Civil  War,  when  resort  was  had  to  the  greenback  currency,  which 
w^as  nothing  but  a  device  of  inflationism,  and  some  $500,000,000  was 
thereby  added  to  the  cost  of  the  war — which  might  have  been  avoided 
had  the  government's  financial  operation  been  maintained  on  a  strong 
and  healthy  basis — to  say  nothing  of  the  demoralization  wrought  in 
business  and  the  hardships  and  iniquities  inflicted  upon  the  great  body 
of  defenseless  workingmen  and  consumers.  Clear  and  specific  as 
the  teachings  of  that  experience  are  to  those  who  can  learn  from 
history,  it  will  remain  for  this  war  to  demonstrate  whether  or  not  the 
lesson  has  been  fully  taken  to  heart.  Inflation  still  has  seductive 
potentialities  for  the  pundits  of  paper  finance.  Even  if  we  do  not 
avowedly  repeat  the  costly  mistakes  of  our  Civil  War  by  ventures  in 
the  field  of  government  currency  inflation,  we  may  yet  reach  a  similar 
result  and  land  the  community  in  a  similar  plight  through  the  more 
subtle  and  less  vulgar  process  of  banking  inflation. 

The  same  process,  only  in  a  vastly  intensified  degree,  has  been 
going  on  in  the  belligerent  countries  of  Europe  and  has  given  rise 
repeatedly  to  the  gravest  expressions  of  solicitude  by  those  who  are 
engaged  in  looking  through  the  tissues  of  paper  finance  to  the  inexor- 
able economic  facts.  All  of  the  belligerent  countries  of  Europe,  in 
one  degree  or  another,  have  undertaken  to  finance  the  war  by  bank 
borrowing,  with  inflation  results  that,  for  the  most  of  them,  make  a 
tragic  record  of  hardship  for  the  masses  and  needless  augmentations 
of  the  nations'  debts,  and  will  leave  behind,  at  the  close  of  the  war  and 
for  the  next  generation,  a  heritage  of  unspeakable  financial  confusion. 

For  let  it  not  for  a  moment  be  overlooked  that  inflation,  in  its 
eflfects,  amounts  to  conscriptive  taxation  of  the  masses.  It  is,  indeed, 
one  of  the  worst  and  the  most  unequal  forms  of  taxation,  because  it 
taxes  men,  not  upon  what  they  have  or  earn,  but  upon  what  they  need 
or  consume.  The  only  diflference  for  the  masses  between  this  kind 
of  disguised  and  concealed  taxation  and  taxes  which  are  levied  and 
collected  openly  is  that  in  the  case  of  the  latter  the  government  gets 
the  revenue,  while  in  the  former  case  it  borrows  it,  and  those  to  whom 
it  is  eventually  repaid  are  not  those,  for  the  most  part,  who  have  been 


SOCIAL  REFORM  AND  TAXATION  8ii 

mulcted  for  it.  Inflation  therefore  produces  a  situation  akin  to 
double  taxation  in  that  the  great  mass  of  the  consuming  public  is  hard 
hit  by  the  rise  of  prices  induced  by  the  degenerated  borrowing  policy 
and  later  has  to  be  taxed  in  order  to  produce  the  revenue  requisite  to 
sustain  the  interest  charge  on  the  debt  contracted  and  to  repay  the 
principal.  The  active  business  and  speculative  classes  can  usually 
take  care  of  themselves  in  the  midst  of  the  confusion  produced  by 
inflation  and  recoup  themselves  for  their  increasing  outlays.  Indeed 
inflation  frequently  makes  for  an  artificial  condition  of  business 
prosperity.  That  is  why  war  times  are  frequently  spoken  of  in  terms 
of  enthusiasm  by  the  class  of  business  adventurers.  But  it  is  a  pros- 
perity that  is  dear-bought  and  at  the  expense  of  the  great  body  of 
plain-living  people.  It  would  be  a  monstrous  wrong  if  in  financing 
our  present  war  we  should  pursue  methods  that  would  land  us  in  a 
sea  of  inflation  in  which  the  great  body  of  the  American  people,  who 
are  called  upon  to  contribute  the  blood  of  their  sons  to  the  war,  were 
made  the  victims  of  a  careless  or  iniquitous  financial  policy. 

C.     WAR  TAXES 
359.     The  Income  Tax« 

BY  EDWIN  R,  A.  SELIGMAN 

The  change  in  rates  imposed  by  the  War  Revenue  Act  of  October 
3,  1917,  as  compared  with  the  act  of  September  8,  1916,  is  of  a  three- 
fold character:  an  increase  of  the  normal  tax,  a  lowering  of  the  ex- 
emption, and  a  rise  in  the  scale  of  progression.  A  supplementary 
normal  tax  of  2  per  cent  is  imposed,  bringing  the  tofal  to  4  per  cent. 
The  law  furthermore  provides  for  a  reform  that  had  been  widely 
urged  by  those  who  considered  the  exemption  of  $3,ooo-$4,ooo  en- 
tirely too  high.  Accordingly,  in  the  case  of  the  supplementary  normal 
tax  the  exemption  is  reduced  to  $1,000  for  unmarried  and  $2,000  for 
married  persons.  The  law  also  provides  for  an  additional  exemption 
of  $200  for  each  child  under  eighteen  years  of  age  or  incapable  of 
self-support  because  of  mental  or  physical  defect. 

In  order  to  counterbalance  this  reduction,  which  will  bring  into 
the  toils  of  the  law  millions  of  new  taxpayers,  the  rates  on  the  higher 
incomes  are  sharply  increased.  The  original  law,  it  will  be  remem- 
bered, had  provided  for  a  so-called  additional  tax  (popularly  called 
the  surtax,  or  sometimes  the  supertax)  on  all  incomes  over  $20,000, 
ranging  from  i  to  8  per  cent  on  the  highest  amounts.  The  law  of 
1916,  as  we  have  noted,  increased  the  graduated  scale  so  as  to  run 

"Adapted  from  "The  War  Revenue  Act,"  Political  Science  Quarterly, 
XXXIII,  17  ff.    Copyright,  1918. 


8i2  CURRENT  ECONOMIC  PROBLEMS 

from  I  to  13  per  cent.  The  new  law  reduces  to  $5,000  the  amount  at 
which  graduation  begins  and  provides  an  entirely  different  scale, 
ranging  from  i  to  50  per  cent,  for  the  supplementary  additional  tax. 
The  result  is  that  the  maximum  rate  is  now  67  per  cent,  that  is,  2 
per  cent  supplementary  normal  tax,  13  per  cent  old  additional  tax, 
and  50  per  cent  new  additional  tax. 

This  is  the  highwater  mark  thus  far  reached  in  the  history  of 
taxation.  Never  before  in  the  annals  of  civilization  has  an  attempt 
been  made  to  take  as  much  as  two-thirds  of  a  man's  income  by  taxa- 
tion. In  comparing  our  present  income  tax  with  the  British,  more- 
over, it  is  to  be  noted  that  our  rates  are  much  higher  on  the  larger 
incomes  and  much  smaller  on  the  lower  and  moderate  incomes.  The 
American  scale  is  an  eloquent  testimony  to  the  fact,  not  only  that 
large  fortunes  are  far  more  numerous  here  than  abroad,  but  also  that 
there  is  greater  appreciation  of  the  democratic  principles  of  fiscal 
justice.  For  the  overwhelming  trend  of  modern  opinion  is  clearly  in 
the  direction  of  applying  to  excessive  fortunes  the  principle  of  faculty 
or  ability  to  pay.  It  still  remains  to  be  seen,  however,  whether  the 
new  law,  with  its  exceedingly  high  rates,  will  turn  out  to  be  as  work- 
able administratively  and  as  productive  fiscally  as  a  somewhat  lower 
scale  would  have  been. 

The  second  change  in  the  law  is  the  virtual  abandonment  of  the 
stoppage-at-source  method  of  collection.  It  will  be  remembered  that 
the  two  leading  types  of  income  tax  that  had  developed  during  the 
last  generation  were  the  so-called  lump-sum  method  of  Prussia  and 
the  scheduled  method  of  Great  Britain.  The  Prussian  system,  which 
rested  finally  upon  accurate  official  assessment,  depended  for  its 
success  upon  an  incorruptible  civil  service  and  the  fear  instilled  into 
the  average  taxpayer  of  making  false  returns.  Great  Britain  had 
long  since  abandoned  the  scheme  and  had  substituted  the  plan  of 
imposing  the  responsibility  of  the  tax  upon  the  person  who  paid  the 
income  rather  than  upon  the  recipient.  As  between  the  unchecked 
lump-sum  and  the  stoppage-at-source  method  it  is  clear  that  under 
American  conditions  the  latter  was  preferable.  At  the  close,  how- 
ever, of  the  discussion  in  1913,  an  alternative  plan  was  suggested,  to 
which  the  present  writer  gave  the  name  of  information-at-source,  de- 
signed to  achieve  the  substantial  purposes  of  the  collection-at-source 
method  without  its  discomforts  and  complications.  This  alteration 
has  now  been  finally  adopted  in  essence.  The  law  makes  the  tax 
collectible  from  the  recipient  of  the  income,  but  imposes  upon  the 
payers  of  income  the  obligation  to  give  full  information  of  the 
amount  and  conditions  of  payment.  Information  is  required  from 
corporations  as  to  dividend  payments,  from  brokers  as  to  details  of 


SOCIAL  REFORM  AND  TAXATION  813 

transactions,  and,  in  general,  from  all  persons  making  payment  to 
any  other  person  of  any  "fixed  or  determinable  gains,  profits,  and 
income  over  $800."  Only  two  exceptions  are  permitted.  Withhold- 
ing at  the  source  is  retained  for  the  original  normal  tax  in  the  case 
of  income  accruing  to  non-resident  aliens  and  of  interest  on  tax-free 
bonds.  The  latter  exception  was  inserted  as  a  concession  to  bond- 
holders who,  relying  upon  the  promise  of  the  corporations  to  assume 
the  tax,  had  paid  so  much  more  for  the  bonds.  It  is  to  be  regretted, 
however,  that  the  law  fails  to  include  the  provision,  found  in  the 
British  statute,  which  prohibits  for  the  future  the  inclusion  of  such 
tax-free  covenants  in  corporate  bonds. 

On  the  fundamental  question  of  what  constitutes  income  the  new 
law  does  not  take  any  fresh  stand.  This  still  remains  a  difficulty, 
which,  however,  not  only  is  shared  by  many  other  income-tax  laws, 
but  is  traceable  to  an  inadequate  analysis.  The  distinction  between 
capital  and  income  has  received  far  less  scientific  attention  than  it 
deserves.  It  may  be  said  that  there  are  at  least  three  diflferent  con- 
ceptions of  income  found  in  economic  literature :  the  one  emphasizes 
the  idea  of  regularity  or  recurrence ;  the  second  accentuates  the  idea 
of  product  or  return  from  an  enduring  source ;  the  third,  or  net-profit 
theory,  lays  stress  on  the  surplus  of  what  comes  in  over  what  goes 
out.  It  is  impossible  here  to  discuss  the  widely  divergent  practical 
consequences  of  these  theories.  It  may  be  said,  however,  that  until 
economists  have  decided  which  of  the  three  is  correct,  the  interpre- 
tation of  the  law  is  bound  to  create  endless  trouble.  Some  of  the 
chief  difficulties  of  the  interpretation  are  still  associated  with  the 
question  of  stock  dividends  and  depreciation  in  the  market  value  of 
securities. 

Up  to  this  point  we  have  discussed  the  individual  income  tax. 
The  law,  however,  provides,  as  before,  also  for  a  corporate  income 
tax.  In  addition  to  the  existing  normal  tax  of  2  per  cent,  a  supple- 
mentary tax  of  4  per  cent  is  imposed  upon  the  income  of  every  cor- 
poration, joint-stock  company  or  association,  or  insurance  company, 
but  not  including  partnerships.  The  result  is  that  corporations  v/ill 
hereafter  pay  a  tax  of  6  per  cent  on  their  income.  In  computing  the 
tax,  however,  all  dividends  received  by  one  corporation  from  another 
taxable  corporation  are  deductible — an  important  concession  to  hold- 
ing companies  but  a  concession  limited  to  the  supplementary  tax. 
The  limitations  on  the  deduction  for  interest  and  taxes  referred  to 
above  in  the  case  of  individuals  are  applicable  also  to  corporations, 
as  is  the  provision  permitting  the  crediting  to  income  of  the  excess 
profits  levied  in  the  same  year. 


8 14  CURRENT  ECONOMIC  PROBLEMS 

Corporations,  however,  are  subject  to  a  further  tax  of  lo  per 
cent  on  the  amount  of  profits  remaining  undistributed  six  months 
after  the  end  of  the  year.  Income  actually  invested  in  business  or  in 
federal  bonds  is  exempted  from  this  additional  tax ;  but  if  it  trans- 
pires that  profits  retained  for  employment  in  the  business  are  not  so 
employed  or  are  not  reasonably  required  therein,  they  shall  be  subject 
to  a  tax  of  15  per  cent.  It  may  be  conjectured  that  these  provisions 
will  lead  to  a  speedy  distribution  of  all  corporate  profits  that  should 
properly  go  to  the  stockholders. 

In  any  fair  estimate  of  the  present  law  five  defects  may  be  noted, 
some  of  them  survivals,  some  of  them  additions. 

The  first  weakness  is  the  failure  to  introduce  differentiation  be- 
tween earned  and  unearned  income.  An  attempt  was  made  to  per- 
suade Congress  to  adopt  this  distinction,  which,  as  is  well  known 
was  initiated  in  Great  Britain  almost  a  decade  ago.  The  reason 
advanced  for  the  refusal — the  fear  of  further  complicating  the  tax 
— is  far  from  convincing.  Simplicity  gained  at  the  expense  of  equity 
is  not  to  be  admired.  The  situation  is  in  fact  aggravated  by  the  exten- 
sion of  the  excess-profits  tax  to  professional  incomes,  as  a  result  of 
which  earned  incomes,  instead  of  being  taxed  less,  will  actually  be 
taxed  more  than  unearned  incomes.  This  is  of  course  a  travesty  of 
justice. 

The  second  defect  is  that  returns,  instead  of  being  demanded  from 
everyone,  are  required  only  from  the  non-exempt  classes,  that  is, 
from  those  whose  income  exceeds  $i,ooo-$2,ooo  or  $3,ooo-$4,ooo 
respectively.  This,  coupled  with  the  failure  to  compel  a  return  of 
income  from  government  tax-free  bonds,  will  prevent  the  collection 
of  valuable  information  as  to  the  total  social  income  and  its  distri- 
bution. A  return,  including  the  entire  income,  should  be  required, 
as  is  almost  uniformly  the  case  elsewhere,  from  every  citizen. 

Third,  the  provision  as  to  the  calculation  of  losses  and  gains  is 
still  inequitable.  On  any  one  of  the  three  different  theories  of  income 
referred  to  above,  our  present  practice  of  counting  certain  gains  as 
income  and  of  refusing  to  allow  for  corresponding  losses  is  not  only 
indefensible,  but  sure  to  create  gross  inequalities. 

In  the  fourth  place,  the  treatment  accorded  to  dividends  is  highly 
questionable.  Dividends  must  indeed  be  reported  by  individuals  and, 
although  not  subject  to  the  ordinary  normal  tax,  are  liable  to  both  the 
supplementary  normal  tax  and  the  additional  taxes.  A  new  section, 
however,  provides  that  dividends  are  taxable  at  the  rates  prescribed 
for  the  years  in  which  the  corporate  profits  are  accumulated.  This 
is  unjust  because  the  dividends  ought  to  be  considered  income  when 
received,  irrespective  of  when  the  profits  were  earned.    If  the  war 


SOCIAL  REFORM  AND  TAXATION  815 

should  last  several  years  and  be  attended  by  an  increase  of  war  taxes, 
it  is  likely  that  many  wealthy  stockholders  will  escape  by  the  fact  of 
the  corporate  profits  having  been  originally  earned  in  the  period 
before  the  high  taxes  were  imposed.  Moreover  the  law  will  probably 
be  so  complicated  as  not  to  be  easy  of  enforcement.  For  the  rate  of 
the  tax  will  depend  upon  the  amount  of  total  income  in  any  one  year, 
and  the  identical  amount  of  dividend  may  form  an  entirely  different 
proportion  of  that  income  from  year  to  year.  It  will  be  increasingly 
difficult,  therefore,  to  administer  the  provision.  In  the  meantime 
great  confusion  will  ensue. 

The  final  defect  is  that  no  machinery  has  yet  been  devised  to 
check  the  returns  from  individuals  engaged  in  business  or  occupa- 
tions. In  the  case  of  large  corporations  and  partnerships,  as  well  as 
individual  incomes  from  securities,  the  system  of  information-at- 
source,  together  with  the  observance  of  modern  accounting  rules,  will 
in  all  probability  ensure  fair  accuracy  in  the  returns.  But  where 
neither  of  these  safe-guards  is  applicable,  a  large  loophole  is  left 
open.  Where  the  rates  of  taxation  are  as  high  as  at  present,  the 
dangers  of  evasion  are  multiplied ;  and  evasion  means  not  only  loss 
of  revenue  but  inequality.  Much  has  been  done  elsewhere  to  institute 
checks  designed  to  diminish  this  danger.  While  some  of  the  state- 
ments advanced  in  and  out  of  Congress  as  to  the  widespread  evasions 
in  the  present  law  are  clearly  exaggerated,  there  is  still  room  for 
decided  imp-rovement  in  administration. 

360.     The  Excess-Profits  Tax^° 

BY  EDWIN  R.  A.  SELIGMAN 

Although  the  income  tax,  both  old  and  new,  is  designed  to  provide 
about  the  same  revenue  as  the  excess-profits  tax,  the  latter  is  the  novel 
part  of  the  law.    What  is  its  significance? 

The  first  point  to  be  emphasized  is  that  it  is  a  business  tax.  The 
criteria  that  may  be  employed  in  classifying  taxes  are  manifold.  For 
the  purpose,  however,  of  explaining  this  new  impost  it  will  suffice  to 
observe  that  taxes  on  wealth  are  susceptible  of  a  threefold  division. 
The  tax  may  be  on  either  property  or  income,  on  either  Individuals  or 
corporations,  on  either  persons  or  things.  It  is  this  last  distinction 
which  is  of  consequence  here — the  distinction  which  the  lawyers 
make  between  taxes  in  personam  and  in  rem.  Among  the  "things" 
on  which  taxes  may  be  imposed  are  land,  capital,  and  business.  The 
excess-profits  tax  is  one  on  th«  business,  irrespective  of  the  person 
who  conducts  it.    It  is  like  the  real  estate  tax  in  New  York,  assessed 

lOAdapted  from  ibid.,  pp.  25  ff.    Copyright,  1918. 


8i6  CURRENT  ECONOMIC  PROBLEMS 

on  the  land  without  regard  to  the  owner.  The  objection,  therefore, 
is  not  valid  that  because  the  tax  is  imposed  on  profits  it  constitutes 
double  taxation  in  superimposing  one  income  tax  upon  another.  This 
is  the  same  confusion  of  thought  which  has  led  some  writers  to  object 
to  the  inclusion  of  a  corporate  income  tax  in  a  law  which  endeavors  to 
reach  the  entire  income  of  the  individual.  The  corporate  income  tax, 
like  the  excess-profits  tax,  is  a  tax  on  the  business,  not  a  tax  on  the 
individual ;  a  tax  on  a  thing,  not  on  a  person. 

In  the  second  place,  the  excess-profits  tax  is  not  a  war-profits  tax, 
if  by  this  term  we  mean  a  tax  imposed  upon  the  additional  profits 
resulting  from  the  war.  This  constitutes  its  chief  difference  from  the 
war-profits  taxes  levied  in  other  countries. 

The  almost  simultaneous  institution  of  the  war-profits  taxes 
abroad  is  easy  of  compresension.  Never  before  in  the  history  of  the 
world  have  such  gigantic  sums  been  expended  by  belligerents  or  have 
such  collossal  gains  been  made  by  private  individuals  in  belligerent 
and  neutral  countries  alike.  It  was  a  natural  feeling  that  no  private 
enterprise  should  be  permitted  to  make  inordinate  gains  out  of  the 
misery  of  humanity,  and  that  the  community  should  be  entitled  to  a 
great  part  of  the  profits  for  which  no  individual  enterprise  is  really 
responsible.  The  consequence  was  that  the  government  everywhere 
put  in  a  claim  to  a  large  share  of  these  profits  due  to  the  war.  The 
proportion  has  risen  in  some  countries  to  80  or  90  per  cent,  and  the 
war  profits  have  in  general  been  defined  as  the  excess  of  profits  during 
the  war  over  those  during  a  pre-war  period. 

The  reason  which  induced  Congress  to  modify  this  principle  was 
that  not  a  few  of  our  largest  business  enterprises  had  been  making 
immense  profits  in  the  pre-war  period,  and  that,  inasmuch  as  their 
profits,  both  past  and  present,  were  scarcely  being  touched  by  the 
corporate  income  tax,  these  enterprises  would  virtually  be  exempt, 
while  their  more  unfortunate  competitors,  who  had  done  relatively 
poorly  during  the  pre-war  period,  would  be  heavily  burdened.  The 
decision  was  therefore  reached  to  levy  the  tax,  not  on  war  profits  as 
such,  but  on  excess  profits  in  general.  Although  the  tax  is  called  the 
"war  excess-profits  tax,"  the  term  really  means  the  tax  on  excess 
profits  levied  during  the  war,  just  as  the  terms  "war  excise  taxes"  or 
"war  income  tax"  mean  the  respective  taxes  levied  durmg  the  war. 

The  significant  fact,  however,  is  that  nothing  is  said  about  the 
limitation  of  the  tax  to  the  period  of  the  war.  In  the  war-profits 
taxes  abroad  the  taxes  cease  automatically  with  the  end  of  the  war, 
for  where  there  is  no  war  there  can  be  no  war  profits.  It  is  entirely 
possible,  however,  for  our  tax  to  continue  after  the  war,  just  as  it  is 
possible  that  fiscal  exigencies  may  compel  the  continuance,  in  whole 


SOCIAL  REFORM  AND  TAXATION  817 

or  in  part,  hi  our  war  income  tax  or  of  our  war  excises.  It  will  be 
seen,  therefore,  that  we  have  here,  ready  to  hand,  a  potential  source 
of  the  future  income  which  will  be  so  sorely  needed  hereafter,  and 
for  which  European  statesmen  and  publicists  have  been  dimly  groping. 

When,  however,  we  come  to  consider  the  precise  way  in  which 
this  new  business  tax  has  been  worked  out,  we  find  that  it  is  open  to 
serious  criticism.  In  all  the  European  laws  the  taxes  are  not  on  war 
excess  profits  but  on  excess  war  profits  ;  that  is,  on  the  excess  of  war 
profits  over  peace  profits.  Since,  however,  our  plan  is  to  tax  excessive 
profits  in  general  rather  than  the  excess  over  a  pre-war  standard,  the 
criterion  had  to  be  lodged  elsewhere  than  in  pre-war  profits.  Unfor- 
tunately the  criterion  of  normal  profits  is  declared  to  be  a  certain 
percentage  of  the  capital  employed,  the  pre-war  period  being  utilized 
only  incidentally  in  ascertaining  this  normal  percentage.  That  is  to 
say,  in  computing  excess  profits  the  law  takes  the  excess  over  a  so- 
called  deduction  or  normal  amount,  consisting  of  a  fixed  sum  ($3,000 
for  domestic  corporations,  or  $6,000  for  partnerships,  citizens  or 
residents),  together  with  an  amount  equal  to  the  percentage  of  the 
invested  capital  represented  by  the  average  annual  income  during  the 
pre-war  period,  provided  that  this  percentage  shall  in  no  case  be  less 
than  7  nor  more  than  9  per  cent  of  the  capital.  The  pre-war  period 
is  held  to  be  the  period  from  191 1  to  1914.  In  case  the  business  was 
not  in  existence  in  those  years,  the  deduction  is  fixed  at  8  per  cent 
instead  of  the  7-9  per  cent.  And  in  case  there  was  no  income  or  a 
percentage  of  capital  earned  by  a  similar  or  representative  business. 

From  this  base  line  of  normal  profits  are  computed  the  excess 
profits,  the  tax  rising  progressively  with  the  excess,  being  fixed  at 
20  per  cent  on  the  excess  profits  up  to  15  per  cent ;  35  per  cent  on  the 
excess  from  15  to  20  per  cent;  35  per  cent  on  the  excess  from  20  to 
25  per  cent ;  45  per  cent  on  the  excess  from  25  to  33  per  cent ;  and  60 
per  cent  on  the  excess  profits  over  33  per  cent. 

It  is  obvious  that  the  important  point  here  lies  in  the  computation 
of  capital,  for  with  one  exception  income  is  defined  precisely  alike  in 
the  excess-profits  and  the  income-tax  laws.  The  greater  the  amount 
of  the  "invested  capital"  as  compared  with  a  given  income,  the  smaller 
will  be  the  percentage  and  the  tax.  What  constitutes  invested  capital, 
however,  is  so  elusive  as  to  be  virtually  impossible  of  precise  compu- 
tation. Not  only  will  there  be  gross  inequality  between  businesses 
which  enjoy  the  same  income  but  which  are  variously  capitalized,  thus 
putting  extra  taxation  on  small  and  conservatively  capitalized  con- 
cerns, but  all  manner  of  opportunity  will  be  afforded  for  evasion  of 
the  law.  The  effort  made  to  define  capital  in  the  law  is  unavailing. 
Invested  capital  is  defined  as  actual  cash  paid  in,  the  actual  cash  value 


8i8  CURRENT  ECONOMIC  PROBLEMS 

of  tangible  property,  and  the  paid-in  or  earned  surplus  Employed  in 
the  business.  Patents  and  copyrights  are  included  up  to  the  par  value 
of  the  stock  paid  therefor,  and  the  same  rule  is  declared  applicable  to 
the  good-will,  trade-marks,  and  franchises  or  other  intangible  prop- 
erty, provided  that  if  purchased  before  1917  the  amount  is  limited 
to  20  per  cent  of  the  capital.  The  inadequacy  of  these  provisions  is 
manifest. 

It  has  been  contended,  in  defense  of  the  law,  that  it  is  on  the  whole 
immaterial  whether  the  criterion  be  sought  in  income  or  in  capital ; 
for  capital,  we  are  told,  is  nothing  but  capitalized  income.  In  reality, 
however,  capital  is  not  capitalized  income ;  capital  is  the  capitaliza- 
tion, not  only  of  present  income,  but  of  anticipated  future  income, 
which  is  a  very  different  thing.  If,  as  frequently  happens,  the  antici- 
pated future  income  does  not  materialize,  there  is  a  vital  difference 
between  a  tax  on  capital  and  a  tax  on  income.  The  objection  to  the 
law  still  remains,  as  before,  that  the  choice  of  capital  not  only  con- 
stitutes a  clumsy  attempt  to  reach  taxable  ability,  but  introduces  a 
gross  inequality  in  principle  and  a  deplorable  uncertainty  in  adminis- 
tration. While  something  may  no  doubt  be  done  to  clear  up  the 
ambiguities  and  to  remove  some  crass  inequities,  enough  will  remain 
to  deprive  the  measure  of  a  claim  to  scientific  or  practical  validity. 

The  most  serious  objection  to  the  law,  however,  has  yet  to  be 
mentioned.  Even  assuming  that  the  above  difficulties  were  removed, 
that  the  capital  could  be  accurately  estimated,  and  that  it  varied  in 
amount  proportionally  with  the  income  —  even  on  these  unlikely 
assumptions  the  tax  would  still  be  defective. 

This  is  due  to  the  criterion  chosen  for  the  basis  of  the  graduated 
scale.  Something  can  be  said  for  a  graduated  tax  on  income ;  some- 
thing can  even  be  said  for  a  graduated  tax  on  capital ;  but  it  is  difficult 
to  say  anything  in  defense  of  a  tax  which  is  graduated  on  the  varying 
percentage  which  income  bears  to  capital.  To  penalize  enterprise 
and  ingenuity  in  a  way  that  is  not  accomplished  by  a  tax  on  either 
capital  or  income — this  is  the  unique  distinction  of  the  law.  For 
in  the  first  place,  while  it  is  true  that  excess  profits  are  sometimes  the 
result,  in  part  at  least,  of  the  social  environment,  they  are  not  infre- 
quently to  be  ascribed  to  individual  ability  and  inventiveness.  While 
it  is  entirely  proper  that  a  share  of  the  profits  should  go  to  the  com- 
munity, it  is  not  at  all  clear  that  the  tax  should  be  graduated  according 
to  the  degree  of  inventiveness  displayed.  But  there  is  a  still  more 
important  consideration.  Almost  all  large  businesses  have  grown 
from  humble  beginnings,  and  it  is  precisely  in  these  humble  begin- 
nings that  the  percentage  of  the  profits  to  the  capital  invested  is  apt 
to  be  the  greatest.    The  criterion  selected,  therefore,  is  the  one  best 


SOCIAL  REFORM  AND  TAXATION  819 

calculated  to  repress  industry,  to  check  enterprise  in  its  very  incep- 
tion, and  to  confer  artificial  advantages  on  large  and  well-established 
concerns.  Nothing  could  be  devised  which  would  more  effectively 
run  counter  to  the  long-established  policy  of  the  American  govern- 
ment toward  the  maintenance  of  competition. 

What  then  is  the  alternative?  If  the  excess-profits  tax  has  come 
to  stay,  as  is  probably  the  case,  a  slight  change  in  the  criterion 
employed  would  accomplish  the  desired  result.  What  is  needed  is 
that  the  excess-profits  tax  should  become  a  progressive  income  tax. 
It  is  significant  that  this  is  actually  done  already  where  the  capital 
criterion  is  impossible.  The  law  provides  that  in  every  business 
without  any  capital,  or  with  only  a  nominal  capital,  a  tax  of  8  per  cent 
should  be  paid  on  the  income,  in  addition  to  the  income  tax.  This 
provision  has  indeed  the  awkward  result  of  making  earned  income 
pay  at  a  higher  rate  than  unearned  income,  but  it  is  none  the  less 
significant.  The  individual  income  tax  is  levied  on  a  highly  progres- 
sive scale,  but  the  corporate  income  tax  is  proportional.  All  of  the 
desirable  ends  sought  to  be  achieved  by  the  excess-profits  tax  would 
be  reached  by  converting  the  corporate  income  tax  into  a  progressive 
tax.  Graduation  would  then  be  applicable  in  both  cases,  the  only 
difference  being  that  while  the  test  of  ability  to  pay  would  be  sought 
for  the  individuals  primarily  in  the  sacrifice  imposed,  it  would  be 
found  for  the  business  primarily  in  the  privilege  enjoyed. 

361.     A  Tax  on  Luxuries^^ 

The  tax  on  "retail  sales"  is  recommended,  not  only  to  raise 
additional  revenue,  but  for  the  equally  important  purpose  of  dis- 
couraging wasteful  consumption  and  unnecessary  production.  It 
would  be  superfluous  at  this  stage  of  the  war  to  dwell  upon  the 
fact  that  waste  and  extravagance  are  akin  to  treason.  We  pay 
lip  homage  to  this  truth,  but  we  neglect  its  practice.  We  are  not 
yet  cutting  our  personal  budgets  sufficiently  to  make  the  excess  of 
national  production  over  national  consumption  equal  to  the  needs  of 
the  government. 

The  retail-sales  tax  distinctly  labels  the  taxed  article  as  luxurious 
and  serves  notice  that  the  government's  ban  is  upon  it.  The  specific 
tax  on  luxuries,  however,  is  paid  by  the  producer  or  dealer  and  is 
likely  to  reach  the  consumer  concealed  in  the  form  of  an  increased 
price.  At  this  time  it  is  necessary,  not  only  to  tax  extravagance,  but 
to  make  the  tax  known  and  felt  by  the  taxpayer.    It  is  for  this  reason 

^^Adapted  from  a  memorandum  of  possible  sources  of  revenue  suggested 
by  the  Treasury  Department  and  submitted  to  the  Ways  and  Means  Commit- 
tee, 1918. 


820  CURRENT  ECONOMIC  PROBLEMS 

that  despite  some  administrative  objections  a  tax  upon  retail  sales  is 
so  distinctly  worth  while. 

Assuming  the  correctness  of  this  general  attitude,  it  seems  to 
follow  that  the  retail-sales  tax  to  be  effective  must  be  heavy.  The 
really  needy  consumer  is  amply  protected  by  exempting  from  the  tax 
altogether  those  classes  of  articles  which  the  poor  actually  buy  or  need 
to  buy.  Other  articles  must  be  taxed  vigorously  if  the  tax  is  not  to  be 
interpreted  as  legitimatizing  extravagance.  Place  a  20  per  cent  tax 
on  nonessentials  and  the  consumer  will  pause  before  buying.  Impose 
only  a  lo  per  cent  tax  and  he  will  frequently  satisfy  his  conscience  by 
purchasing  the  article  and  paying  the  tax.  This  aspect  of  the  question 
seems  vital.  Whether  20  per  cent  is  high  enough  to  discourage 
extravagance  is  a  question ;  that  10  per  cent  is  too  low,  under  existing 
conditions  admits  of  little  question. 

It  is  highly  important  that  the  consumption  of  unnecessary 
things  be  given  up,  in  order  that  both  capital  and  labor  may  be  liber- 
ated for  the  production  of  those  things  which  the  government  needs 
for  the  prosecution  of  the  war. 

For  the  same  reason,  it  is  important  that  the  usual  consumption 
of  even  necessary  things  should  be  curtailed.  An  industrial  condi- 
tion adapted  to  peace  demands  must  give  place  to  an  industrial 
condition  adapted  to  war  demands  before  the  business  activities  of 
the  nation  can  be  said  to  be  mobilized  for  war.  Processions  and 
brass  bands  cannot  accomplish  this  result,  nor  an  appeal  to  patriotism, 
nor  the  wielding  of  the  big  stick.  There  is  one  way,  and  one  way 
only,  of  attaining  this  result,  and  that  is  through  the  prices  of  things 
that  people  buy. 

If,  now,  the  government  could  secure  a  portion  of  the  revenue  it 
needs  by  taxes  that  work  their  way  into  prices  in  such  a  manner  as  to 
direct  the  consumption  of  the  people,  and,  consequently,  their  pro- 
duction, along  proper  lines,  the  by-product  of  such  a  financial  policy 
would  be  even  more  significant  than  its  direct  product.  Indeed, 
without  this  by-product  no  financial  program  can  succeed.  A  sound 
financial  policy  alone  will  not  obtain  the  needed  funds,  nor  obtain 
them  in  such  a  way  that  future  revenues  may  be  taken  from  the  same 
source;  a  sound  financial  policy  must,  in  addition  to  such  results, 
exert  a  positive  influence  for  the  accomplishment  of  that  industrial 
readjustment  which  the  advent  of  a  great  war  makes  necessary.  The 
federal  income-tax  laws  have  no  such  influence,  and  for  this  reason 
are  to  be  condemned  as  exclusive  war  taxes. 

The  general  conclusion  of  the  foregoing  comments  may  be  sum- 
marized as  follows: 


SOCIAL  REFORM  AND  TAXATION  821 

The  initial  burden  of  a  war  is  in  the  industrial  transition  from  a 
condition  of  peace  to  a  condition  of  war.  Every  act  of  government 
that  touches  business,  and  especially  taxation,  should  be  shaped  to 
the  accomplishment  of  that  transition.  The  excess-profits  and  dif- 
ferential income  taxes  are  over  the  top  of  the  problem,  and,  conse- 
quently, are  incompetent  as  war  taxes.  The  new  war  taxes  to  be 
passed  by  the  present  congress  ought  to  be  written  from  a  more 
comprehensive  point  of  view.  They  ought  to  be  regarded  as  a  part 
of  a  systematic  program  of  war  financiering. 

362.     The  New  Revenue  Tax^- 

BY  THOMAS  SEWALL  ADAMS 

The  Revenue  Act  of  19 18  will  impress  the  student  of  financial 
history  as  a  signal  victory  for  certain  theories  of  taxation  which  a  few 
years  ago  were  regarded  as  "socialistic."  Within  a  quarter  of  a 
century  Justice  Field  pronounced  an  income-tax  law  socialistic  and 
unconstitutional  because  it  exempted  incomes  of  less  than  $4,000 
from  the  2  per  cent  burden  it  imposed  upon  larger  incomes.  But  the 
Revenue  Act  of  1918,  designed  to  produce  in  the  first  twelve  months 
of  its  operation  $5,788,260,000,  will  raise  more  than  80  per  cent  of 
this  sum  from  progressive  income  taxes. 

The  estimates  are  worthy  of  notice.  The  war-profits  and  excess- 
profits  tax — a  form  of  income  taxation  unknown  five  years  ago — is 
expected  to  raise  $2,500,000,000,  or  43  per  cent  of  the  entire  tax 
budget.  The  income  taxes  proper,  individual  and  corporate,  will 
raise  $2,207,000,000  additional,  or  37  per  cent  of  the  tax  budget. 
"Ability"  taxes,  therefore,  account  for  more  than  81  per  cent  of 
the  entire  tax  levy.  If  we  add  progressive  estate  or  inheritance  taxes 
the  proportion  rises  to  more  than  82  per  cent ;  and  if  we  add  further 
the  excises  on  beverages,  tobacco,  and  other  luxuries,  together  with 
taxes  on  admissions  and  dues,  we  account  for  nearly  94  per  cent  of 
this  colossal  tax  bill,  leaving  only  about  6  per  cent  to  be  provided  by 
taxes  on  transportation  and  on  necessary  processes  of  production  and 
commerce.  Practically  no  tax  is  laid  upon  articles  of  actual  neces 
sity.  Contrast  this  with  the  tax  program  of  the  Civil  War  and  we 
find  much  reason  for  congratulation.  The  new  revenue  bill  may  be 
full  of  imperfections,  but  it  represents  a  striking  victory  for  ability 
taxation  and  democratic  finance. 

The  most  important  feature  of  the  new  law  is  the  striking  advance 
in  rates.    Income-tax  rates  have,  for  most  taxpayers,  been  more  than 

^^Adapted  from  an  article  with  the  foregoing  caption  in  the  Nation,  CVIII, 
316-17.    Copyright,  1919. 


822  CURRENT  ECONOMIC  PROBLEMS 

doubled.  The  taxpayer  having  a  wife  but  no  children  will  pay,  on 
an  income  of  $3,000,  $60  under  the  Revenue  Act  of  1918  as  com- 
pared with  $20  under  that  of  191 7;  on  $10,000,  $830  as  contrasted 
with  $350;  and  on  $100,000  $35,O30»  as  contrasted  with  $16,180. 

On  moderate  incomes  we  have  possibly  been  too  lenient,  but  on 
the  very  rich  the  rates  are  probably  too  high  for  successful  collection. 
There  are  outstanding  in  this  country  probably  five  or  six  billion 
dollars  of  tax-exempt  securities  in  which  the  rich  can  freely  invest 
their  money  without  fear  of  taxation,  and  rates  of  70  per  cent  or 
more  merely  drive  them  to  make  such  investment  and  to  practice 
illicit  as  well  as  authorized  methods  of  evasion.  The  income-tax 
rests  largely,  for  its  successful  administration,  upon  the  honesty  of 
the  taxpayer,  who  is,  all  things  considered,  surprisingly  honorable  in 
his  dealings  with  the  tax  official;  but  rates  which  impress  him  as 
excessive  undermine  his  morale.  He  will  evade  a  50  per  cent  tax 
where  he  would  not  evade  one  of  15  per  cent. 

While  the  rates  of  the  new  income  tax  are  high,  the  law  is  plenti- 
fully besprinkled  with  what  have  come  to  be  called  "cushions."  The 
new  law  makes  adequate  allowance  for  obsolescence  m  general  and 
for  amortization  of  the  extraordinary  costs  of  war  plant.  Falling 
inventories  have  also  been  provided  for.  One  of  the  most  striking 
departures  of  the  new  law  is  the  provision  authorizing  a  credit  for 
taxes  paid  in  foreign  countries.  Many  other  instances  might  be 
cited  of  the  solicitous  care  to  soften  the  mechanical  rigor  of  federal 
income  laws. 

Some  of  the  more  radical  advocates  of  heavy  taxation  have  been 
disposed  to  criticise  this  solicitude,  interpreting  such  action  as  a 
concession  to  big  business.  This  criticism  is  doubly  mistaken.  The 
exemption  of  individuals,  partnerships,  and  personal  service  corpo- 
rations from  the  profits  tax ;  the  limitation  of  the  surtaxes  on  profits 
derived  by  the  prospector  from  the  sale  of  mineral  and  oil  properties 
which  he  has  discovered  or  developed ;  the  limitation  of  the  profits 
tax  on  the  first  $20,000  of  taxable  income  show  that  Congress  has 
been  more  lenient  with  the  small  than  with  the  large  taxpayer. 

But  there  is  also  a  major  question  of  financial  policy  involved. 
Advocates  of  high  income  and  profits  taxes  should  be  the  first  to  pro- 
test against  the  taxation  of  receipts  which  are  sometimes  called 
income  or  profits  but  which  are  not  in  reality  income  or  profits  of 
the  kind  from  which  heavy  taxes  can  be  taken.  When  tax  rates 
are  low  you  can  muddle  through  without  much  respect  for  the  finer 
equities.  But  when  the  tax  rates  reach  75  and  80  per  cent,  the  in- 
herent complexities  of  income  taxation  must  be  recognized,  or  tax- 
payers will  be  bankrupted  by  the  tax — and  in  no  democracy  can  a  tax 


SOCIAL  REFORM  AND  TAXATION  823 

long  endure  which  regularly  "breaks"  a  material  percentage  of  the 
tax-paying  population.  So  long  as  relief  provisions  are  based  upon 
equity  and  actual  knowledge  of  the  involved  conditions  of  actual 
business,  it  will  be  practically  impossible  to  multiply  them  unduly. 
With  them,  progressive  income  and  profits  taxes  may  perhaps  pro- 
vide the  foundations  for  a  liberal  democratic  finance.  Without  them, 
these  fiscal  instruments  become  transformed  into  engines  of  de- 
struction. 

The  new  revenue  act  is  the  bill  of  no  one  man  and  no  one  party, 
but  the  joint  production  of  many  minds  and  many  influences.  It  is 
a  characteristic  product  of  democratic  financial  procedure,  and  has 
the  defects  of  its  qualities.  Few  tax  laws  in  the  history  of  this  or 
any  other  country  bear  greater  evidence  of  a  desire  to  accomplish 
discriminatingly  exact  justice,  and  it  is  this  effort  to  do  justice  in 
the  exceptional  case  that  accounts  for  the  oppressive  complexity  of 
the  new  measure.  It  is  easy  to  demand  tax  laws  which  shall  be  sure 
and  simple,  explicit  and  certain,  but  the  day  of  simple  tax  laws  has 
probably  passed.  A  corporation  fortunate  enough  to  earn  30  per  cent 
on  its  capital  will  now  in  most  cases  pay  in  profits  and  income  taxes 
more  than  half  of  its  earnings,  to  say  nothing  of  the  capital-stock  tax 
and  the  surtaxes  imposed  upon  any  dividends  paid  to  stockholders. 
The  law  which  imposes  such  a  burden  must  be  framed  with  meticu- 
lous care.    Simplicity  must  give  way  to  the  complexity  of  truth. 

D.     TENDENCIES  IN  FINANCE 
363.     Standardizing  Expenditure^^ 

BY    WILLIAM    LEAVITT   STODDARD 

It  is  a  very  fortunate  thing  for  all  concerned  that  there  is  onlj 
one  Ways  and  Means  Committee  for  the  House  of  Representatives. 
Just  now  the  casual  visitor  to  the  capitol  will  find  that  committee 
sitting  every  fine  morning,  holding  hearings  on  the  bill  which  is  to 
raise  revenue  for  the  prosecution  of  the  war.  If  Congress  raised  its 
money  as  it  expends  it,  instead  of  one  Ways  and  Means  Committee 
there  would  be  half  a  dozen,  each  with  a  different  name :  A  com- 
mittee on  revenue,  a  committee  on  income  from  the  territories,  a 
committee  on  supplying  the  treasury,  and  so  on.  But,  broadly  speak- 
ing, it  is  true  that  the  task  of  raising  revenue  directly  is  intrusted 
to  just  one  group  in  the  House.  In  the  Senate  it  is  intrusted  to  the 
Finance  Committee. 

i^Adapted  from  "Congress  Needs  a  Budget,"  the  Independent,  XCIV, 
508-9.    Copyright,  1918. 


824  CURRENT  ECONOMIC  PROBLEMS 

If  there  is  one  revenue-raising  committee  for  each  branch  of 
Congress,  if  Congress  has  one  bookkeeper  for  the  work  of  securing 
funds  and  defining  tax  poHcy,  why  does  not  and  cannot  Congress 
have  one  bookkeeper  for  the  work  of  appropriating  the  expenditures 
of  the  nation?  Better  still,  why  not  have  a  single  bookkeeping  com- 
mittee charged  with  the  duty  of  regulating  income  and  outgo?  Why 
not  go  the  whole  way  and  be  businesslike  ?  Why  not,  in  short,  have 
a  budget  system  and  a  budget  committee  ? 

Only  a  few  weeks  ago  a  little  incident  occurred  which  shows  what 
kind  of  trouble  Congress  can  get  itself  into  by  reason  of  its  unbusi- 
nessHke  accounting  methods.  It  was  announced  in  Congress  that  the 
War  Department  wanted  about  $15,000,000,000  for  the  next  year. 
This  figure  was  arrived  at — or  was  intended  to  be  arrived  at — ^by 
adding  up  the  estimates  submitted  by  the  War  Department  to  the 
House.  It  is  not  clear  to  whom  the  estimates  were  sent,  but  it  is 
clear  that  two  committees  were  concerned,  the  Military  Affairs 
Committee  and  the  Appropriations  Committee.  The  first-named 
committee  frames  the  bill  known  as  the  army  appropriation  bill,  the 
second  the  fortifications  bill.  Both  bills  appropriate  money  for  de- 
fense but  they  are  separate  bills.  And  the  committees  operate  sepa- 
rately. 

Because  of  the  fortunate  employment  of  statisticians  by  the  two 
committees  who  happened  to  hold  converse  together,  it  was  discov- 
ered that  the  War  Department  was  not  asking  for  fifteen  billions ; 
it  was  only  asking  for  $1,771,666,847  and  some  odd  cents.  It  seems 
that  the  same  provision  for  coast  fortification  had  been  inserted  in 
each  bill,  and  had  therefore  been  added  up  twice.  Needless  to  say 
the  error  was  corrected.  But  it  might  not  have  been  found  until  the 
bills  had  been  passed. 

Everybody  who  has  thought  about  the  matter  at  all  knows  that 
Congress  needs  a  budget  system.  An  expert  commission  in  President 
Taft's  day  recommended  it,  and  for  some  time  there  was  a  good  deal 
of  agitation,  but  it  got  nowhere.  President  Wilson  has  urged  it, 
but  there  has  been  no  action  on  the  part  of  Congress.  The  basic 
reason  why  Congress  does  nothing  is  conservatism,  opposition  to 
change,  the  political  theory  of  let-well-enough-alone-haven't-we- 
always-worried-through-somehow-before-this?  In  addition  there  is 
the  natural  distrust  of  able  and  experienced  men,  accustomed  to 
handle  things  one  way. 

A  failure  to  understand  Congress  is  largely  responsible  for  the 
failure  of  a  national  budget.  The  efficiency  experts  on  Mr.  Taft's 
commission  performed  a  magnificent  piece  of  work  which  came  to 
naught.    They  offended  Congress  by  offending  powerful  individuals 


SOCIAL  REFORM  AND  TAXATION  825 

in  Congress.  They  tried  to  force  Congress  to  do  something  which 
it  did  not  understand,  was  by  nature  opposed  to  do,  and  would  prefer 
to  do  by  its  own  apparent  initiative. 

Congress  possesses  a  pecuHar  psychology,  and  the  most  successful 
president  is  he  who  understands  it  and  who,  by  that  understanding, 
is  able  to  secure  the  adoption  of  his  pet  measure.  Events,  properly 
guided,  will  carry  the  budget  with  them.  A  possible  solution  may  be 
found  in  this :  A  centralized  budget  committee  does  not  necessarily 
require  the  abandonment  of  all  the  little  appropriating  committees. 
It  merely  means  the  centralization  of  their  plans  and  decisions  in  one 
switch-board,  which,  being  central,  will  have  knowledge  and  facilities 
for  competently  adjudicating  between  demands  and  appropriating 
sums.  By  common  consent — a  means  by  which  there  is  much  done 
extra-legally  these  days — the  President  can  secure  the  formation  of 
an  informal  centralized  budget  committee  from  powerful  members 
of  the  House,  and  can  suggest  to  them  the  advisability  of  meeting, 
say,  with  a  central  executive  budget  committee  representing  the  ex- 
ecutive departments.  Such  a  move  would  cut  miles  of  red  tape  and 
involving  precedent.  It  would  be  the  sensible,  business-like  way  of 
doing  the  job.  It  would  preserve  honest  pride  and  legitimate  preju- 
dice, and  would,  moreover,  fully  recognize  the  delicate  psychology 
of  the  patient. 

The  budget  is  coming,  whether  by  this  way  or  another,  it  makes 
little  difference. 

364.     Spheres  of  Taxation  '* 

The  action  of  Congress  in  adopting  at  the  close  of  the  session  the 
so-called  "revenue"  bill  marks  another  definite  stage  in  the  develop- 
ment of  the  new  system  of  taxation  necessitated  by  actual  and 
prospective  outlay  for  national  defense. 

The  striking  aspect  of  the  new  tax  measure  is  found  in  the  cir- 
cumstance that  it  apparently  represents  a  definite  adherence  on  the 
part  of  the  federal  government  to  direct  taxation  along  lines  that  are 
already  being  followed  by  the  states  as  the  main  avenue  through 
which  their  current  means  of  support  are  to  be  obtained.  It  is  true 
that  the  income  tax,  both  corporate  and  individual,  has  now  been  on 
the  statute  books  for  some  three  years,  and  that  in  other  particulars 
direct  taxation  has  been  employed  since  the  present  national  crisis 
developed  and  upon  former  occasions  of  emergency  or  trouble. 
Nevertheless,  there  has  always  been  the  belief  in  most  quarters  that 
these  taxes  would  not  constitute  a  permanent  feature  of  federal 

^^Adapted   from   "Washington   Notes,"  Journal   of  Political  Economy, 
XXV,  385-87.    Copyright  by  the  University  of  Chicago,  1917. 


826  CURRENT  ECONOMIC  PROBLEMS 

finance,  perhaps  with  the  exception  of  the  income  tax,  but  that 
eventually  there  would  be  a  recurrence  to  indirect  taxation.  While  of 
course  it  is  true  that  a  change  in  administration  at  some  time  in  the 
future  may  result  in  such  an  alteration  of  policy  as  is  thus  con- 
templated, it  is  also  true  that  no  such  change  will  occur  for  four  years 
to  come,  and  that — more  important  than  this — the  country  is  ap- 
parently placing  itself  upon  a  new  and  very  much  higher  level  of 
expenditure.  Unless  general  world-disarmament  should  come  at  the 
close  of  the  war,  there  seems  little  reason  to  expect  a  very  great 
lessening  of  federal  expenditure  for  military'  and  naval  purposes. 

If  it  be  supposed,  therefore,  that  the  federal  government  has 
definitely  committed  itself  to  a  fairly  large  program  of  direct  taxation, 
in  most  of  the  states  will  necessarily  recur  the  question  how  to  read- 
just their  own  taxes  accordingly.  The  present  program  seems  to  sug- 
gest considerable  danger  of  duplication  and  of  injustice,  conditions 
which  in  all  such  cases  injure  the  tax-producing  owner  of  the  com- 
munity, besides  being  a  great  source  of  dissatisfaction  among  con- 
tributors. Moreover,  the  question  is  quite  certain  to  become  acute 
whether  all  grades  of  government  can  be  considered  warranted  in 
the  attempt  to  obtain  the  bulk  of  their  incomes  through  direct  taxa- 
tion, particularly  when  so  large  an  extension  is  made  in  income 
taxation.  Thus  there  seems  reason  for  expecting  even  a  worse  con- 
fusion of  tax  legislation  in  the  United  States  than  has  heretofore 
exhibited  itself,  and  this  probably  without  any  interest  on  the  part 
of  legislators  to  bring  about  such  an  condition. 

As  is  well  known,  there  has  never  been  in  federal  finance  any  well- 
organized  or  far-sighted  program  of  fiscal  management,  although 
for  years  past  the  need  for  such  a  program  has  been  frequently  urged. 
Committees  of  Congress  have  acted  in  emergencies  upon  the  basis 
of  expediency,  arranging  to  get  what  they  could  by  the  least  trouble- 
some method.  The  states,  meanwhile,  as  is  well  known,  are  largely 
cut  off  from  indirect  sources  of  taxation,  owing  to  constitutional 
limitations  upon  their  power.  This  represents  a  situation  which  can 
be  corrected  only  through  the  employment  by  the  federal  government 
of  indirect  taxation  as  a  make- weight  or  offset,  its  direct  taxes  being 
adjusted  to  those  of  the  states  in  such  a  way  as  to  leave  the  field  as 
nearly  free  as  possible  for  the  latter. 

Conditions  of  this  kind  are  not  easy  to  bring  to  public  attention  in 
a  prompt  and  effective  way,  while  the  lack  of  harmony  and  uniformity 
on  the  part  of  state  legislatures  is  too  well  known  to  require  more 
than  passing  mention.  In  the  absence  of  some  new  method  of  bring- 
ing about  the  adoption  of  a  general  program  for  the  readjustment 
of  taxation  and  its  division  on  equitable  lines  between  national,  state, 


SOCIAL  REFORM  AND  TAXATION  827 

county,  and  municipal  governments,  there  is  but  too  much  reason 
to  fear  the  development  of  even  more  conflicting  and  unsatisfactory 
conditions  in  this  regard  than  have  been  characteristic  heretofore. 

365.     Public  Capitalization  of  the  Inheritance  Tax^^ 

BY  ALVIN   JOHNSON 

There  are  new  burdens  to  be  assumed,  and  tremendous  ones,  just 
over  the  present  horizon  of  the  state.  Pensions  for  the  superan- 
nuated and  disabled,  relief  for  the  sick,  reformation  of  the  outcast, 
subsidies  for  indigent  motherhood,  conservation  of  child  life  and 
of  the  human  resources  we  now  neglect  through  parsimony  in  educa- 
tional effort  are  among  the  burdens  which  the  state  will  in  the  end 
be  forced  to  assume.  Whether  we  approve  or  disapprove  of  the  state 
assumption  of  responsibilities  of  this  nature,  as  dispassionate  ob- 
servers of  historical  tendencies  we  are  compelled  to  admit  that  in 
every  modern  state  the  party  of  "social  reform"  is  making  rapid  head- 
way. There  is  in  the  existing  social  constitution  no  opposing  force 
powerful  enough  to  prevent  the  ultimate  realization  of  part,  if  not  of 
the  whole,  of  the  program  of  the  social  reformers.  With  the  new 
fiscal  burdens  that  will  have  to  be  assumed,  new  sources  of  revenue 
must  be  found,  or  old  sources  must  be  made  more  fruitful.  It  is  a 
realization  of  this  situation  that  fixes  the  eye  of  the  democracy  upon 
the  vast  mass  of  wealth  passing  each  year  from  the  able  hands  of  its 
accumulators  to  the  hands  of  all  but  passive  heirs.  What  profit  shall 
the  democracy  fix  for  itself  on  death's  turnover? 

To  Adam  Smith  and  his  immediate  successors  the  inheritance  tax 
presented  one  serious  defect:  it  is  an  unthrifty  tax,  falling,  not  upon 
"revenue,"  but  upon  capital,  and  hence  tends  to  deplete  the  national 
stock  of  parent  wealth.  If  this  view  of  the  matter  is  valid,  the  prog- 
ress of  inheritance  taxation  as  a  source  of  ordinary  revenue  cannot 
be  regarded  as  an  unmixed  good.  Admitting,  as  we  must,  that  the 
maintenance  of  the  capital  stock  is  not  in  itself  the  highest  end  of 
social  policy,  and  that  we  must  at  times  accept  capital  depletion  as 
the  legitimate  cost  of  a  higher  good,  we  are  yet  not  justified  in  over- 
looking the  fact  that  the  dissipation  of  accumulated  capital  is  a  social 
cost  which  should  be  reduced  to  a  minimum,  so  far  as  this  is  possible. 
This  point,  I  assume,  scarcely  needs  argument,  as  the  social-economic 
value  of  thrift  is  one  of  the  best-established  values  of  economic 
theory. 

The  inheritance  tax  rests  upon  the  entire  mass  of  wealth,  includ- 
ing that  which  originates  in  unearned  increment  as  well  as  that  which 

^"Adapted  from  "Public  Capitalization  of  the  Inheritance  Tax,"  Journal  of 
Political  Econo7ny,  XXll  (1914),  160-80. 


828  CURRENT  ECONOMIC  PROBLEMS 

originates  in  saving.  But  the  state  does  not  take  from  a  given  in- 
heritance proportionate  shares  of  the  lands,  reproducible  goods,  fran- 
chises, and  other  privileges  that  compose  it.  The  public  authority 
demands  money,  and  this  is  drawn,  in  one  way  or  another,  from 
liquid  capital.  The  whole  of  the  inheritance  tax,  then,  is  paid  out  of 
the  fund  of  fluid,  mobile  capital,  which  is  the  sole  financial  basis  of 
the  goods  which  conserve  or  increase  our  productive  equipment — the 
fund  of  which  it  may  properly  be  said  that  it  originates  in  saving. 

With  rates  of  inheritance  taxation  so  light  and  accumulations  so 
large  as  they  are  in  most  of  our  states,  the  tendency  of  such  taxes 
to  trench  upon  accumulated  capital  may  be  almost  negligible.  But 
it  would  be  hazardous  to  assume  that  accumulation  in  the  United 
States  can  continue  indefinitely  at  the  present  rate.  Our  large  sav- 
ings from  income  may  be  explained,  in  part  at  least,  by  economic 
conditions  which  are  manifestly  transitory.  Our  working  class,  re- 
cently transplanted  from  a  less  fertile  economic  field,  secure  incomes 
in  excess  of  their  accustomed  needs,  and  accordingly  have  a  surplus 
for  accumulation.  Our  men  of  wealth,  newly  enriched,  have  not, 
as  a  class,  acquired  the  art  of  luxurious  consumption.  Their  incomes 
outrun  their  expenditures,  and  the  surplus  accumulates  without  active 
eflFort  on  their  part.  New  opportunities  presented  by  nature  or  created 
by  society  have  always  been  available  and  have  served  as  an  addi- 
tional stimulus  to  thrift.  One  cannot  gain  title  to  a  homestead,  one 
cannot  seize  and  exploit  coal  lands  or  street-railway  franchises,  with- 
out the  control  of  funds  accumulated  from  income.  Rarely,  in  a 
rapidly  developing  economic  state,  is  it  possible  for  an  entrepreneur 
to  draw  from  pre-existing  funds  all  the  capital  requisite  to  a  full 
exploitation  of  his  opportunities.  He  must  supplement  the  funds 
which  he  already  owns  and  those  which  he  can  borrow  with  funds 
saved  from  his  current  income,  if  he  is  unwilling  to  forego  many 
chances  of  great  profit.  "Unearned  increment"  thus  serves  as  a 
premium  upon  thrift. 

As  our  economic  conditions  become  more  settled  the  unearned 
increment  loses  much  of  its  potency  as  a  stimulus  to  thrift.  Further- 
more, our  laborers  are  raising  their  standards  of  living  and  our 
capitalists  are  learning  the  ways  of  a  society  which  knows  how  to 
spend  its  income.  How  soon  the  rate  of  accumulation  will  begin 
to  decline,  and  how  rapid  the  decline  will  be,  we  need  not  attempt 
to  predict.  For  our  present  purpose  it  is  sufficient  to  point  out  that 
a  tax  rate  which  would  today  absorb  20  per  cent  of  our  annual  ac- 
cumulations would  absorb  a  much  larger  percentage  of  the  annual 
accumulations  of,  say,  1964. 


SOCIAL  REFORM  AND  TAXATION  829 

Granted,  then,  that  the  evil  of  unthrifty  inheritance  taxes  is 
neghgible  at  the  present  time,  when  the  taxes  are  light  and  the  rate 
of  accumulation  is  high.  Such  taxes,  nevertheless,  are  destined  to 
become  heavier  and  the  rate  of  accumulation  is  destined  to  become 
less.  The  evil,  obviously,  is  one  which  has  the  capacity  of  growing 
into  importance. 

If  the  inheritance  tax  is  indeed  affected  with  the  vice  of  unthrift 
and  if  the  defect  may  lead  to  such  serious  consequences  as  have  been 
indicated,  it  might  be  thought  to  be  a  part  of  wisdom  to  abandon  the 
tax  altogether,  or  to  restrict  it  to  so  narrow  a  range  that  its  power 
of  destroying  accumulated  capital  would  be  negligible.  To  propose 
such  a  restriction  of  the  tax,  however,  would  be  idle,  in  view  of  the 
powerful  social  and  political  forces  to  which  its  development  responds. 
Economists  may  urge  the  necessity  of  capital  conservation,  but  the 
democracy  will  be  slow  to  recognize  such  necessity,  so  long  as  the 
alternative  to  a  policy  of  public  dissipation  of  capital  is  the  perpetua- 
tion of  vast  private  estates.  Must  we  accept  this  alternative?  There 
seems  to  be  no  good  reason  why  we  should.  There  is  nothing  in  the 
nature  of  the  state  which  requires  it  to  assume  the  role  of  a  prodigal 
heir  who  squanders  his  inheritance  upon  current  needs  instead  of 
administering  it  prudently  with  a  view  to  its  future  increase.  The 
state  can  adopt  the  same  policy  which  every  prudent  person  recom- 
mends to  the  private  heir.  It  can  treat  capital  acquired  through 
inheritance  as  a  fund  to  be  maintained  intact.  Let  the  state  set  apart, 
as  a  permanent  investment  fund,  the  proceeds  of  all  inheritance  taxes, 
and  depletion  of  the  natural  capital  will  at  once  cease. 

The  public  capitalization  of  the  inheritance  tax  would  tend  to 
conserve  the  national  stock  of  productive  wealth.  It  is  a  policy  that 
would  encounter  no  insuperable  administrative  difficulties ;  it  would 
not  seriously  prejudice  the  interests  of  the  private  investor.  Politically 
and  socially  such  a  policy,  if  it  has  potentialities  for  qvil,  would  appear 
to  have  far  greater  potentialities  for  good. 

There  is  manifestly  nothing  revolutionary  in  principle  in  a  capital 
fund  owned  and  managed  by  the  state  for  the  benefit  of  a  particular 
public  service.  Public  and  semi-public  endowment  funds  now  in 
existence  in  this  country  amount,  in  the  aggregate,  to  an  imposing 
sum.  We  are  living  in  an  epoch  in  which  the  funded  endowment  is 
employed  with  growing  frequency.  There  is  an  increasing  reluctance 
on  the  part  of  private  donors  to  contribute  funds  merely  for  current 
expenditures ;  there  is  an  increasing  tendency  on  the  part  of  public 
and  semi-public  institutions  to  transform  extraordinary  current 
receipts  into  permanent  endowment.  Not  on  principle,  then,  can  a 
plan  of  the  permanent  endowment  of  a  public  service  be  treated  as 


830  CURRENT  ECONOMIC  PROBLEMS 

revolutionary.  If  there  is  anything  revolutionary  in  the  plan,  it  must 
consist  solely  in  the  magnitude  of  the  operations  that  it  would  entail. 
Defenders  of  an  economic  system  based  upon  the  principle  of 
private  property  must  admit  that  at  two  points  their  position  is  de- 
cidedly weak:  the  private  enjoyment  of  funded  income,  and  the 
private  burden  upon  the  worker  of  mischances  against  which  it  is 
impossible  for  him  to  make  provision.  The  private  recipient  of  an 
absolutely  secure  funded  income  is  freed  from  the  necessity  of  ex- 
ercising the  skill  and  foresight  which  serve,  in  general,  as  an  ethical 
basis  for  the  defense  of  private  property.  The  active  manager  of  an 
industrial  capital  finds  his  position  morally  weakened  by  the  fact 
that  his  property  income  is  assimilated,  in  the  social  consciousness, 
to  that  of  the  functionless  "remittance  man."  However  much  we 
may  approve  of  the  policy  of  throwing  upon  each  able-bodied  man 
the  responsibility  for  finding  means  of  self-support,  we  must  admit 
that  hundreds  of  thousands  of  our  workingmen  are  exposed  to 
chances  against  which  they  can  make  no  adequate  provision.  For 
hundreds  and  thousands  of  our  city  workers,  the  only  escape  from 
an  indigent  old  age  is  premature  death.  For  hundreds  of  thousands 
of  families,  the  death  of  the  chief  breadwinner  means  the  maiming 
of  children's  lives  almost  past  recovery.  A  system  which  permits 
such  evils  is  surely  not  free  from  moral  weakness.  Now,  the  general 
tendency  of  the  policy  which  I  propose  is  to  divert  to  the  state  part 
of  the  funded  income  of  society  from  the  private  recipients  in  whose 
hands  it  subserves  no  useful  purpose,  and  to  charge  upon  it  precisely 
those  burdens  by  which  the  weak  are  now  crushed.  Not  by  the 
rough  method  of  expropriation,  however,  but  by  a  method  which  is 
legal  as  well  as  ethical,  and  which  entails  no  sacrifice  of  the  future  to 
present  gain.  The  public  capitalization  of  inheritance  taxes  would 
result  in  an  accumulation  of  funds  which  would  be  gradual,  and  it 
would  hence  leave  opportunity  for  the  development  of  efficient  means 
of  administration.  Under  this  plan  public  accumulations  would  con- 
stantly increase ;  but  their  increase  could  never  become  so  great  as  to 
restrict  the  field  of  private  property  unless  private  accumulations 
should  come  to  a  standstill  and  opportunities  for  private  exploitation 
should  fail. 


XVI 
COMPREHENSIVE  SCHEMES  OF  REFORM 

"Social  unrest"  is  not  an  exclusive  and  prized  possession  of  Modern 
Industrialism.  The  voice  of  prophet,  of  seer,  or  reformer,  has  long  been  heard 
in  the  land,  condemning  the  prodigal  waste  of  the  rich,  the  unjust  distribution 
of  "the  common  store  of  earthly  wealth,"  the  institutions  which  "create  and 
perpetuate  artificial  class  differences,"  and  the  "tangled  scheme  of  human 
affairs"  which  we  call  life.  Peculiar  as  are  the  voices  condemning  the  society 
we  know,  they  are  like  those  of  other  times  in  demanding  "a  way  out." 

That  all  is  not  good  is  clearly  realized  by  even  the  most  stalwart  of  indi- 
vidualists. In  devious  ways  they  would  guide  us  out  of  the  social  wilderness. 
One  would  leave  "natural  selection"  to  "eliminate  the  unfit,"  to  free  us  from 
"the  spawn  of  earth,"  and  to  make  us  a  happier  society  by  making  us  a  better 
people.  Another  would  substitute  a  large  program,  and  a  still  larger  spirit,  of 
co-operation  for  "the  sordid  greed  of  competition"  that  "makes  chaos  of  eco- 
nomic cosmos."  The  Utopian  dreams  of  co-operation,  however,  have  recently 
been  blighted  by  a  cool  analysis  which  shows  that  its  promises  are  bright  but 
not  spectacular.  Most  prominent  just  now  is  the  program  of  those  wise  in  the 
lore  of  business  who  promise  a  transformed  society  through  the  magic  of 
profit-sharing,  "scientific  management,"  and  "welfare  work."  Give  them  con- 
trol of  technique,  organization,  and  working  conditions,  and  they  will  fill  the 
land  with  plenty,  the  while  raising  labor  to  a  pinnacle  before  undreamed  of. 
Through  their  superimposed  scheme  the  unwilling  laborer  is  to  be  fed,  clothed, 
housed,  recreated,  amused,  educated,  and  introduced  into  a  new  paradise.  If 
he  fails  to  get  what  he  wants — if  industrial  democracy  fails  of  realization — • 
he  will  at  least  get  what  is  good  for  him.  A  supreme  pre-wisdom  will  supplant 
his  shortsightedness. 

But  the  non-individualists  are  even  more  bent  upon  a  transformation  of 
industrial  society.  One  program  of  reconstruction,  a  program  inherent  in  the 
activity  of  a  number 'of  groups,  rather  than  consciously  formulated,  is  well 
under  way.  It  is  evident  in  the  tendency  toward  government  regulation — 
and  even  ownership — of  railroads  and  capitalistic  monopolies;  in  the  proposal 
to  choose  our  own  population  by  a  regulation  of  births  and  of  immigration; 
in  the  attempt  through  state  action  to  eliminate  economic  insecurity;  in  the 
growth  of  a  spirit  of  group  solidarity  so  apparent  in  unionism ;  in  a  formal 
modification  of  the  "fundamental"  institutions  of  society,  and  informal  change 
through  taxation  and  social  convention.  The  extent  to  which  this  program  will 
be  realized — and  whither  it  is  tending — only  the  future  can  reveal. 

A  more  drastic  program,  springing  from  a  similar  philosophy,  is  pre- 
sented in  socialism.  Its  strength  lies  partly  in  the  "righteous  indictment"  which 
it  can  make  against  the  "capitalistic  organization  of  society,"  and  partly  in  the 
sublime  faith  which  the  classes  to  which  it  appeals  have  in  the  efficacy  of 
elaborate  social  machinery  to  eliminate  social  evils.  The  analysis  of  society 
made  by  most  of  its  advocates  is  immediate,  and  loses  sight  of  several  "long- 
time" considerations,  such  as  control  of  numbers  and  the  accumulation  of 
capital.  Socialism,  however,  is  losing  its  militancy.  As  its  numbers  increase, 
it  is  less  and  less  disposed  to  "see  red."  In  its  latest  manifestations  it  has 
become  conventionally  "respectable."  It  is  hard  to  distinguish  between  the 
"evolutionary  socialist"  of  today  and  the  out-and-out  progressive.  The  radical 
members  are  leaving  the  ranks  of  socialism  to  fight  for  "something  worth 
while"  with  the  syndicalists  and  "the  revolutionary  unionists."  To  find  the 
radical  spirit  of  protest  we  must  turn  to  these  latter  organizations. 

831 


832  CURRENT  ECONOMIC  PROBLEMS 

Meanwhile  the  war  has  been  none  too  kind  to  "state  socialism."  _  An  early 
English  economist  is  reported  to  have  said  (there  is  no  authentic  written 
word)  that  he  preferred  to  leave  control  to  a  God  whose  very  existence  he 
doubted  rather  than  to  men  whom  he  knew  well  enough  to  call  friends. 
Something  of  this  disbelief  in  man  is  shared  by  those  who  discovered  during 
the  war  that  the  agency  of  control  so  glibly  referred  to  as  "the  government 
is  a  many-headed  personality,  and  that  the  persons  are  supplied  in  very  differ- 
ent degrees  with  facts,  knowledge  of  the  industrial  system,  and  straightforward 
purpose  The  result  is  that  the  antithesis  between  centralization  and  initiative, 
flexibility  and  enterprise  is  clearer  to  many  more  minds  than  once  it  was. 
This  finds  its  reflection  in  the  increasing  prominence  of  "gild  socialism  and  the 
appeal  of  its  ideas  of  decentralization  and  fear  of  bureaucracy  to  those  who 
accept  socialist  ends.  ,.,.,.  •  , 

It  is  impossible  to  predict  the  future  of  socialist  doctrine.  As  our  scheme 
of  arrangements  has  changed,  socialist  doctrine  has  changed.  Its  early  attack 
was  upon  the  inadequacy  of  capitalistic  production.  The  issue  was  later  shifted 
to  distribution.  Thanks  to  arguments  afforded  by  the  war,  its  attack  is  once 
more  upon  production.  One  need  not  fear  that  socialism  lacks  flexibility  to 
adapt  its  method  and  object  of  attack  to  an  existing  situation. 

A.     THE  VOICE  OF  SOCIAL  PROTEST 
366.     Privilege  and  Power 

a)  Woe  to  the  Idle  Rich'^ 

Woe  to  them  that  are  at  ease  in  Zion,  and  to  them  that  are  secure 
in  the  mountain  of  Samaria,  the  notable  men  of  the  chief  of  the 
nations,  to  whom  the  house  of  Israel  come!  Pass  ye  into  Calneh, 
and  see ;  and  from  thence  go  ye  to  Hamath  the  great ;  then  go  down 
to  Gath  of  the  Philistines :  are  they  better  than  these  kingdoms  ?  or 
is  their  border  greater  than  your  border  ? — ye  that  put  far  away  the 
evil  day,  and  cause  the  seat  of  violence  to  come  near;  that  lie  upon 
beds  of  ivory,  and  stretch  themselves  upon  their  couches,  and  eat  the 
lambs  out  of  the  flock,  and  the  calves  out  of  the  midst  of  the  stall ;  that 
sing  idle  songs  to  the  sound  of  the  viol;  that  invent  for  themselves 
instruments  of  music,  hke  David ;  that  drink  wine  in  bowls,  and  anoint 
themselves  with  the  chief  oils ;  but  they  are  not  grieved  for  the  afflic- 
tion of  Joseph.  Therefore  shall  they  now  go  captive  with  the  first 
that  go  captive;  and  the  revelry  of  them  that  stretched  themselves 
shall  pass  away. 

b)  The  Daughters  of  Zion^ 

Moreover  Jehovah  said,  Because  the  daughters  of  Zion  are 
haughty,  and  walk  with  outstretched  necks  and  wanton  eyes,  walking 
and  mincing  as  they  go,  and  making  a  tinkling  with  their  feet ;  there- 
fore the  Lord  will  smite  with  a  scab  the  crown  of  the  head  of  the 
daughters  of  Zion,  and  Jehovah  will  lare  bare  their  secret  parts.    In 

lAmos  6:1-7  (750  B.C.).  2  isa.  3:16-24  (750  B.C.). 


COMPREHENSIVE  SCHEMES  OF  REFORM  S^S 

that  day  the  Lord  will  take  away  the  beauty  of  their  anklets,  and 
the  cauls,  and  the  crescents ;  the  pendants,  and  the  bracelets,  and  the 
mufflers;  the  headtires,  and  the  ankle  chains,  and  the  sashes,  and 
the  perfume  boxes,  and  the  amulets;  the  rings,  and  the  nose  jewels; 
the  festival  robes,  and  the  mantles,  and  the  shawls,  and  the  satchels ; 
the  hand-mirrors,  and  the  fine  linen,  and  the  turbans,  and  the  veils. 
And  it  shall  come  to  pass,  that  instead  of  sweet  spices  there  shall 
be  rottenness ;  and  instead  of  a  girdle  a  rope ;  and  instead  of  well 
set  hair,  baldness ;  and  instead  of  a  robe,  a  girdling  of  sackcloth ; 
branding  instead  of  beauty. 

c)     Why  the  Lords f ' 

BY  JOHN   BALL 

By  what  right  are  they  whom  we  call  lords  greater  folks  than  we? 
Why  dp  they  hold  us  in  serfage  ?  They  are  clothed  in  velvet,  while 
we  are  covered  with  rags.  They  have  wine  and  spices  and  fair  bread ; 
and  w^e  oat-cake  and  straw,  and  water  to  drink.  They  have  leisure 
and  fine  houses  ;  we  have  pain  and  labor,  the  rain  and  the  wind  in  the 
fields.    And  yet  it  is  of  us  and  our  toil  that  these  men  hold  their  state. 

d)     Government  and  Inequality  * 

BY  SIR  THOMAS  MORE 

Is  not  that  government  both  unjust  and  ungrateful  that  is  so 
prodigal  of  its  favors  to  those  that  are  called  gentlemen,  or  such 
others  who  are  idle,  or  live  either  by  flattery  or  by  contriving  the 
arts  of  vain  pleasure,  and,  on  the  other  hand,  take  no  care  of  those 
of  a  meaner  sort,  such  as  ploughmen,  colliers,  and  smiths,  without 
whom  we  could  not  subsist?  But  after  the  public  has  reaped  all 
the  advantage  of  their  service,  and  they  come  to  be  oppressed  with 
age,  sickness,  and  want,  all  their  labors  and  the  good  they  have  done 
is  forgotten,  and  all  the  recompense  given  them  is  that  they  are  left 
to  die  in  great  misery.  The  richer  sort  are  often  endeavoring  to  bring 
the  hire  of  laborers  lower — not  only  by  their  fraudulent  practices,  but 
by  the  laws  which  they  procure  to  be  made  to  that  effect ;  so  that 
though  it  is  a  thing  most  unjust  in  itself  to  give  such  small  rewards 
to  those  who  deserve  so  well  of  the  public,  yet  they  have  given  those 
hardships  the  name  and  color  of  justice,  by  procuring  laws  to  be 
made  for  regulating  them. 

Therefore,  I  must  say  that,  as  I  hope  for  mercy,  I  can  have  no 
other  notion  of  all  the  governments  that  I  see  and  know  than  that 

3  Quoted  in  Wallace,  Studies  Scientific  and  Social,  II  (1366?),  432. 
^Adapted  from  Utopia,  1516  (Cassell's  National  Library  edition),  p.  17. 


834  CURRENT  ECONOMIC  PROBLEMS 

they  are  a  conspiracy  of  the  rich,  who,  on  pretense  of  managing  the 
pubHc,  only  pursue  their  private  ends,  and  devise  all  the  ways  and 
arts  they  can  find  out;  first,  that  they  may,  without  danger,  preserve 
all  that  they  have  so  ill  acquired,  and  then  that  they  may  engage  the 
poor  to  toil  and  labor  for  them  at  as  low  rates  as  possible,  and  oppress 
them  as  much  as  they  please. 

e)     The  Possibilities  of  Production ' 

BY  RICHARD  JEFFREY 

I  verily  believe  that  the  earth  in  one  year  can  produce  enough 
food  to  last  for  thirty.  Why  then  have  we  not  enough  ?  Why  do 
people  die  of  starvation,  or  lead  a  miserable  existence  on  the  verge 
of  it?  We  have  millions  upon  millions  to  toil  from  morning  till 
evening  just  to  gain  a  mere  crust  of  bread?  Because  of  the  absolute 
lack  of  organization  by  which  such  labor  should  produce  its  effects, 
the  absolute  lack  of  distribution,  the  absolute  lack  of  even  the  very 
idea  that  such  things  are  possible.  Nay,  even  to  mention  such  things, 
to  say  that  they  are  possible  is  criminal  with  many.  Madness  could 
hardly  go  further. 

f)     The  Beginning  of  It  All^ 

BY  J.  J,   ROUSSEAU 

The  first  man,  who  having  enclosed  a  piece  of  grotmd,  took 
thought  to  declare,  "This  is  mine,"  and  found  people  simple  enough 
to  believe  him,  was  the  real  founder  of  civil  society.  How  many 
crimes,  wars,  and  murders,  how  much  misery  and  horror  would  have 
been  spared  the  human  race  if  some  one,  tearing  down  the  pickets 
and  filling  up  the  ditch,  had  cried  to  his  fellows,  "Beware  of  listen- 
ing to  that  imposter ;  you  are  lost  if  you  forget  that  the  land  belongs 
to  none  and  its  fruits  to  all." 

367.     "Progress  and  Poverty" 

a)     In  the  Wake  of  Trade'' 

BY  OLIVER  GOLDSMITH 

Ye  friends  to  truth,  ye  statesmen  who  survey 
The  rich  man's  joys  increase,  the  poor's  decay, 
Tis  yours  to  judge  how  wide  the  limits  stand 
Between  a  splendid  and  a  happy  land.  • 

6  Quoted  in  Wallace,  Studies  Scientific  and  Social,  II,  490-91. 

«"Discours  sur  Tinegalite,"  CEuvres,  I  (1754),  551. 

''The  Deserted  Village  (1770),  \l  265-86.  '       .     -      \ 


COMPRmENSIVE  SCHEMES  OF  REFORM  835 

Proud  swells  the  tide  with  loads  of  freighted  ore. 

And  shouting  folly  hails  them  from  her  shore ; 

Hoards  even  beyond  the  miser's  wish  ahound, 

And  rich  men  flock  from  all  the  world  around. 

Yet  count  our  gains  ;  this  wealth  is  but  a  name 

That  leaves  our  useful  products  still  the  same. 

Not  so  the  loss.    The  man  of  wealth  and  pride 

Takes  up  a  space  that  many  poor  supplied ; 

Space  for  his  lake,  his  park's  extended  bounds, 

Space  for  his  horses,  equipage,  and  hounds : 

The  robe  that  wraps  his  limbs  in  silken  sloth 

Hath  robbed  the  neighboring  fields  of  half  their  growth ; 

His  seat,  where  solitary  sports  are  seen. 

Indignant  spurns  the  cottage  from  the  green : 

Around  the  world  each  needful  product  flies, 

For  all  the  luxuries  the  world  supplies ; 

While  thus  the  land,  adorn'd  for  pleasure,  all 

In  barren  splendour  feebly  waits  the  fall. 

b)     When  There  Was  a  Frontier  * 

BY  J.  B.   MC  MASTER 

The  year  1786  in  all  the  states  was  one  of  unusual  distress.  The 
crops  had  indeed  been  good.  In  many  places  the  yield  had  been 
great.  Yet  the  farmers  murmured,  and  not  without  cause,  that  their 
wheat  and  their  corn  were  of  no  more  use  to  them  than  so  many 
bushels  of  stones ;  that  produce  rotted  on  their  hands.  That  while 
their  barns  were  overflowing,  their  pockets  were  empty.  That  when 
they  wanted  clothes  for  their  families,  they  were  compelled  to  run 
from  village  to  village  to  find  a  cobbler  who  would  take  wheat  for 
shoes,  and  a  trader  who  would  give  everlasting  in  exchange  for 
pumpkins.  Money  became  scarcer  and  scarcer  every  week.  In  the 
great  towns  the  lack  of  it  was  severely  felt.  But  in  the  country  places 
it  was  with  difficulty  that  a  few  pistareens  and  coppers  could  be 
scraped  together  toward  paying  the  state's  quota  of  the  interest  on 
the  national  debt. 

A  few  summed  up  their  troubles  in  a  general  way,  and  declared 
the  times  were  hard.  Others  protested  that  the  times  were  well 
enough,  but  the  people  were  grown  extravagant  and  luxurious.  For 
this,  it  was  said,  the  merchants  were  to  blame.  There  were  too  many 
merchants.     There  were  too  many  attorneys.     Money  was  scarce. 

^Adapted  from  The  History  of  the  People  of  the  United  States,  II,  180. 
Copyright  by  D.  Appleton  &  Co.,  1885. 


836  CURRENT  ECONOMIC  PROBLEMS 

Money  was  plenty.  Trade  was  languishing.  Agriculture  was  fallen 
into  decay.  Manufactures  should  be  encouraged.  Paper  should  be 
put  out. 

One  shrewd  observer  complained  that  his  countrymen  had  fallen 
away  sadly  from  those  simple  tastes  which  were  the  life-blood  of 
republics.  It  was  distressing  to  see  a  thrifty  farmer  shaking  his 
head  and  muttering  that  taxes  were  ruining  him  at  the  very  moment 
his  three  daughters,  who  would  have  been  much  better  employed  at 
the  spinning-wheel,  were  being  taught  to  caper  by  a  French  dancing 
master.  It  was  pitiable  to  see  a  great  lazy,  lounging,  lubberly  fellow 
sitting  days  and  nights  in  a  tippling  house,  working  perhaps  two  days 
in  a  week,  receiving  double  the  wages  he  really  earned,  spending  the 
rest  of  his  time  in  riot  and  debauch,  and,  when  the  tax-collector  came 
round,  complaining  of  the  hardness  of  the  times  and  the  want  of  a 
circulating  medium.  Go  into  any  coffee-house  of  an  evening,  and 
you  were  sure  to  overhear  some  fellow  exclaiming,  "Such  times! 
no  money  to  be  had !  taxes  high !  no  business  doing !  we  shall  all  be 
broken  men." 

c)     Labor  and  Value  ^ 

Wages  should  form  the  price  of  goods ; 

Yes,  wages  should  be  all ; 
Then  we  who  work  to  make  the  goods. 

Should  justly  have  them  all ; 
But,  if  their  price  be  made  of  rent, 

Tithes,  taxes,  profits  all. 
Then  we  who  work  to  make  the  goods 

Shall  have  just  none  at  all. 


d)    The  Poor  in  Manchester '^° 

BY    FREDERICK   ENGELS 

The  manner  in  which  the  great  multitude  of  the  poor  is  treated 
by  society  today  is  revolting.  They  are  drawn  into  the  large  cities 
where  they  breathe  a  poorer  atmosphere  than  in  the  country ;  they 
are  relegated  to  districts  which,  by  reason  of  the  method  of  con- 
struction, are  worse  ventilated  than  any  others ;  they  are  deprived 
of  all  means  of  cleanliness,  of  water  itself,  since  pipes  are  laid  only 
when  paid  for,  and  the  rivers  are  so  polluted  that  they  are  useless  for 

^Quoted  in  the  article  on  "Chartism,"  The  Dictionary  of  Political  Econ- 
omy, from  The  Poorman's  Guardian,  1831. 

^*>Adapted  from  The  Condition  of  the  Working  Class  in  England  in  1844 
(1848),  pp.  49-53. 


COMPREHENSIVE  SCHEMES  OF  REFORM  837 

such  purposes ;  they  are  obliged  to  throw  all  offal  and  garbage,  all 
dirty  water,  often  all  disgusting  offal  and  excrement  into  the  streets, 
being  without  other  means  of  disposing  of  them.  As  though  the  viti- 
ated atmosphere  of  the  streets  were  not  enough,  they  are  penned  in 
dozens  into  single  rooms,  they  are  given  damp  dwellings,  cellar  dens 
that  are  not  waterproof  from  below,  or  garrets  that  leak  from  above. 
Their  houses  are  so  built  that  the  clammy  air  cannot  escape.  The 
view  from  the  bridge  is  characteristic  of  the  whole  district.  At  the 
bottom  flows,  or  rather  stagnates,  the  Irk,  a  narrow,  coal-black, 
foul-smelling  stream,  full  of  debris  and  refuse,  which  it  deposits  on 
the  shallower  right  bank.  Everywhere  heaps  of  debris,  refuse  and 
offal ;  standing  pools  for  gutters,  and  a  stench  which  alone  would 
make  it  impossible  for  a  human  being  in  any  degree  civilized  to  live 
in  such  a  district.  The  whole  side  of  the  Irk  is  built  in  this  way, 
a  planless,  knotted  chaos  of  houses,  more  or  less  on  the  verge  of 
uninhabitableness,  whose  unclean  interiors  fully  correspond  with 
their  filthy  external  surroundings.  In  truth  it  cannot  be  charged 
to  the  account  of  these  helots  of  modern  society  if  their  dwellings  are 
not  more  cleanly  than  the  pigsties  which  are  here  and  there  to  be 
seen  among  them.  My  description  is  far  from  black  enough  to 
convey  a  true  impression  of  the  filth,  ruin,  and  uninhabitableness, 
the  defiance  of  all  considerations  of  cleanliness,  ventilation,  and 
health  which  characterize  this  district. 


e)  Packingtown  as  a  Residential  Section  ^^ 

BY  A.   M.  SIMONS 

From  the  general  air  of  hoggishness  that  pervades  everything 
from  the  general  manager's  offices  down  to  the  pens  beneath  the 
buildings  and  up  to  the  smoke  that  hangs  over  it  all,  the  whole 
thing  is  purely  capitalistic.  One's  nostrils  are  assailed  at  every 
point  by  the  horribly  penetrating  stench  that  pervades  everything. 
Great  volumes  of  smoke  roll  from  the  forest  of  chimneys  at  all 
hours  of  the  day,  and  drift  down  over  the  helpless  neighborhood  like 
a  deep  black  curtain  that  fain  would  hide  the  suffermg  and  misery 
it  aggravates.  The  foul  packing-house  sewage,  too  horribly  offen- 
sive in  its  putrid  rottenness  for  further  exploitation  even  by  monop- 
olistic greed,  is  spewed  forth  in  a  multitude  of  arteries  of  filth  into 
a  branch  of  the  Chicago  River  at  one  corner  of  the  Yards,  where 
it  rises  to  the  top  and  spreads  out  in  a  nameless  indescribable  cake 

i^Aclapted  from  Packingtozvn,  pp.  2-19.  Published  by  Charles  H.  Kerr 
&Co. 


838  CURRENT  ECONOMIC  PROBLEMS 

of  festering  foulness  and  disease-breeding  stench.  On  the  banks 
of  this  sluiceway  of  nastiness  are  several  acres  of  bristles  scraped 
from  the  backs  of  innumerable  hogs  and  spread  out  to  allow  the 
still  clinging  animal  matter  to  rot  away  before  they  are  made  up 
into  brushes.  Tom  Carey,  now  alderman  of  this  ward,  owns  long 
rows  of  some  of  the  most  unhealthy  houses  in  this  deadly  neighbor- 
hood. These  houses  have  no  connection  with  the  sewers,  and  under 
some  of  them  the  accumulation  of  years  of  filth  has  gathered  in  a 
semi-liquid  mass  from  two  to  three  feet  deep.  Shabbily  built  in  the 
first  place  and  then  subjected  to  years  of  neglect,  they  are  veritable 
death-traps.  A  cast-iron  pull  with  the  Health  Department  renders 
him  safe  from  any  prosecution. 

f)    Hallelujah  on  the  Bum^^ 

"O,  why  don't  you  work  "O,  I  like  my  boss — 

Like  other  men  do?"        ,  He's  a  good  friend  of  mine ; 

"How  in  hell  can  I  work  That's  why  I  am  starving 

When  there's  no  work  to  do  ?  Out  in  the  bread-line. 

Chorus: 

"Hallelujah,  I'm  a  bum,  "I  can't  buy  a  job 

Hallelujah,  bum  again,  For  I  ain't  got  the  dough. 

Hallelujah,  give  us  a  handout —  So  I  ride  in  a  box-car, 

To  revive  us  again."  For  I'm  a  hobo. 

"O,  why  don't  you  save  "Whenever  I  get 

All  the  money  you  earn  ?"  All  the  money  I  earn, 

"If  I  did  not  eat  The  boss  will  be  broke, 

I'd  have  money  to  burn.  And  to  work  he  must  turn." 


368.     Expanding  Wants  and  Social  Unrest 

BY  A  CAPE   COD  FISHERMAN 

Yes,  that's  the  trouble.  My  father  wanted  fifteen  things.  He 
didn't  get  'em  all.  He  got  about  ten,  and  worried  considerable  be- 
cause he  didn't  get  the  other  five.  Now,  I  want  forty  things,  and 
I  get  thirty,  but  I  worry  more  about  the  ten  I  can't  get  than  the 
old  man  used  to  about  the  five  he  couldn't  get. 

^^Songs  of  the  Workers,  pp.  34.  Published  by  the  Industrial  Worker. 
The  tune  is  "Revive  Us  Again." 


COMPREHENSIVE  SCHEMES  OF  REFORM 


839 


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COMPREHENSIVE  SCHEMES  OF  REFORM  841 

370.     The  Economic  Costs^* 

BY    J.    A.    HOBSON 

The  material  waste  and  destruction  of  this  war,  with  its  ever- 
increasing  area  of  conflict,  have  been  far  greater,  more  various,  and 
more  widespread  than  would  have  been  thought  possible  before  the 
actual  event.  At  the  outset  most  economists  in  this  and  other 
countries  predicted  exhaustion  of  one  or  both  belligerent  groups 
before  two  years  were  passed.  The  actually  available  resources  of 
every  country  have  proved  to  be  far  greater  than  was  supposed. 
What  this  country  [England],  in  particular,  has  done  amounts  to  an 
economic  miracle.  With  some  four  million  men  taken  from  ordinary 
occupations  for  the  fighting  forces,  and  two  more  millions  for  muni- 
tions, we  have  been  able  somehow  to  maintain  the  ordinary  productive 
operations  of  our  country  at  so  high  a  level  as  to  provide  food,  cloth- 
ing, vehicles,  and  innumerable  other  expensive  articles  for  our  own 
forces  and  a  large  surplus  for  our  Allies ;  while  our  civil  population 
as  a  whole  has  been  living  upon  a  somewhat  higher  level  of  material 
comfort  than  before. 

There  are  those  to  whom  the  obvious  explanation  of  the  miracle 
is  that  we  are  living  on  our  capital,  and  they  insist  that  we  shall  have 
to  pay  afterwards  for  this  necessary  extravagance.  Now  living  upon 
capital  from  the  standpoint  of  a  nation  may  mean  one  or  the  other 
of  two  things,  or  both.  It  may  mean  that  we  have  destroyed,  dam- 
aged, or  diminished  the  plant,  buildings,  roads,  stocks,  money,  which 
we  possessed  in  this  country  before  the  war,  together  with  the  foreign 
securities  which  represented  claims  upon  real  wealth  in  other  coun- 
tries. Or  it  may  mean  that  we  have  mortgaged  abroad  portions  of 
the  wealth  we  shall  produce  after  the  war,  by  obtaining  upon  credit 
foreign  goods  to  supplement  our  war  deficiencies.  If  either  of  these 
things  has  occurred,  it  will  seem  to  involve  a  diminution  in  our 
national  income  after  the  war — a  measure  of  poverty. 

It  is  manifest  that  our  war  economy  will  have  caused  a  letting 
down  of  most  of  those  forms  of  fixed  capital  which  can  be  let  down 
without  great  immediate  damage  to  their  productive  services. 
Repairs  and  renewals,  both  of  public  and  private  fabrics  of  a  durable 
kind,  have  been  postponed,  industrial  machinery  and  other  plants 
have  been  injured  by  overwork  and  neglect.  It  is  estimated  that  a 
sum  of  from  170  to  180  million  pounds  per  annum  represented  indus- 
trial wear  and  tear  and  renewals,  or  approximately  one-tenth  of  the 
industrial  income  of  the  nation.    A  considerable  part  of  this  expendi- 

i^Adapted  from  "Shall  We  Be  Poorer  after  the  War?"  Contemporary 
Review,  CXI,  43-47.    Copyright  by  the  Contemporary  Review  Co.,  1917. 


842  CURRENT  ECONOMIC  PROBLEMS 

ture,  no  doubt,  has  been  suspended  — 1.  e.,  the  work  that  would  have 
gone  for  this  purpose  has  been  diverted  into  work  for  the  production 
of  immediately  consumable  wealth.  This  damage  to  future  pro- 
ductive power  is  enhanced  by  a  letting  down  of  many  stocks  of 
materials,  unfinished  or  finished  goods,  which  in  ordinary  times 
constitute  a  reserve  of  national  wealth  to  meet  the  sudden  enhance- 
ments of  demand,  and  to  secure  the  required  elasticity  of  trade. 
These  stocks,  both  in  this  country  and  throughout  the  world,  have 
been  largely  depleted  to  meet  the  urgent  needs  of  the  belligerent 
nations.  Their  reduction  must  rank  as  an  expenditure  out  of  capital 
which  will  have  to  be  made  good  before  trade  can  be  fully  restored. 
This  expenditure  of  capital  is  probably  the  most  serious  incurred  by 
this  country.  So  far  as  the  income-earning  power  of  our  capital  is 
concerned,  the  letting  down  of  plant  and  stock  is  the  measure  of  the 
direct  damage  to  capital  due  to  the  war.  Against  it  may  be  set  an 
estimate  of  the  new  engineering  and  other  plants  brought  into  exist- 
ence, primarily  for  war  requirements,  but  capable  of  adaptation  to 
peace  industries  afterwards. 

The  large  sale  of  American  and  other  foreign  securities,  and  the 
loans  effected  in  the  United  States  and  in  our  Dominions,  no  doubt 
involve  an  expenditure  of  past  capital  and  a  mortgage  of  future 
resources.  But  regarded  from  the  national  standpoint,  what  has 
taken  place  may  fairly  be  treated  as  a  shifting  of  securities.  We  have 
sold  securities  and  raised  credits  in  America  in  order  to  make  financial 
advances  of  at  least  equal  magnitude  to  our  Allies.  The  interest  on 
this  sum  will  represent  a  net  reduction  of  the  annual  income  of  our 
nation  available  for  distribution  here  so  long  as  this  method  of  pay- 
ment is  continued. 

Summarizing  the  evidence  we  have  cited,  we  may  fairly  conclude 
that  the  material  capital  of  this  country  will  emerge  from  the  war 
not  seriously  damaged  or  diminished.  Indeed,  it  may  plausibly  be 
argued  that  the  better  organization  of  industry  for  obtaining  a  fuller 
use  of  the  existing  plant— e.g.,  the  introduction  of  a  shifts  system  into 
processes  where  plant  was  lying  idle  for  the  greater  part  of  the  time- 
may  almost  compensate  for  the  admitted  loss  by  letting  down  fixed 
capital  and  stocks.  In  a  word,  the  supply  of  available  industrial 
capital  for  this  country  after  the  war  will  not  be  so  greatly  diminished 
as  to  necessitate  a  total  output  of  industry  appreciably  lower  than  it 
was  before  the  war. 

How,  next,  will  it  fare  with  the  other  factors  of  production  ?  Will 
the  supply  of  labor  be  reduced  by  the  ravages  of  war?  The  loss  of 
life  and  the  disablement  will  amount  to  a  heavy  total.  Perhaps  it 
may  represent  a  million  men,  or  one-sixth  of  those  withdrawn  from 


COMPREHENSIVE  SCHEMES  OF  REFORM  843 

ordinary  civil  occupations.  But  this  would  not  mean  a  corresponding 
reduction  of  effective  labor.  There  are  several  compensations  here. 
First  comes  the  stoppage  of  all  British  emigration  during  the  v\^ar.  At 
least  half  a  million  workers  who  would  have  gone  abroad  will  have 
been  kept  at  home.  It  may,  indeed,  be  admitted  that  the  tide  of 
emigration  after  peace  will  carry  away  large  numbers  both  of  our 
civilians  and  of  disbanded  soldiers.  But  the  pace  of  this  movement 
will  be  restrained  by  reduced  facilities  and  enhanced  costs  of  trans- 
port, as  well  as  by  the  lack  of  the  money  usually  required  to  make 
emigration  a  success  for  men  untrained  in  agriculture.  Another 
compensation  is  to  be  found  in  the  newly  discovered  and  trained 
powers  of  women.  Though  many  of  the  six  hundred  thousand  who 
have  already  entered  munitions  and  other  industrial  occupations  will 
doubtless  return  to  domestic  work,  the  ranks  of  labor  will  be  enlarged 
permanently,  not  merely  by  those  who,  having  already  entered,  will 
remain,  but  by  a  constant  flow  of  new  female  labor  into  occupations 
for  the  first  time  opened  by  the  war.  Women  have  discovered  new 
aptitudes  and  new  confidence  in  exercising  them.  Their  status  in 
industry  has  definitely  and  permanently  risen.  It  is  no  mere  question 
of  numbers.  Both  for  women  and  for  unskilled  men  the  artificial 
barriers  which  precluded  them  from  learning  and  undertaking  large 
numbers  of  skilled  occupations  have  been  broken  down.  After  the 
war  the  proportion  of  workers,  male  and  female,  possessing  ap- 
proved skill  in  some  productive  process  will  be  greatly  increased. 
This,  of  course,  is  equivalent  to  an  enlargement  of  the  effective  pro- 
ductive power  of  the  nation.  It  may  be  concluded  that  the  aggregate 
labor-power  available  after  the  war  will  be  quite  as  great  at  that 
available  in  the  summer  of  1914,  assuming  that  the  war  is  not 
prolonged  beyond  next  summer. 

Business  ability  and  enterprise  in  the  organizing  and  employing 
classes  ought  to  be  enhanced  rather  than  diminished  by  the  lessons 
in  adaptation  and  experimentation  imposed  by  the  stress  of  war  needs. 
Rapid  transformations  of  plant  and  premises,  novel  technical  proc- 
esses, revolutionary  changes  in  finance,  control,  organization  of  labor 
have  everywhere  been  shaking  the  easy-going,  slack,  routine  ways 
and  notions  of  employers.  Thousands  of  them  have  been  compelled 
for  the  first  time  in  their  lives  to  "look  alive"  and  stir  their  intellectual 
Stumps.  The  great  revelation  of  what  could  be  done  to  maintain  and 
enhance  productivity  under  the  spur  of  national  necessity  can  never 
perish  from  our  minds.  We  now  know  that  with  the  material  and 
human  resources  at  our  disposal  it  is  technically  possible,  when  the 
war  is  over,  to  begin  producing  industrial  wealth  at  a  considerably 


844  CURRENT  ECONOMIC  PROBLEMS 

faster  rate  than  it  was  produced  three  years  ago.  The  great  econ- 
omies effected  by  reducing  our  railways  to  a  single  system  are  only 
one  striking  example  of  an  economy  of  capital  and  labor  which  will 
certainly  be  conserved  in  the  future. 

371.     The  Ultimate  Burdens^^ 

It  is  difficult  to  appraise  the  real  cost  of  war.  A  recital  of  the 
figures  of  war  debts  only  serves  to  conceal  the  truth.  On  the  purely 
material  side,  the  best  we  can  do  is  to  ascertain  the  extent  of  the  loss 
of  new  capital  and  the  amount  of  depreciation  of  the  existing  indus- 
trial equipment  of  the  national  resources  of  a  nation.  On  the  human 
side,  we  can  determine  the  number  of  casualties,  but  it  is  impossible 
to  measure  the  different  values  to  the  community  of  those  who  are 
killed.  A  genius  lost  involves  an  immeasurable  cost  viewed  in 
national  terms.  The  loss  of  an  ordinary  soldier  is  relatively  incon- 
sequential. 

But  quite  apart  from  the  loss  of  life,  war  entails  enormous  sac- 
rifices in  human  resources.  The  sacrifice  in  health  of  the  men  who 
have  been  for  years  in  the  trenches  cannot  be  measured  in  terms  of 
money,  for  there  is  no  satisfactory  method  of  reducing  the  values  of 
human  lives  and  human  health  to  pecuniary  terms.  The  war  has 
also  impoverished  the  people  of  many  lands  and  this  carries  with  it  a 
real  lowering  in  the  standards  of  life.  There  is  less  food,  bodies  are 
less  adequately  protected  with  clothes  and  shelter,  medical  service 
is  scarcer,  and  in  general  conditions  are  less  conducive  to  healthful 
living.  Future  generations  of  Belgians,  Roumanians,  Poles,  Russians, 
Turks,  Armenians,  and  Persians,  not  to  mention  others,  will  pay  the 
penalty  of  this  generation  of  economic  disorganization.  Preventive 
measures  can  alleviate  somewhat  the  future  wretchedness  which  is  the 
product  of  war,  but  it  cannot  eliminate  it  entirely.  Children  will 
be  reared  undernourished  and  without  proper  medical  attention, 
entailing  costs  that  will  manifest  themselves  in  succeeding  ages. 
Moreover,  the  bodies  of  the  mature  population,  under  the  intense 
strain  of  a  long  war,  become  less  immune  to  the  ravages  of  disease. 
The  lowering  of  health  standards  and  the  lessening  of  human  vitality 
tend  to  have  viciously  cumulative  effects;  for  the  war  necessitates 
low  standards  of  living,  low  standards  of  living  cause  low  pro- 
ductivity, and  low  productivity  in  turn  causes  low  standards  of  living 
for  long  years  to  come.  Poland,  for  instance,  has  been  impoverished 
by  the  war  to  an  extent  that  renders  it  almost  impossible  to  gain  the 

i^An  editorial,  1918. 


COMPREHENSIVE  SCHEMES  OF  REFORM  845 

initial  momentum  necessary  to  recuperation  and  to  return  to  erst- 
while living  conditions. 

Even  in  countries  such  as  England  and  the  United  States,  which 
do  not  bear  the  brunt  of  invasion,  and  where  the  economic  organiza- 
tion is  such  as  to  prevent  starvation,  or  even  a  serious  lessening  of 
national  vitality,  there  are  still  serious  costs  to  be  reckoned  with. 
The  lowering  of  labor  standards  carries  with  it,  unless  our  standards 
were  false,  serious  impairment  of  efficiency  as  measured  in  terms  of 
long-run  national  considerations.  Much  of  the  labor  of  women  now 
used  in  factories  will  carry  with  it  its  meed  of  cost  in  shortened  lives 
and  in  ill-health  in  the  years  to  come.  The  increasing  employment  of 
children  and  the  curtailment  of  education  among  the  youth  prevent  a 
development  of  the  full  resources  of  the  coming  generation  of 
manhood  and  womanhood.  In  a  less  obvious  way  there  is  a  great 
social  sacrifice  involved  in  the  diversion  of  energy  from  scientific 
pursuits,  from  social  study  and  investigation,  from  art  and  literature, 
to  immediate  material  pursuits  of  military  importance.  The  sort  of 
life  which  conditions  the  elements  of  genius  and  originality  is  almost 
prohibited,  for  genius  and  originality  can  usually  ripen  only  amid 
leisure;  the  world  of  ideas  and  values  out  of  which  an  improving 
society  eventually  comes  is  almost  at  a  standstill  during  the  war.^® 

Another  of  the  immeasurable  costs  of  war  lies  in  the  fact  that 
war  arrests  the  training  of  the  future  leaders  of  a  nation.  Business 
responsibilities,  and  the  necessity  of  keeping  the  home  fires  burning, 
make  it  impossible  to  send  a  large  proportion  of  the  mature  men  of 
a  nation  to  war.  It  is  the  youth  who  must  bear  the  brunt  of  the 
conflict.  A  nation  is  thus  stripped  of  the  services  of  those  who  would 
naturally  be  the  future  leaders  in  community  and  civic  enterprise. 
Even  those  who  return,  the  year  spent  in  the  military  service  have 
cost  in  many  instances  the  labor  and  study  which  otherwise  would 
have  been  spent  in  cultural,  technical,  and  vocational  training,  and 
hence  it  tends  to  lessen  their  efficiency  for  leadership  in  the  future. 
This  is  doubtless  offset  to  some  extent  by  training  which  the  war  itself 
offers  in  developing  alertness  and  resourcefulness  ;  but  the  specializa- 
tion of  the  present  war  coupled  with  the  predominance  of  trench 
warfare  probably  renders  such  training  less  valuable  than  in  former 
wars.  Particularly  is  this  true  in  view  of  the  fact  that  the  social 
phenomena  of  the  complicated  world  of  today  require  training  and 

i^This  of  course  does  not  apply  to  experiments  in  governmental  control  of 
industry.  It  is  possible,  too,  that  the  inventions  called  forth  for  use  in  the  war 
may  result  in  great  ultimate  value  for  times  of  peace.  The  statement  has  been 
made,  however,  by  those  in  position  to  know  that  few  great  inventions  have 
thus  far  come  from  the  laboratories  of  war. 


846  CURRENT  ECONOMIC  PROBLEMS 

study  of  a  very  different  sort  from  what  was  required  for  leadership 
under  more  primitive  conditions  of  existence. 

The  war  affects  the  temper  and  character  of  Hfe  in  many  ways. 
It  profoundly  modifies  the  habits,  practices,  customs,  and  ideals  of 
the  civilian  population  as  well  as  of  those  actively  engaged  in  the 
conflict.     Some  of  these  changes  are  bad,  many  of  them  are  good, 
and  it  is  possible  that  the  ultimate  results  in  the  way  of  new  social 
values  may  quite  offset  the  immediate  losses  occasioned  by  war.    It 
is  impossible  to  make  at  this  time  a  full  recital  of  the  changes  which 
the  war  has  wrought  in  our  social  and  economic  life,  but  they  are 
everywhere  in  evidence.    For  instance,  we  have  become  reconciled, 
at  least  for  the  period  of  the  war,  to  a  control  of  industrial  activities 
on  the  part  of  the  government  which  would  have  been  unthinkable  in 
this  individualistic  country  only  two  years  ago.    Not  all  of  this  will 
be  retained  in  the  peace  which  is  to  follow,  but  it  is  evident  that 
we  will  have  a  much  larger  measure  of  governmental  direction  than 
we  have  had  in  the  past.     Much  of  the  experience  of  the  war  in 
governmental  control  may  be  utilized  in  ways  that  will  promote  long- 
run  welfare  in  the  years  of  peace.    For  instance,  it  appears  that  the 
federal  organization  of  the  labor  market  which  the  war  has  effected 
is  a  piece  of  machinery  so  essential  to  the  successful  working  of  our 
industrial  system  that  it  will  never  be  given  up.    We  have  also  come 
to  appreciate  more  fully  than  before  the  importance  of  large  national 
production,  and  a  useful  distinction  has  been  drawn  between  essen- 
tials and  nonessentials,  which  may  prove  serviceable  in  peace  as  well 
as  in  war. 

A  subtle  change  which  the  war  has  wrought  is  to  be  found  in  the 
increasing  number  of  women  employed  in  industry.  Their  active 
participation  in  the  affairs  of  a  world-wide  economic  society  makes 
a  return  to  the  old-fashioned  cloistered  American  home  almost  im- 
possible. The  situation  carries  with  it  far-reaching  implications  in 
the  matter  of  family  ideals  and  the  organization  of  domestic  life 
around  the  hearthstone.  Who  can  say  whether  this  will  lead  to  ulti- 
mate gains  or  to  ultimate  losses  ? 

These  are  but  a  few  examples  of  the  many  changes  which  the  war 
is  effecting.  They  relate  not  only  to  the  elements  of  our  life  and  its 
organization  but  also  to  its  ideals.  Our  standards  of  judgment  are 
very  different  from  what  they  were  before  the  war  and  since  values 
and  costs  can  be  measured  only  in  these  social  standards,  it  is  impos- 
sible to  make  an  accurate  statement  in  quantitative  terms  of  the 
ultimate  costs  of  the  war.    Indeed,  in  view  of  these  changing  stand- 


COMPREHENSIVE  SCHEMES  OF  REFORM  847 

ards  it  is  impossible  to  tell  whether,  all  factors  considered,  and  looking 
into  the  far  distant  future,  the  war  has  entailed  a  net  cost  to  society. 
It  all  depends  upon  which  scheme  of  things  one  prefers  in  life. 

C.     STATE  SOCIALISM 
^  /    372.     The  Economic  Failure  of  Capitalism^^ 

BY  J.  RAMSAY  MACDONALD 

Commercialism  is  a  phase  in  the  evolution  of  industrial  organi- 
zation, and  is  not  its  final  form.  It  arose  when  nations  were  suffi- 
ciently established  to  make  national  and  international  markets  pos- 
sible, and  it  created  classes  and  interests  which  separated  themselves 
from  the  rest  of  the  community  and  which  proceeded  to  buttress 
themselves  behind  economic  monopolies,  social  privileges,  political 
power.  The  new  industrial  regime  supplanted  feudalism  when  the 
historical  work  of  feudaHsm  was  done  and  it  had  ceased  to  be  useful, 
and  proceeded  to  build  up  a  method  of  wealth  production  and  distri- 
bution regulated  by  nothing  but  the  desire  for  individual  success  and 
private  gain.  The  new  power  lost  sight  of  social  responsibilities  and 
social  coherence.  The  interests  of  the  individual  capitalist^  of  the 
class  of  capitalists,  of  the  property  owners,  were  put  firsts  and  those 
of  the  community  as  a  whole  were  subordinated.  It  was  hoped,  that 
by  the  individual  capitalist  pursuing  his  own  interest  national  well- 
being  would  be  served.  The  error  soon  reaped  its  harvest  of  misery, 
when  women  and  children  were  dragged  into  the  factories  late  in  the 
eighteenth  and  early  in  the  nineteenth  centuries,  when  people  were 
gathered  into  foul  industrial  towns,  and  when  only  human  endurance 
limited  the  length  of  the  working  day.  So  separate  had  become  the 
interests  of  the  nation  from  those  of  the  propertied  classes  that  the 
latter  found  profit  from  the  degradation  and  deterioration  of  the 
population.  It  mattered  not  to  the  cotton  owner  of  Lancashire 
a  hundred  years  ago  what  became  of  the  children  who  were  working 
in  his  factories,  or  later  on,  what  became  of  the  women  who  took 
their  places.  When  one  "hand"  died  another  "hand"  was  ready  to 
step  into  his  place,  and  whether  his  life  was  long  or  short,  sad  or 
merry,  the  machines  which  he  tended  spun  out  their  enormous  profits, 
and  the  owner  saw  no  reason  to  believe  that  the  day  of  his  prosperity 
was  short. 

The  system  certainly  solved  the  problem  of  production.  Under 
its  whips  and  in  search  of  its  prizes,  mechanical  invention  proceeded 

^''The  Socialist  Movement,  pp.  94-99.  Copyright  by  Henry  Holt  &  Co.  and 
Williams  &  Norgate,  191 1. 


848  CURRENT  ECONOMIC  PROBLEMS 

apace,  labor  was  organized  and  its  eflficiency  multiplied  ten,  twenty, 
an  hundred  fold.  Statistics  in  proof  of  this  live  with  the  wonder 
that  is  in  them.  That  twenty  men  in  Lancashire  today  can  make  as 
much  cotton  as  the  whole  of  the  old  cotton-producing  Lancashire 
put  together;  that  1,000  shoe  operatives  in  Leicester  can  supply  a 
quarter  of  a  million  people  with  four  pairs  of  boots  a  year;  that 
120  men  in  a  mill  can  grind  enough  flour  to  keep  200,000  people's 
wants  fully  supplied,  seem  to  come  from  the  pages  of  romance  rather 
than  from  the  sober  history  of  industry.  Commercialism  has  written 
those  pages,  and  they  are  its  permanent  contribution  to  human  well- 
being. 

As  time  went  on,  however,  it  was  seen  that  this  wonderful  system 
of  production  was  quite  unable  to  devise  any  mechanism  of  distribu- 
tion which  could  relate  rewards  to  deserts.  Distribution  was  left  to 
the  stress  and  uncertainty  of  competition  and  the  struggle  of  eco- 
nomic advantages.  The  law  of  the  survival  of  the  fittest  was  allowed 
to  have  absolute  sway,  under  circumstances  which  deprived  it  of 
moral  value.  The  result  was  that  national  wealth  was  heaped  up  at 
one  end  over  a  comparatively  small  number  of  people  and  lay  thinned 
out  at  the  other  end  over  great  masses  of  the  population.  At  one 
end  people  had  too  much  and  could  not  spend  it  profitably,  at  the 
other  end  they  had  too  little  and  never  gained  that  mastery  of  things 
which  is  preliminary  to  well-ordered  life.  Aloreover,  even  many  of 
those  who  possessed  held  their  property  on  such  precarious  tenure 
that  possession  gave  them  little  security  and  peace  of  mind.  Pros- 
perity was  intermittent  both  for  capital  and  labor. 

Then  conscious  effort  to  rectify  the  chaos  began  to  show  itself. 
The  national  will  protected  the  national  interests  through  factory 
and  labor  legislation,  and  at  the  same  time  the  chaos  within  the  sys- 
tem was  being  modified  by  the  life  of  the  system  itself.  Competition 
worked  itself  out  in  certain  directions  and  co-operation  in  the  form 
of  trusts  came  to  take  its  place,  as  nature  turns  to  hide  up  the  traces 
of  war  in  a  country  that  has  been  fought  over.  This  new  organization 
is  more  economical  and  may  steady  to  some  extent  the  demand  for 
labor ;  but  it  means  that  economic  power  is  being  placed  in  the  hands 
of  a  few.  That  is  too  dangerous  in  the  eyes  of  the  Socialist.  Its 
operation  is  too  uncertain.  From  his  very  nature  the  monopolist  is 
an  exploiter.  He  grasps  the  sceptre  of  state,  as  well  as  the  sceptre 
of  industry.  He  sits  in  Parliament  as  well  as  in  the  counting-house. 
He  becomes  a  powerful  citizen  as  well  as  a  masterful  captain  of  in- 
dustry. He  raises  in  a  most  acute  form  the  problem  of  how  the  com- 
munity can  protect  itself  agaijrjst  interests  being  created  round  its 


.    COMPREHENSIVE  SCHEMES  OF  REFORM  849 

exploitation  and  enslavement.  Competition  solves  its  own  problems 
and  leaves  those  of  monopoly  in  their  place. 

Surveying  the  same  field  with  an  eye  on  the  moral  fruits  which 
it  has  borne,  the  Socialist  once  more  discovers  weeds  in  plenty.  The 
I'amiliar  methods  of  adulteration  and  of  all  forms  of  sharp  dealing, 
both  with  work-people  and  with  customers,  pass  before  his  eyes  in 
disquieting  masses.  Honesty  on  this  field  is  not  the  best  policy. 
Materialist  motives  predominate.  Birth  and  honor  bow  to  wealth. 
Wealth  can  do  anything  in  "good"  society  today — even  to  the  pur- 
chase of  wives  as  in  a  slave  market.  A  person  may  be  vulgar,  may  be 
uncultured,  may  be  coarse  and  altogether  unpleasing  in  mind  and 
manner  but,  if  he  has  money,  the  doors  of  honor  are  thrown  open  to 
him,  the  places  of  honor  are  reserved  for  his  occupation.  The  strug- 
gle for  life  carried  on  under  the  conditions  of  commercialism  means 
the  survival  of  sharp  wits  and  acquisitive  qualities.  The  pushful 
energy  which  brings  ledger  successes  survives  as  the  "fittest"  under 
commercialism.  Capitalism  has  created  a  rough  and  illworking 
mechanism  of  industry  and  a  low  standard  of  value  based  upon 
nothing  but  industrial  considerations,  and  it  has  done  its  best  to  hand 
over  both  public  and  private  values  to  be  measured  by  this  standard 
and  to  be  produced  by  this  mechanism. 

But  the  controlling  influences  which  have  been  brought  to  bear 
upon  it — both  those  of  a  political  character  from  without  and  those 
of  an  industrial  character  from  within — are  the  foreshadowings  of  a 
new  system  of  organization.  Commercialism  lays  its  own  cuckoo 
egg  in  its  nest.  Every  epoch  produces  the  thought  and  the  ideals 
which  end  itself.  Like  a  dissolving  view  on  a  screen,  commercialism 
fades  away  and  the  image  of  Socialism  comes  out  in  clearer  outline. 

373.     The  Central  Aim  of  Socialism's 

BY  THOMAS  KIRKUP 

The  central  aim  of  socialism  is  to  terminate  the  divorce  of  the 
workers  from  the  natural  sources  of  subsistence  and  of  culture.  The 
socialist  theory  is  based  on  the  historical  assertion  that  the  course  of 
social  evolution  for  centuries  has  gradually  been  to  exclude  the  pro- 
ducing classes  from  the  possession  of  land  and  capital,  and  to  establish 
a  new  subjection,  the  subjection  of  workers  who  have  nothing  to 
depend  on  but  precarious  wage-labor.  Socialists  maintain  that  the 
present  system  leads  inevitably  to  social  and  economic  anarchy,  to  the 
degradation  of  the  working  man  and  his  family,  to  the  growth  of  vice 

^^Adapted  from  A  History  of  Socialism,  pp.  8-12.  Copyright  by  Charles 
Scribner's  Sons,  1900. 


850  CURRENT  ECONOMIC  PROBLEMS 

and  idleness  among  the  wealthy  classes  and  their  dependents,  to  bad 
and  inartistic  workmanship,  to  insecurity,  waste,  and  starvation ;  and 
that  it  is  tending  more  and  more  to  separate  society  into  two  classes, 
wealthy  millionaires  confronted  with  an  enormous  mass  of  prole- 
tarians, the  issue  out  of  which  must  either  be  socialism  or  social  ruin. 
To  avoid  all  these  evils  and  to  secure  a  more  equitable  distribution  of 
the  means  and  appliances  of  happiness,  socialists  propose  that  land 
and  capital,  which  are  the  requisites  of  labor  and  the  sources  of  all 
wealth  and  culture,  should  be  placed  under  social  ownership  and 
control. 

In  thus  maintaining  that  society  should  assume  the  management 
of  industry  and  secure  an  equitable  distribution  of  its  fruits,  social- 
ists are  agreed ;  but  on  the  most  important  points  of  details  they  diflfer 
very  greatly.  They  differ  as  to  the  form  society  will  take  in  carrying 
out  the  socialist  program,  as  to  the  relation  of  local  bodies  to  the 
central  government,  and  whether  there  is  to  be  any  central  govern- 
ment, or  any  government  at  all  in  the  ordinary  sense  of  the  word, 
as  to  the  influence  of  the  national  idea  in  the  society  of  the  future,  etc. 
They  differ  also  as  to  what  should  be  regarded  as  an  "equitable" 
system  of  distribution. 

Still,  it  should  be  insisted  that  the  basis  of  socialism  is  economic, 
involving  a  fundamental  change  in  the  relation  of  labor  to  land  and 
capital — a  change  which  will  largely  affect  production,  and  will  en- 
tirely revolutionize  the  existing  system  of  distribution.  But,  while 
its  basis  is  economic,  socialism  implies  and  carries  with  it  a  change  in 
the  political,  ethical,  technical  and  artistic  arrangements  and  insti- 
tutions of  society,  which  would  constitute  a  revolution  greater  than 
has  ever  taken  place  in  human  history,  greater  than  the  transition 
from  the  ancient  to  the  mediaeval  world,  or  from  the  latter  to  the 
existing  order  of  society. 

In  the  first  place,  such  a  change  generally  assumes  as  its  political 
complement  the  most  thoroughly  democratic  organization  of  society. 
Socialism,  in  fact,  claims  to  be  the  economic  complement  of  democ- 
racy, maintaining  that  without  a  fundamental  economic  change  polit- 
ical privilege  has  neither  meaning  nor  value. 

In  the  second  place,  socialism  naturally  goes  with  an  unselfish 
or  altruistic  system  of  ethics.  The  most  characteristic  feature  of  the 
old  societies  was  the  exploitation  of  the  weak  by  the  strong  under  the 
systems  of  slavery,  serfdom,  and  wage-labor.  Under  the  socialistic 
regime  it  is  the  privilege  and  duty  of  the  strong  and  talented  to  use 
their  superior  force  and  richer  endowments  in  the  service  of  their 
fellow-men  without  distinction  of  class,  or  nation,  or  creed.    In  the 


COMPREHENSIVE  SCHEMES  OF  REFORM  851 

third  place,  socialists  maintain  that,  under  their  system  and  no  other, 
can  the  highest  excellence  and  beauty  be  realized  in  industrial  produc- 
tion and  in  art ;  whereas  under  the  present  system  beauty  and  thor- 
oughness are  alike  sacrificed  to  cheapness,  which  is  a  necessity  of  suc- 
cessful competition. 

Lastly,  the  socialists  refuse  to  admit  that  individual  happiness 
or  freedom  or  character  would  be  sacrificed  under  the  social  arrange- 
ments they  propose.  They  believe  that  under  the  present  system  a 
free  and  harmonious  development  of  individual  capacity  and  happi- 
ness is  possible  only  for  the  privileged  minority,  and  that  socialism 
alone  can  open  up  a  fair  opportunity  for  all.  They  believe,  in  short, 
that  there  is  no  opposition  whatever  between  socialism  and  individ- 
uality rightly  understood,  that  these  two  are  complements  the  one 
of  the  other,  that  in  socialism  alone  may  every  individual  have  hope 
of  free  development  and  a  full  realization  of  himself. 

374.     The  Transition  to  the  Socialist  State^^ 

BY  O.  D.  SKELTON 

The  first  problem  that  faces  the  socialist — how  catch  the  hare — 
is  primarily  a  question  of  tactics,  but  its  solution  largely  determines 
the  character  and  extent  of  the  difficulties  facing  the  collectivist  com- 
monwealth at  the  outset.  Is  the  capitalist  to  be  expropriated  without 
indemnity,  or  to  be  offered  compensation?  The  earlier  hot-blooded 
demand  for  the  expropriation  of  the  robber  rich  without  one  jot  of 
payment  is  now  heard  more  rarely  in  the  socialist  camp.  This  attitude 
was  consistent  with  the  catastrophic  view  of  social  evolution,  the 
view  that  the  revolution  would  be  "an  affair  of  twenty-four  lively 
hours,  with  individualism  in  full  swing  on  Monday  morning,  a  tidal 
wave  of  the  insurgent  proletariat  on  Monday  afternoon,  and  socialism 
in  complete  working  order  on  Tuesday."  But  in  these  post-Dar- 
winian days  this  naive  expectation  is  untenable.  With  the  growing 
admission  that  the  new  order  must  be  established  by  degrees,  it  is 
seen  that  it  would  be  impossible  to  expropriate  certain  capitalists  and 
leave  the  rest  in  undisturbed  possession.  Further,  forcible  expropria- 
tion without  indemnity  would  be  impossible ;  even  were  the  great 
majority  of  the  manufacturing  proletariat  won  over  to  the  policy, 
they  could  scarcely  hope  to  overcome  the  determined  resistance  of  the 
millions  of  farmers  and  the  urban  middle  class. 

If  the  other  horn  of  the  dilemma  is  then  unanimously  chosen,  and 
the  capitalists  bought  out  at  one  hundred  cents  on  the  dollar,  how  is 

^^Adapted  from  Socialism:  A  Critical  Analysis,  pp.  182-84.  Copyright  by 
Hart,  Schaffner  &  Marx,  191 1. 


852  CURRENT  ECONOMIC  PROBLEMS 

the  condition  of  the  poorer  classes  one  jot  improved?  There  will  be 
heaped  up  an  immense  debt,  a  perpetual  mortgage  on  the  collective 
industry ;  rent  and  interest  will  still  remain  a  first  charge,  still  extract 
"surplus  labor"  from  the  workers.  Even  if  coUectivist  management 
were  to  prove  every  whit  as  efficient  as  capitalistic,  the  surplus  for 
division  among  the  workers  would  not  be  increased  beyond  that 
available  today.  Indeed,  it  would  be  diminished.  Today  a  great 
part  of  the  revenue  drawn  in  the  shape  of  rent  and  interest  is  at  once 
recapitalized,  and  makes  possible  the  maintenance  and  extension  of 
industry.  A  socialist  regime  could  not  permit  the  paid-off  capitalists 
to  utilize  their  dividends  in  this  manner,  increasing  their  grip  on  in- 
dustry ;  they  would  be  compelled  to  spend  it  in  an  orgy  of  consump- 
tion. All  provision  for  capital  extension  would  therefore  have  to 
come  out  of  what  was  left  of  the  national  dividend.  The  last  state 
would  be  worse  than  the  first. 

Recognizing  this,  various  socialists  have  proposed,  once  the  cap- 
ital has  been  appropriated,  to  put  on  the  screws  by  imposing  income, 
property,  and  inheritance  taxes  which  will  eventually  wipe  out  all 
obligations  against  the  state.  In  other  words,  they  would  imitate  the 
humanitarian  youngster  who  thoughtfully  cuts  off  the  cat's  tail  an 
inch  at  a  time,  to  save  it  pain.  Doubtless  there  are,  within  the  existing 
order,  great  possibilities  of  extension  of  such  taxes  for  the  fuifher- 
ance  of  social  reform.  Possibly  our  withers  would  be  unwrung  if  tht 
socialistic  state  confiscated  the  multimillionaire's  top  hundred  mil- 
lion by  a  progressive  tax.  But  the  fortunes  of  the  multimillionaires, 
spectacular  as  they  are  and  politically  dangerous  as  they  are,  form 
but  a  small  proportion  of  the  total  wealth.  So  soon  as  the  tax  came 
to  threaten  the  confiscation  of  the  small  income  as  well  as  the  great, 
the  matter  would  again  become  one  of  relative  physical  force. 

375.     Socialism  and  Inequality^" 

BY  N.  G.  PIERSON 

Under  state  socialism,  pure  and  simple,  the  government  of  the 
country  would  assume  the  ownership  of  the  instruments  of  produc- 
tion. We  take  it  that  this  end  might  be  achieved  in  the  following 
manner.  Just  as  at  the  present  it  already  owns  the  postal  system, 
just  as  in  certain  countries  it  already  owns  and  works  the  railways, 
manufactures  cigars  and  matches,  so  it  might  successively  assume 
the  ownership,  and  undertake  the  working  of  all  factories  and  work- 

^oAdapted  from  Principles  of  Economics,  II,  88-91.  Copyright  by  Mac- 
millan  &  Co.,  1902. 


COMPREHENSIVE  SCHEMES  OF  REFORM  853 

shops,  all  means  of  transport,  farms,  fisheries,  warehouses,  and  shops. 
In  order  to  be  able  to  form  by  degrees  a  staff  of  properly  qualified 
officials,  the  state  would  have  to  be  careful  not  to  proceed  with  undue 
haste.  Beginning  with  those  branches  of  industry,  in  which  no  great 
experience  or  intelligence  was  required,  it  would  have  to  proceed  step 
by  step  in  extending  the  sphere  of  its  operations,  and  would  have 
to  be  content  if,  at  the  end  of  sixty  or  a  hundred  years,  it  had  suc- 
ceeded in  bringing  the  whole  of  production  within  that  sphere.  From 
this,  however,  it  follows  that  the  transfer  would  necessarily  have  to 
be  effected  on  terms  of  adequate  compensation  to  the  present  owners. 
We  are  now  leaving  questions  of  equity  entirely  out  of  considera- 
tion, and  regarding  only  the  economic  aspects  of  the  question.  Dur- 
ing the  time  when  the  state  was  engaged  in  appropriating  the  instru- 
ments of  production,  there  should  be  no  disturbances  of  a  nature  to 
occasion  direct  distress,  and  such  disturbances  would  be  inevitable 
where  sentence  of  confiscation  was  hanging  like  a  sword  of  Damocles 
over  the  head  of  every  capitalist  for  a  number  of  years.  The  more  it 
became  evident  from  experience  that  the  danger  was  real  and  no  mere 
bogey,  the  worse  would  things  grow.  People  would  become  much 
less  inclined  to  save,  and  much  more  disposed  to  squander.  The  prop- 
erties which  the  state  was  to  take  over  would  ultimately  have  got 
into  the  most  melancholy  condition  of  decay,  and  habits  of  neglect  and 
recklessness  would  have  become  general  and  would  be  slow  to  dis- 
appear. 

A  state,  which  meant  to  become  socialist,  would  have  to  do  one 
of  two  things :  if  it  offered  no  full  compensation,  it  would  have  to 
take  over  the  whole  production  in  a  very  short  period  of  time ;  if, 
on  the  other  hand,  it  meant  to  take  over  the  various  branches  of  pro- 
duction by  degrees,  it  would  be  unable  to  escape  the  necessity  of 
offering  compensation.  The  former  alternative  would  be  impossible, 
even  in  such  a  small  country  as  Holland.  The  second  alternative 
would,  therefore,  have  to  be  chosen  on  purely  economic  grounds, 
apart  from  all  considerations  of  justice.  The  compensation  would 
have  to  be  such  as  would  be  deemed  sufficient  by  the  recipients  them- 
selves, otherwise  it  would  fail  in  its  object.  It  has  been  suggested  that 
the  compensation  might  be  paid  in  thirty  or  fifty  annuities.  Certainly 
this  system,  like  many  another,  could  be  applied ;  but  we  must  clearly 
understand  that  everything  which  reduced  the  compensation  would 
diminish  the  care  given  to  such  goods  as  the  state  had  not  yet  appro- 
priated. And  it  would  be  of  the  utmost  importance  that  this  care 
should  not  be  relaxed,  but  should  continue  unabated  up  to  the  very 
end. 


854  CURRENT  ECONOMIC  PROBLEMS 

It  would  of  course  be  possible  to  create  a  certain  inducement  for 
the  owner  not  to  neglect  his  property,  by  providing  that  the  number 
or  the  amount  of  the  annual  payments  made  by  way  of  compensa- 
tion should  depend  upon  the  state  of  the  property  at  the  time  of  its 
transfer  to  the  government ;  it  is  very  much  to  be  questioned,  how- 
ever, whether  this  would  prove  a  sufficient  inducement.  Everyone 
would  compare  the  actual  advantage  that  accrued  from  saving  the 
expense  of  upkeep  with  the  possible  disadvantages  of  the  annual 
payment  system,  and  it  is  easy  to  judge  what  the  result  of  the  com- 
parison would  be  in  most  cases;  more  especially  if  the  payments 
took  a  form  which  did  not  commend  itself  to  the  owner,  or  if  there 
were  any  reason  to  suppose  that  the  socialist  state  might  not  fulfill 
its  obligations. 

We  look  further  into  the  future ;  sixty,  or,  say,  a  hundred  years 
have  passed;  what  condition  of  things  do  we  see  now?  What  has 
changed  and  what  has  not? 

The  principal  survival  is  the  inequality,  the  very  thing  that  some 
people  found  most  difficulty  in  submitting  to  in  the  past.  There  are 
no  longer  any  merchants,  shipowners,  or  manufacturers,  there  are 
no  landowners  or  bankers;  but,  unless  the  annuity  system  of  com- 
pensation has  been  adopted,  we  find,  instead,  a  very  large  number 
of  holders  of  government  stock,  so  that  there  are  as  many  owners 
of  property  as  before.  This  class  will  remain  and  increase.  For 
the  socialistic  state  will  have  recognized — if  not  at  once,  then  after 
being  taught  by  bitter  experience — that  with  growth  of  population, 
capital  also  must  grow,  and  that  it  must  grow  even  more  rapidly 
than  the  population.  The  state  will  therefore  have  to  encourage 
thrift  by  paying  a  certain  rate  of  interest  on  all  savings  entrusted 
to  its  keeping.  It  will  have  to  maintain  the  law  of  inheritance ;  for 
there  can  be  no  strong  incentive  to  save,  unless  goods  for  consump- 
tion and  claims  in  respect  of  debt  can  be  handed  down  from  one 
generation  to  another.  We  do  not  know  if  this  is  quite  compatible 
with  the  socialistic  system,  but  we  do  know  that  it  is  absolutely 
necessary,  since  the  need  for  capital  will  always  remain,  no  matter 
on  what  lines  society  may  be  organized. 

The  inequality  thus  remains;  only  certain  of  its  causes  disap- 
pear. Fortunes  can  no  longer  be  accumulated  in  commerce  or  in  ■ 
dustry,  nor  does  increased  demand  for  agricultural  or  building  land 
tend  any  longer  to  enrich  the  few  at  the  expense  of  the  many.  But 
gambling  on  the  stock  exchange  will  not  have  disappeared.  Even 
though  the  compensation  should  have  taken  the  form  of  terminable 
annuities,  it  would  be  many  years  before  all  the  bonds  establishing 
their  holders'  claims  to  such  annuities  had  disappeared,  and  it  is 


COMPREHENSIVE  SCHEMES  OF  REFORM  855 

probable  that  in  a  socialistic  state  these  bonds  would  be  subject  to 
considerable  fluctuations  in  the  market.  Even  if  all  the  annuities  in 
the  country  itself  were  to  have  expired,  there  would  still,  no  doubt, 
be  bonds  of  other  countries  to  speculate  in.  Besides,  there  will 
never  be  wanting  things  to  serve  as  the  subject  of  betting  and  gam- 
bling transactions.  If  any  one  expects  that  the  socialistic  state  will 
be  able  to  get  rid  of  these  causes  of  inequality,  his  optimism  must 
be  rather  extravagant. 

376.     Socialism  and  the  Factors  of  Production-^ 

In  fervid  attempts  to  correct  the  inequalities  in  distribution,  we 
are  very  likely  to  overlook  the  social  importance  of  production.  Only 
what  is  produced  can  be  distributed ;  consequently  the  larger  the 
production,  the  greater  the  average  distributive  share.  Therefore, 
before  a  scheme  of  social  reform  can  win  our  approval,  it  must  show 
either  that  it  will  not  decrease  production,  or  that  the  decrease  will 
be  more  than  balanced  by  gains  in  the  distributive  system.  Produc- 
tion must  not  be  overlooked. 

The  amount  of  the  "social  dividend"  is  contingent,  among  other 
things,  upon  the  proportion  maintained  between  the  factors  of  pro- 
duction. The  greatest  steps  in  material  progress  have  been  associated 
with  a  decrease  in  the  amount  of  labor  used  in  proportion  to  the 
non-human  elements  in  production.  The  economic  importance  of 
the  Black  Death  lies  in  it^decrease  of  the  population;  of  the  settle- 
ment of  America,  in  its  increase  of  natural  resources;  and  of  the 
industrial  revolution  in  its  increase  of  accumulated  capital.  In  the 
"socialistic  future"  the  state  will  find  itself  in  the  "stage  of  dimin- 
ishing returns" ;  for  the  cry  for  socialism  will  remain  an  unheeded 
v/ail  so  long  as  "increased  returns"  yield  abundance.  Relief  from 
the  pressure  of  population  on  resources  cannot  be  found  in  the 
utilization  of  new  lands,  for  no  new  continent  will  be  left  for  ex- 
ploitation. As  a  result  the  maintenance  of  a  high  standard  of  living 
can  be  achieved  only,  either  by  a  strict  limitation  of  numbers,  or  by 
an  increase  in  capital.  It  is  necessary,  therefore,  to  inquire  what 
influence  socialism  is  likely  to  have  upon  the  increase  or  decrease  of 
these  factors  of  production. 

To  be  quite  fair,  let  us  assume  that  socialism,  once  achieved, 
will  realize  the  dreams  of  its  advocates :  that  it  will  substantially 
reduce  the  inequalities  in  the  ownership  of  wealth,  and  materially 
increase  the  incomes  of  the  classes  at  the  bottom.  Granted  a  tem- 
porary increase,  the  important  question  is  whether  these  incomes  can 

2iAn  editorial,  1915. 


856'         CURRENT  ECONOMIC  PROBLEMS 

remain  permanent.  We  have  no  reason  for  thinking  that  socialism 
will  make  us  creatures  of  different  passions,  and  that  in  this  ideal 
state  maids  will  cease  to  look  fair  to  youths.  The  larger  income  will 
make  marriage  possible  to  many  who  cannot  now  "afford  it."  For 
others  marriage  will  be  possible  at  earlier  ages.  The  result  will  be 
•  an  increase  in  the  birth  rate.  Likewise  the  larger  incomes  and  the 
temporarily  better  way  of  living  should  mean  for  a  time  a  decrease 
in  the  rate  of  infant  mortality.  Both  causes  would  tend  to  increase 
the  number  of  laborers  in  the  next  generation,  to  lower  the  margin 
of  industry,  and  to  establish  lower  rates  of  wages,  and  lower  stan- 
dards of  living.  There  is  no  reason  why  this  tendency  should  not 
be  continued  until  wages  and  standards  were  as  low  as — or  lower 
than — under  the  older  system.  The  conditions  of  the  "workers" 
would,  therefore,  be  improved  only  during  the  transition  period 
during  which  the  "surplus"  wealth  of  the  "classes"  was  being  trans- 
ferred. In  the  end  the  lower  classes  would  be  no  better  off.  The 
only  appreciable  gain  would  be  in  a  larger  number  of  souls  to  be 
saved. 

But  what  about  the  increase  of  capital?  Under  our  present 
system  thrift  is  voluntary,  not  compulsory.  Society  relies  for  its 
capital  upon  the  temptation  to  accumulation  offered  by  private  prop- 
erty and  by  inheritance  and  the  opportunity  for  saving  residing  in 
the  unequal  distribution  of  income  which  showers  upon  the  privi- 
leged few  more  than  they  can  spend  and  forces  large  aggregates  of 
wealth  to  be  reinvested  in  the  productive  process.  A  stratifying 
society  presents  ideal  conditions  for  the  accumulation  of  capital. 
Democratic  equality  and  rigid  class  distinction  are  alike  inimical  to 
the  rapid  piling  up  of  productive  wealth.  However,  if  individual 
thrift  proves  inefficient,  the  socialist  state  is  in  position  to  substitute 
compulsory  thrift.  Let  us  see  what  use  a  socialistic  society  can  make 
of  each  of  these  methods. 

Voluntary  thrift  would  not  suffice.  If  no  interest  were  offered 
on  savings,  and  moral  encouragement  alone  was  used,  the  tangible 
wealth  accumulated  would  be  negligible.  If  interest  were  offered, 
either  by  a  payment  on  bank  deposits  or  by  the  sale  of  interest- 
bearing  bonds,  some  capital  would  be  formed.  But  if  inheritance 
were  not  allowed,  the  disposition  to  spend  would  increase  with  ad- 
vancing years,  and  a  rather  high  rate  of  interest  would  be  necessary 
to  secure  adequate  results.  If  inheritance  were  allowed,  the  system 
would  be  very  similar  to  our  own.  In  fact  these  methods  involve 
makmg  use  of  the  individualistic  incentives  to  thrift.  But,  without 
raising  this  question,  the  chief  incentives  to  individual  accumulation 


COMPREHENSIVE  SCHEMES  OF  REFORM  857 

would  be  absent.  The  large  fortunes,  which  are  the  basis  of  so  much 
current  accumulation,  would  be  no  longer  present.  Again,  the  em- 
phasis which  a  socialistic  state  would  place  upon  life  in  the  present, 
together  with  the  greater  equality  in  station  and  possessions,  would 
cause  expenditure  closely  to  approach  income. 

Yet,  even  if  individual  thrift  were  inadequate,  it  must  be  ad- 
mitted that  the  state  could  compel  accumulation.  Under  a  money 
economy,  it  could  accomplish  this,  either  by  placing  a  tax  upon  the 
income  of  its  citizens  with  the  object  of  paying  for  the  production 
of  capital  goods,  or  by  raising  the  prices  of  consumptive  goods  and 
using  the  surplus  in  the  same  way.  Without  a  money  economy,  the 
same  object  could  be  effected  by  a  simple  distribution  of  men  between 
occupations  turning  out  "present"  and  "future"  goods.  An  analogy 
is  found  in  the  distribution  of  work  in  military  societies,  where  a 
part  of  the  labor  force  is  sent  out  to  fight  and  a  part  is  kept  at  home 
to  supply  the  fighters  with  munitions  and  provisions.  But  could 
the  state  enforce  accumulation?  Suffrage  would  be  democratic. 
Democracy  is  a  short-sighted  and  wasteful  institution  that  is  too 
much  of  a  luxury  for  any  country  save  one  with  large  and  virgin 
resources.  Under  our  system  little  attention  is  given  to  the  necessity 
of  conserving  the  supply  of  capital.  Recall,  if  you  can,  a  considera- 
tion of  this  question  in  a  political  speech.  Socialists  show  little 
appreciation -of  the  role  of  capital  in  production.  They  fail  to  appre- 
ciate the  importance  of  keeping  up  its  supply.  It  seems  extremely 
doubtful  whether  a  party  committed  to  an  increase  of  capital,  at- 
tended as  such  an  increase  necessarily  is  by  a  sacrifice  in  immediate 
consumption,  could  survive  in  a  socialistic  state.  The  opposing  party, 
promising  immediate  prosperity  and  higher  incomes — of  course  at 
the  expense  of  the  future — would  be  almost  certain  to  enjoy  popular 
support.  Socialism,  therefore,  still  further  threatens  to  lower  the 
margin  of  industry,  wages,  and  the  standard  of  living,  by  failure  to 
induce  a  sufficient  supply  of  capital. 

It  must  not  be  denied  that  these  difficulties  are  not  insuperable. 
The  lower  classes  may,  in  course  of  time,  learn  to  control  their 
numbers.  The  electorate  may  learn  that  individual  and  immediate 
gain  must  often  be  sacrificed  if  more  ultimate  social  good  is  to  be 
achieved.  It  may  even  learn  the  importance  of  keeping  up  the 
supply  of  capital.  But  as  yet  these  lessons  have  not  been  learned. 
When  society  attains  this  measure  of  wisdom,  the  problem  of  the 
"classes  at  the  bottom"  will  have  lost  much  of  its  importance.  The 
severity  of  their  distress  will  have  disappeared.  The  magic  of 
socialism  will  be  no  longer  necessary.  In  short,  socialism  is  too 
individualistic  and  too  short-sighted  to  meet  our  needs. 


858  CURRENT  ECONOMIC  PROBLEMS 

D.     SOCIALIST  ARGUMENTS  FOR  THE  MASSES 
377.     Capitalism— A  Vampire  System-^ 

BY  GEORGE  E.   LITTLEFIELD 

1.  Under  capitalism,  labor  of  brain  and  hand— human  life- 
power— is  a  mere  commodity.  The  world's  workers  are  wage-slaves, 
compelled  to  sell  time  portions  of  themselves  in  the  auction  marts 
of  competition  to  master  bidders,  lowering  their  price  in  the  rivalry 
for  jobs— for  the  opportunity  to  live— until  it  is  just  enough  to  equal 
the  bare  cost  of  living  and  reproduction — the  iron  law  of  wages. 

2.  Human  labor,  applied  to  natural  resources,  creates  all  value. 

3.  The  unpaid  portion  of  labor  is  surplus  value  or  capital,  with 
v/hich  the  exploiting  capitalists  become  masters  of  land,  buildings, 
machinery,  'and  raw  material — all  the  means  of  production  and  dis- 
tribution that  labor  depends  upon  for  existence— therefore  masters 
also  of  the  wage-slaves. 

4.  The  withholding  of  this  surplus  value  from  labor  prevents 
the  exploited  workers  from  buying  or  consuming  but  a  fraction  of 
their  full  product — hence  periodic  over-production  and  consequent 
"hard  times,"  ever  becoming  more  severe  and  chronic,  until  finally 
the  whole  capitalist  system  must  smother  in  its  own  "prosperity." 

5.  Capitalism  is  a  vampire  system.  While  it  absorbs  the  labor 
and  life  of  the  competitive  wage-slaves,  the  competing  capitalist 
masters,  preying  one  upon  another,  destroy  each  other  until  thus 
we  have  but  a  few  monster  vampires  sucking  the  last  dregs  of  vitality 
from  a  vastly  increased  proletariat,  and  finally  comes  the  crisis — 
the  sin  of  wageism  is  death — the  collapse  of  the  capitalist  system. 
Labor  unions  and  fake  legislation  for  the  strangling  little  capitalists 
(like  the  impotent  railroad-control  law)  may  palliate  and  prolong 
the  present  agony  for  a  brief  time,  but  the  end  is  fatally  doomed  as 
k  the  diseased  person  who  will  not  cut  out  his  life-absorbing  cancer. 
The  huge  modern  plutocratic  parasites,  inflated  with  interest,  rent, 
and  profits,  must  finally  expire  with  the  death  of  what  they  feed 
upon — wageism.  So  the  vampire  patricians  of  ancient  Rome  sapped 
the  plebeian  and  slave  basis  of  their  economic  system  and  the  empire 
fell  in  476. 

6.  No  system  of  civilization  can  advance  or  live  when  a  feasting, 
reveling  class  drinks  from  the  toilers'  veins  while  riding  on  their 
backs.  The  knell  of  its  own  death  is  now  being  rung  by  capitalism 
which  hypocritizes  religion ;  perverts  morality ;  makes  the  law  unjust ; 
prostitutes  education;  promotes  war;  corrupts  politics;  practices 
robbery,  swindling,  and  gambling  as  a  business ;  betrays  friendship ; 

22From  Capitalism  to  Socialism,  Flashlight  Number  7,  1905. 


COMPREHENSIVE  SCHEMES  OF  REFORM  859 

sends  love  out  street-walking  and  makes  marriage  mercenary;  calls 
attic  lodgings,  slum  cellars,  corporation  shacks,  and  hobo  hovels 
"homes" ;  offers  little  children  to  the  moloch  of  commercialism,  and 
in  the  mad  scramble  for  its  dope  incentive — dollars — materializes 
the  rich,  vulgarizes  the  well-to-do,  and  brutalizes  the  poor.  Such 
is  the  result  of  the  economic  determinism  of  capitalism. 

378.     The  Capitalist's  Ten  Commandments-^ 

BY  W.   WILLIS   HARRIS 

I.  I  am  Capital,  thy  Master,  that  brought  thee  out  of  the  Land 
of  Liberty  into  a  State  of  Slavery.  Thou  shalt  not  become  thine 
own  Master  nor  have  any  other  Master  but  me. 

IL  Thou  shalt  not  create  any  wealth,  nor  any  likeness  of  any 
wealth  that  is  in  Heaven  above,  or  that  is  in  Earth  beneath,  or  that  is 
in  the  waters  under  the  Earth,  unless  I  can  make  a  profit  out  of  it. 
Thou  shalt  bow  thyself  down  under  my  oppression  and  serve  me, 
for  I,  Capital,  am  a  jealous  Master  and  visit  the  poverty  of  the 
fathers  upon  the  children  unto  the  third  and  fourth  generations  of 
those  that  create  wealth  for  me,  and  show  mercy  unto  the  thousands 
of  sycophants  that  love  me  and  help  me  to  share  the  spoils  of  Labor. 

in.  Thou  shalt  not  produce  wealth  for  thyself,  for  I,  Capital, 
will  not  hold  him  guiltless  that  attempts  to  do  so  in  vain. 

IV.  Keep  the  Labor  Days,  and  sanctify  them ;  as  I,  Capital,  have 
commanded  thee,  lest  I  throw  thee  out  of  employment.  Four  and 
a  half  days  thou  shalt  work  for  me,  and  one  and  a  half  for  thyself. 
But  the  seventh  day  is  a  rest  day  for  labor  to  recoup  his  strength. 
In  it  thou  shalt  not  do  any  work,  thou,  nor  thy  son,  nor  thy  daughter, 
nor  thy  wife,  unless  they  be  menial  servants  or  minister  to  my  com- 
forts. And  remember  that  thou  art  my  slave,  therefore  do  not 
attempt  to  enjoy  thyself  lest  thou  over-exert  thyself  and  be  unable 
to  produce  a  profit  for  me  next  week. 

V.  Honor  Landlordism  and  Usury,  my  co-partners,  as  I,  Capi- 
tal, have  commanded  thee,  that  thy  days  may  be  short  in  the  Land 
in  which  thou  art  born. 

VI.  Thou  shalt  commit  murder  for  my  sake  only. 

VII.  Thou  shalt  give  thy  daughters  in  prostitution  and  thy  wife 
in  adultery  to  me. 

VIII.  Thou  shalt  not  steal,  that  being  the  right  divine  of 
Capital. 

IX.  Thou  shalt  bear  false  witness  against  thy  neighbor — if  he 
be  a  Socialist. 

23Adapted  from  Progressive  Thought,  II  (No.  5.  1898),  13-14- 


86o  CURRENT  ECONOMIC  PROBLEMS 

X.  Thou  shalt  not  desire  the  full  products  of  thy  labor,  neither 
shalt  thou  covet  the  Land  of  thy  birth,  nor  the  stored-up  wealth  of 
past  generations,  nor  the  idleness,  luxury,  and  privileges  of  the 
wealthy,  nor  anything  that  is  in  possession  of  the  capitalist. 

379.     A  Confession  of  Faith-* 

I  believe  in  Capital,  the  ruler  of  body  and  mind. 

I  believe  in  Profit,  His  Right-hand  Bower,  and  in  Credit,  His 
I^eft-hand  Bower,  both  of  which  proceed  from  and  are  one  with 
Him. 

I  believe  in  Gold  and  Silver,  which  melted  in  the  crucible,  cut 
up  into  bullion,  and  stamped  in  the  mint,  make  their  appearance  in 
the  world  as  coin,  but,  after  having  rolled  over  the  earth,  and  being 
found  too  heavy,  descends  into  the  vaults  of  the  Banks,  and  re- 
ascends  in  the  shape  of  Paper  Money. 

I  believe*  in  Dividends,  in  5  per  cents,  4  per  cents  and  3  per  cents, 
and  also  in  smaller  per  cents,  that  are  sjiaved  from  notes. 

I  believe  in  National  Debts,  which  secure  Capital  against  the 
risks  of  trade,  industry  and  the  fluctuations  of  the  money  market. 

I  believe  in  Private  Property,  the  fruit  of  the  labor  of  others; 
and  I  also  believe  in  its  existence  from  and  for  all  time. 

I  believe  in  the  necessity  of  Misery — the  furnisher  of  wage- 
slaves,  and  the  mother  of  surplus  labor. 

I  believe  in  the  eternity  of  the  Wage  System,  which  setteth  the 
workingman  free  from  all  the  cares  of  holding  property. 

I  believe  in  the  extension  of  the  hours  of  work,  and  in  the  Reduc- 
tion of  wages  ;  and  I  also  believe  in  the  adulteration  of  goods. 

I  believe  in  the  holy  dogma :  "Buy  Cheap,  Sell  Dear,"  and  there- 
by in  the  fundamental  principles  of  our  sacrosanct  Church,  as  re- 
vealed by  professional  Political  Economy.    Amen  ! 

E.     GILD  SOCIALISM 
380.     The  Tendency  in  Workshop  Control"^ 

BY  W.  GALLAGHER  AND  J.  PATON 

Reconstruction.— We  would  have  it  clearly  understood  by  all 
whom  it  concerns  that  labor  has  nothing  to  hope  for  and  much  to 
fear  from  industrial  reconstruction,  as  it  is  being  so  freely  expounded 

2*Adapted  from  Progressive  Thought,  II  (No.  5,  1898),  14. 
Worl'c^  leaflet  entitled  "Towards  Industrial  Democracy:  A  Memorandum  on 
cil,  1919      ^°"*'''^''    '^'"^^  by  the  Paisley  (Scotland)  Trades  and  Labor  Coun- 


COMPREHENSIVE  SCHEMES  OF  REFORM  86 1 

at  present  by  managing  directors,  statesmen,  and  official  trade-union 
leaders.  These  gentlemen  unite  in  declaring  that  there  can  be  no 
return  after  the  war  to  the  old  conditions :  there  must  be  "a  complete 
break  with  the  past."  But  the  moment  they  get  down  to  definite 
proposals  it  becomes  evident  that  not  only  do  -they  desire  to  preserve 
the  very  worst  evils  of  the  old  system,  but  also  to  perpetuate  as  many 
of  the  restrictive  regulations  of  war-time  as  the  workers  can  be  bribed 
to  submit  to.  They  are  weaving  snares  to  our  feet  in  the  form  of 
co-partnership  and  profit-sharing  schemes ;  their  talk  is  not  of  free- 
dom, but  of  security  of  employment,  higher  wages,  and  bonus ;  bf 
harmony  between  employers  and  wage-earners;  and  of  that  less 
abomination,  workers'  welfare.  The  central  figure  of  their  brightest 
vision  of  the  future  is  the  profiteer,  swollen  with  the  dividends  of 
increased  production  in  the  national  interest.  Behind  him  stretch 
his  foundries  and  factories,  their  furnaces  blazing,  their  machinery 
clanking  by  day  and  by  night,  manned  by  an  army  of  sleek,  docile, 
contented  wage-slaves.  In  short,  the  capitalistic  system  of  production 
having  broken  down,  we  are  to  be  invited  to  build  it  up  again,  and 
re-establish  it  more  securely  than  ever. 

It  would  appear  we  must  do  our  own  reconstruction.  It  is  very 
simple ;  there  is  only  one  thing  to  be  done,  and  we  can  begin  to  do 
it  now.  It  is  to  smash  the  wage  system,  and  wreck  the  control  of 
industry  from  the  capitalists.  Nothing  else  is  any  use  at  all.  No 
"break  with  the  past"  is  possible  under  capitalism.  Though  condi- 
tions be  "reformed"  out  of  all  recognition,  so  long  as  wagery  re- 
mains "the  past"  is  with  us  still.  The  more  it  changes,  the  more  it 
is  the  same  thing. 

Now  the  movement  for  the  overthrow  of  capitalism  by  an  aboli- 
tion of  the  wage  system  must  begin,  not  at  Westminster,  not  in  the 
trade-union  executive,  nor  yet  in  the  trade-union  branches,  but  in  the 
workshops.  And  it  should  take  the  form  of  the  assumption  by  the 
workers  of  an  ever-increasing  share  in  control. 

Not  peace  but  a  sword. — A  share  in  control  does  not  imply  that 
the  workers  should  enter  into  partnership  or  any  sort  of  alliance  with 
the  employer,  or  incur  joint  responsibility  with  him,  or  be  identified 
with  him  in  any  way.  All  forms  of  co-partnership — collective  or 
individual — are  based  on  the  theory  that  the  interests  of  the  exploiter 
and  exploited  are  identical,  whereas  they  are,  in  fact,  mutually  antag- 
onistic and  irreconcilable.  All  such  schemes  are  cunningly  designed 
by  a  plausible  appeal  to  individual  cupidity  to  corrupt  the  worker  and 
seduce  him  from  collective  action  with  his  fellows.    Co-partnership 


862  CURRENT  ECONOMIC  PROBLEMS 

multiplies  profiteers  and  nourishes  capitalism.  And  are  we  not  out 
to  destroy  capitalism  ? 

There  must  be  no  alliance  or  compromise  with  the  employer.  We 
shall  be  obliged,  indeed,  to  negotiate  with  him  through  his  representa- 
tives iii  the  daily  routine  of  the  workshop,  but  not  to  espouse  his 
interests,  or  to  advance  them  in  any  way  when  it  lies  in  our  power 
to  do  otherwise.  Our  policy  is  that  of  invaders  of  our  native  province 
of  industry,  now  in  the  hands  of  an  arrogant  and  tyrannical  usurper, 
and  what  we  win  in  our  advance  we  control  exclusively  and  inde- 
pendently. 

The  first  step. — The  "^first  step  should  be  to  establish  in  every 
industrial  area,  and  for  each  industry,  a  system  of  workshop  com- 
mittees, as  follows : 

I.  The  works  committee.  In  every  work  a  works  committee 
shall  be  elected  by  and  from  all  the  trade-unionists,  skilled  and  un- 
skilled, in  the  various  departments.  Each  department  numbering  fifty 
workers  or  less  shall  have  one  representative  on  the  committee,  and 
an  additional  representative  shall  be  granted  for  every  succeeding 
fifty  or  part  thereof. 

II.  Departmental  committees.  Each  department  shall  appoint 
a  sub  committee  to  act  in  conjunction  with,  and  under  the  direction 
of  the  works  committee,  and  composed  of  the  delegate  or  delegates 
to  the  works  committee,  together  with  two  other  trade-unionists  in 
the  department. 

III.  Functions  of  departmental  committees:  a)  To  see  that 
all  trade-union  standards  and  agreements  are  strictly  observed. 

h)  To  represent  the  workers  in  all  negotiations  with  the  depart- 
mental management. 

c)  To  keep  a  faithful  record  of  all  changes  in  shop  customs  or 
practices ;  a  copy  of  all  such  records  to  be  supplied  to  the  works  com- 
mittee. 

d)  To  he  the  sole  medium  of  contract  between  the  firm  and  the 
workers,  and  to  exercise  full  bargaining  powers  on  behalf  of  the 
men  and  women  in  the  department  in  fixing  time-allowance  where 
premium  bonus  is  in  operation,  and  rates  where  piecework  obtains. 
That  is  to  say,  all  individual  contracting  as  it  is  done  at  present  be- 
tween the  workmen  and  the  foreman  or  rate-fixer  is  to  be  eliminated. 
These  negotiations  shall  in  future  be  conducted  only  through  the 
committee. 

e)  Departmental  committee  shall  report  to  the  works  committee 
weekly. 


COMPREHENSIVE  SCHEMES  OF  REFORM  863 

IV.  Functions  of  works  committee :  a)  To  see  that  all  trade- 
union  standards  and  agreements  are  strictly  observed  throughout  the 
establishment,  and  to  co-ordinate  the  activities  of  the  departmental 
committees. 

b)  To  represent  the  workers  in  all  negotiations  with  the  works 
management. 

c)  To  consult  with  the  works  management  in  all  cases  where  it  is 
proposed  to  transfer  men  or  women  from  craft  to  craft  or  from  one 
department  to  another,  or  in  any  way  to  depart  from  established 
workshop  practice,  but  to  act  in  these  matters  only  upon  representa- 
tions made  by  the  departmental  committees. 

d)  To  keep  a  faithful  record  of  all  changes  m  shop  customs 
and  practices.  A  copy  of  all  such  records  to  be  forwarded  to  and 
systematically  filed  by  the  Allied  Trades  Committee  mentioned  in 
clause  V  hereinafter. 

e)  The  works  committee  shall  report  to  the  Allied  Trades  Com- 
mittee weekly. 

V.  The  Allied  Trades  Committee.  In  each  district,  and  for  each 
industry,  an  Allied  Trades  Committee  shall  be  appointed,  composed 
of  the  district  officials  of  the  trade-unions  concerned,  skilled  and  un- 
skilled. 

VI.  Functions  of  the  Allied  Trades  Committee.  To  co-ordinate 
the  methods  and  activities  of  the  Works  Committees,  and  to  act  as 
court  of  appeal  in  all  matters  relating  to  conditions  in  the  workshops 
in  the  district,  and  as  sole  intermediary  between  the  workshop  com- 
mittees and  joint  bodies  of  employers — employers'  federation  and  the 
like,  state  committees,  government  departments,  etc. 

Note. — When  the  workers  have  expelled  the  capitalists  and  taken 
over  complete  control  of  the  entire  industry,  the  main  function  of  the 
Allied  Trades  or  District  Committee  will  be  the  effective  and  econ- 
omical distribution  of  labor  throughout  the  district,  thus  rendering 
superfluous  anything  in  the  nature  of  a  state  labor  exchange.  For 
the  present,  however,  that  function  should  be  exercised  with  caution 
and  restraint,  and  only  where  it  will  be  clearly  to  the  advantage  of 
labor  and  not  merely  of  the  employer.  Skilful  manipulation  of  supply 
and  demand  of  labor  might  be  employed  strategically  over  the  area 
by  an  alert  District  Committee  as  a  means  of  forcing  up  wages  and 
strengthening  the  position  of  the  Works  Committees  in  particular 
firms. 

In  organizing  "direct  action"  the  committees  will  be  invaluable. 

Solidarity. — Such  a  system  as  we  have  sketched  would  promote 
solidarity  amongst  the  workers  by  substituting  collective  for  indivi- 


864  CURRENT  ECONOMIC  PROBLEMS 

dual  bargaining,  and  amalgamation  would  be  advanced  by  the  simple 
method  of  ignoring  craft  and  class  prejudices  and  working  together 
as  though  it  were  already  an  accomplished  fact.  Amalgamation  can- 
not be  brought  about  in  any  other  way.  Trade-union  officials  will 
never  give  an  effective  lead  to  a  movement  the  success  of  which 
involves  obscurity  or  social  ruin  for  great  numbers  of  themselves. 
But  let  the  advantages  of  unity  be  clearly  demonstrated  in  practice  in 
the  workshops,  and  the  trade-union  executives  will  soon  be  compelled 
by  the  overwhelming  pressure  of  the  rank  and  file  to  broaden  the 
basis  of  organization.  We  shall  have  taken  a  long  stride  in  the  direc- 
tion of  industrial  unionism. 

The  next  step. — After  all,  committees  are  but  machinery  and 
solidarity  a  preliminary  to  action.  Let  us  see,  then,  what  the  further 
policy  of  the  committees  will  be. 

Only  the  apathy  or  disloyalty  of  the  workers  themselves  can  pre- 
vent the  Works  Committees  having  in  a  very  short  time  the  experi- 
ence and  the  authority  to  enable  them  to  undertake  in  one  large  con- 
tract, or  in  two  or  three  contracts  at  most,  the  entire  business  of  pro- 
duction throughout  the  establishment.  Granted  an  alliance  with  the 
organized  office-workers — a  development  which  is  assured  so  soon  as 
the  Shop  Committees  are  worthy  of  confidence  and  influential 
enough  to  give  adequate  protection — these  contracts  might  include 
the  work  of  design  and  the  purchase  of  raw  material,  as  well  as  the 
operations  of  manufacture  and  construction.  But  to  begin  with,  the 
undertaking  will  cover  only  the  manual  operations.  The  contract 
price,  or  wages — for  it  is  still  wages — will  be  remitted  by  the  firm 
to  the  Works  Committee  in  a  lump  sum,  and  distributed  to  the  work- 
ers by  their  own  representatives  or  their  officials,  and  by  whatever 
system  or  scale  of  remuneration  they  may  choose  to  adopt.  If,  as  is 
unlikely,  a  great  industrial  union  has  by  this  time  taken  the  place 
of  the  sectional  unions,  these  financial  intromissions  may  be  carried 
out  by  its  district  executive  (which  would  succeed  the  Allied  Trades 
Committee)  instead  of  by  the  Works  Committee.  A  specially  en- 
lightened union  of  this  sort  would  no  doubt  elect  to  pool  the  earnings 
of  its  members  and  pay  to  each  a  regular  salary  weekly,  monthly,  or 
quarterly,  exacting,  of  course,  from  the  recipient  a  fixed  minimum 
record  of  work  for  the  period. 

An  important  feature  of  all  contracts  would  be  a  clause  limiting 
the  responsibility  of  the  committees  to  the  actual  business  of  pro- 
duction. That  is  to  say,  they  would  not  be  penalized  for  any  stoppage 
of  work  from  whatever  cause,  or  held  liable  for  losses  arising  there- 
from.   Nor  would  they  accept  responsibility  for  the  smooth  running 


COMPREHENSIVE  SCHEMES  OF  REFORM  865 

of  the  works,  or  for  tranquility  or  efficiency  in  the  industry  as  a 
whole. 

The  costs  of  control. — If  it  is  contended  that  the  scheme  here 
outlined  would  make  extensive  inroads  upon  the  time  spent  by  mem- 
bers of  the  Committee  at  their  ordinary  occupations,  and  correspond- 
ingly heavy  demands  upon  their  fellow-workers  who  would  have  to 
make  good  their  wages,  the  reply  is  that  the  time  is  spent  in  the  in- 
terests of  the  workers  throughout  the  industry,  and  the  loss  in  wages 
should  therefore  be  a  direct  charge  upon  trade-union  funds.  Further 
that,  wisely  directed  and  adequately  supported,  the  committee  will 
soon  see  to  it  that  these  charges  are  much  more  than  made  good  to 
the  workers  in  the  form  of  increased  wages  and  contract  prices. 

The  point  we  have  to  grasp,  however,  is  that  we — the  workers — 
already  pay  the  expenses  of  management  in  industry,  although  we  do 
not  enjoy  the  privileges.  For  whence,  if  not  out  of  the  workers'  earn- 
ings, come  the  wages  of  the  army  of  managers,  foremen,  bullies, 
speeders-up,  and  spies  who  throng  our  modern  industries?  The 
number  of  these  functionaries  will  be  greatly  reduced  in  a  demo- 
cratized workshop,  and  many  of  the  species  will  be  entirely  eliminated. 
The  employer  on  his  side,  having  no  longer  any  interest  in  control, 
will  pay  only  a  staff  of  inspectors  to  insure  that  the  quality  of  the 
workmanship  and  material  he  is  being  supplied  with  is  in  keeping 
with  the  terms  of  the  contract.  The  functions  of  management  will 
have  passed  to  the  committees,  and  it  will  be  their  business  to  see  that 
contract  prices  amply  cover  all  the  costs  of  these  functions.  The 
Conveners  of  the  Works  Committee  and  the  Departmental  Com- 
mittee will  gradually  but  surely  drive  out  and  supplant  the  works 
manager  and  departmental  foreman.  These  Conveners  then  become 
full-time  officials,  and  will,  of  course,  be  elected  periodically  like  the 
rest  of  the  Committee  by  their  fellow-workers. 

The  knock-out  blozv. — Now  it  is  true  that  even  when  we  have 
got  so  far  we  shall  not  yet  have  destroyed  the  wage  system.  But  we 
shall  have  undermined  it.  Capitalism  will  still  flourish,  but  for  the 
first  time  in  its  sordid  history  it  will  be  in  rank  jeopardy.  With  such 
a  grip  on  the  industrial  machine  as  we  have  postulated,  and  backed 
by  the  resources  of  a  great  industrial  union,  or  it  might  even  be  a 
federation  of  industrial  unions,  the  committee  could  soon  force  up 
contract  prices  to  a  point  that  w^ould  approximate  to  the  full  exchange 
value  of  the  product,  and  put  the  profiteer  out  of  business.  In  short, 
we  shall  have  taken  to  our  hands  a  powerful  economic  lever  which, 
intelligently  and  resolutely  applied,  is  easily  capable  of  overthrowing 
the  entire  structure  of  capitalism,  and  substituting  for  it  a  real  indus- 
trial democracy. 


866  CURRENT  ECONOMIC  PROBLEMS 

381.     Labor  Policy  After  the  War^^"* 

BY  G.  D.  H.   COLE 

Along  what  lines  ought  the  reconstruction  of  industry  after  the 
war  to  proceed  ?  That  there  must  be  some  reconstruction  of  industry 
we  are  all  agreed ;  upon  the  lines  along  which  reconstruction  ought  to 
proceed  there  is  the  greatest  divergence  of  opinion.  Perhaps  we  can 
best  approach  the  criticism  of  the  rival  principles  by  a  survey  of  the 
tendencies  that  are  operating  during  the  war  period.  I  shall  begin, 
then,  with  a  dogmatic  summary  of  these  tendencies  as  they  appear 
to  me. 

I.  During  the  war  labor  received  from  the  state  a  fuller  recogni- 
tion than  ever  before.  This  recognition  has  taken  both  agreeable  and 
disagreeable  forms.  Labor  has  been  consulted  more  than  ever  be- 
fore, or,  again,  the  labor  leader  has  been  called  upon  to  assume  a 
far  greater  degree  of  communal  responsibility,  and,  at  least  in  appear- 
ance, of  communal  power.  On  the  other  hand  labor — and  here  I 
mean  the  actual  manual  workers — has  been  compelled  to  submit  to 
rigorous  limitation  of  its  freedom  of  action,  and  to  a  far  greater 
measure  of  state  control  than  seemed  possible  before  the  war.  Spir- 
itually labor  has  both  gained  and  lost :  it  has  gained  by  the  recognition 
of  its  influence  and  right  to  power;  and  it  has  lost  by  the  inability 
to  exercise  that  influence  and  right  of  power  effectually.  Materially, 
labor  has  once  more  gained  and  lost:  it  has  gained  because,  on  the 
whole,  its  earning  power  has  increased,  and  because  it  will  be  difficult 
for  wages  to  fall  again  to  the  pre-war  level ;  and  it  has  lost  because 
the  strength  of  trade  unionism  has  been  seriously  impaired  by  the 
concessions  made. 

IL  Capital,  like  labor,  has  received  from  the  state  a  fuller  recog- 
nition than  ever  before.  From  the  beginning  of  the  war  the  control 
of  business  men  over  government  has  increased,  until  now  capitalist 
interests  have  to  all  intents  and  purposes  a  government  of  their  own. 
Profits  it  is  true  have  been  limited,  but  only  excess  profits  have  been 
touched.  Moreover,  in  return  for  these  limitations,  the  capitalist  has 
received  both  the  protection  of  the  state  in  his  business  and  addi- 
tional power  over  the  workers  he  employs.  Capitalism  has  become 
the  state's  accredited  industrial  agent,  and  state  control  has  only 
served  to  strengthen  the  capitalist  control  over  industry. 

III.  The  state  has  intervened  in  industrial  questions  more  than 
ever  before.    It  has  organized  production  and  directed  the  productive 

28Adapted  from  an  article  published  in  the  New  Age,  January,  1917,  and 
reprinted  in  Self -Government  in  Industry,  pp.  322-29.  Copyright  by  G.  Bell  & 
Sons. 


COMPREHENSIVE  SCHEMES  OF  REFORM  867 

energies  of  the  nation  on  an  unprecedented  scale.  Throughout,  how- 
ever, the  action  of  the  state  has  taken  such  forms  as  to  leave  private 
capitalism  not  only  the  ownership  of,  but  the  management  of,  industry. 
The  Munitions  Department  itself  employs  comparatively  few  persons. 
Only  as  buyer  and  seller  has  it  directly  assumed  functions  previously 
belonging  to  the  capitalist.  It  has  "controlled"  the  railways,  but  the 
companies  still  manage  them.  It  is  "controlling"  the  mines,  but  the 
mine-owners  are  to  "carry-on  as  usual."  In  short,  its  control  over 
capitalism  has  not  taken  the  form  of  expropriation,  and  has  not  in- 
volved any  drastic  change  in  the  management  of  industry.  Again, 
in  relation  to  labor,  the  state  has  assumed  large  new  coercive  powers. 
But  much  of  this  power  is  exercised,  not  directly,  but  in  the  new 
feudal  form  initiated  in  the  Insurance  Act,  indirectly  through  the 
employer. 

IV.  From  the  point  of  view  of  society  we  may  sum  up  the  in- 
dustrial effects  of  the  war  as  these.  Private  capitalism,  as  we  knew 
it  before  the  war,  has  suffered  a  shrewd  blow,  from  which  it  can 
hardly  recover.  But  it  has  been  replaced  by  none  of  the  alternative 
systems  which,  before  the  war,  seemed  its  only  serious  rivals.  Col- 
lectivism, or  the  direct  control  of  industry  by  the  state ;  syndicalism, 
or  the  control  of  industries  by  the  trade-unions ;  and  national  guilds, 
or  joint  control  of  industry  by  the  guilds  and  the  state,  are  as  far  off 
as  ever.  Instead  we  have  at  any  rate  the  beginnings  of  a  new  in- 
dustrial system,  properly  to  be  called  state  capitalism,  under  which 
private  capitalism  and  profiteering  continue  with  the  moral  and 
physical  support  of  the  state. 

So  far  we  have  been  merely  diagnosing  the  existing  disease.  Now 
we  must  turn  to  the  future.  Here  again  it  is  most  convenient  to 
divide  our  subject  matter  into  two  main  parts — dangers  and  pos- 
sible remedies. 

a)  First  among  the  dangers  is  the  possibility  that  state  capitalism 
may  be  permanent,  or  as  permanent  as  a  stage  in  industrial  evolution 
can  be.  The  danger  is  the  more  disturbing  because  labor  may  be 
brought  to  acquiesce  in  the  new  system.  The  capitalists  and  the  capi- 
talistic state  may  offer  labor  a  junior  partnership  in  industry.  If 
such  is  accepted,  goodbye  for  a  while  to  our  hopes  of  ending  capital- 
ism and  the  wage  system.  Labor  may  also  be  offered  higher  wages, 
shorter  hours,  and  better  material  conditions.  It  may  even,  if  the 
capitalists  are  wise,  be  offered  these  things  in  return  for  little  apparent 
concession  on  the  labor  side.  It  will  be  enough  to  secure  the  triumph 
of  capital  if  labor  can  be  drawn  into  the  capitalistic  system  and  con- 
verted into  an  upholder  of  that  which  it  has  hitherto  menaced. 


868  CURRENT  ECONOMIC  PROBLEMS 

An  industrial  truce,  probably  guaranteed  by  the  state ;  new  and 
subtle  schemes  of  profit-sharing  with  the  trade-union  instead  of  the 
individual ;  bogus  schemes  of  workshop  control — these  are  the  most 
dangerous  because  the  most  specious  proposals  which  may  come  from 
the  capitalist  side  as  parts  of  a  general  scheme  of  reconstruction. 
Will  labor,  which  has  never  been  strong  in  a  constructive  ideal  of  its 
own,  have  the  foresight  and  the  moral  force  to  resist  these  blandish- 
ments? We  cannot  venture  to  give  an  optimistic  reply.  Only  the 
folly  of  capitalism,  or  a  new-found  wisdom  in  the  ranks  of  labor,  it 
seems,  can  save  us  from  the  regime  of  state  capitalism  after  the  war. 

b)  Yet  we  must  not  be  pessimists  if  we  can  see  that  there  are 
remedies  to  hand,  if  labor  can  only  be  persuaded  to  adopt  them. 
State  capitalism  steals  the  thunder  of  collectivists  and  national  guild- 
men  alike.  It  does  not  give  nationalization  or  state  ownership  and 
administration  of  industry ;  but  it  gives  a  form  of  state  control  which 
the  foolish  will  mistake  for  nationalization.  It  does  not  give  trade- 
union  or  guild  control  of  industry ;  but  it  does  offer  a  sort  of  control 
to  the  workmen  in  the  workshop.  National  guildsmen,  therefore, 
must  formulate  their  alternative  with  a  view  to  both  these  problems : 
to  state  control  and  nationalization  and  to  proposals  for  workshop 
control. 

1.  To  me  it  seems  that  the  whole  problem  of  nationalization  has 
radically  altered  as  the  result  of  the  war.  We  are  faced  with  two 
immediate  alternatives  in  industry — the  continuance  of  private  own- 
ership backed  by  state  protection  under  the  guise  of  control  or  nation- 
alization. Of  the  two  I  vastly  prefer  nationalization.  Under  either 
system  the  power  of  the  state  is  arrayed  on  the  side  of  the  wage 
system ;  but  the  chance  of  developing  the  guild  idea  among  the  work- 
ers seems  much  greater  under  national  ownership.  By  it  we  at  least 
secure  that  great  step  toward  our  ideal — unified  management ;  and 
if  we  do  not  abolish  profiteering,  we  do  at  least  crystallize  it  into  the 
form  of  a  fixed  rate  of  interest.  At  some  stage,  we  agree,  the  state 
must  assume  ownership  of  industrial  capitalism ;  and  it  appears  to  me 
that  it  is  far  better  that  it  should  assume  ownership  now  than  that  it 
should  stand  openly  as  the  protector  of  private  capitalism.  In  con- 
nection with  all  proposals  the  guild  demand  for  joint  control  with 
the  state  must  be  pressed  hard.  But,  even  without  that,  collectivism 
is  to  be  preferred  to  state  capitalism. 

2.  I  now  come  to  the  question  of  industrial  control,  of  which 
workshop  control  is  only  a  part  and  by  no  means  the  greatest  part. 
The  guild  ideal  is  the  control  of  industry  by  the  guilds  acting  in  con- 
junction with  the  state.    It  is  not  that  of  joint  control  by  employers 


COMPREHENSIVE  SCHEMES  OF  REFORM         •       869 

and  employed,  and  such  joint  control  cannot  even  be  a  stage  in  the 
evolution  of  guilds.  Joint  control  cannot  subsist  between  the  parties 
when  one  is  trying  to  displace  the  other  altogether,  and  our  ideal  is 
nothing  less  than  the  complete  displacement  of  capitalism.  The  de- 
velopment of  trade-unionism  toward  the  guilds  must  therefore  take 
the  form,  not  of  an  acceptance  of  joint  responsibility  for  the  con- 
duct of  industry,  but  of  increasing  interference  in  the  control  of  in- 
dustry. Where  a  whole  province  of  industrial  management  can  be 
taken  bodily  out  of  the  hands  of  employers  and  transferred  to  the 
workers,  well  and  good;  that  is  a  stage  in  the  evolution  of  national 
guilds.  But  until  such  complete  transference  can  take  place  in  any 
sphere,  the  action  of  the  trade  union  must  remain  external  and  to  that 
extent  irresponsible. 

Let  us  now  apply  these  principles  to  workshop  control.  If  work- 
shop control  means  the  assumption  by  the  trade-union  of  the  responsi- 
bility for  the  discipline  and  ordering  of  the  workshop,  well  and  good  ; 
but  if  what  is  meant  is  joint  control  of  the  workshop  discipline  by 
employers  and  employed,  ill  and  bad.  Actual  suggestions,  however, 
seem  to  point  less  to  either  of  these  things  than  to  the  adjustment  of 
workshop  conditions  and  grievances.  What  is  to  be  the  guildsman's 
attitude  toward  such  proposals  ?  It  all  depends.  If  it  is  to  be  accept- 
ible,  the  Works  Committee  must  be  not  a  joint  committee  but  two 
committees  meeting  for  joint  consultation.  The  workers'  side  must 
preserve  its  separate  character  and  must  be  linked  up  with  the  or- 
ganized machinery  of  the  trade-union  movement.  The  Works  Com- 
mittee must  not  be  so  much  a  legislative  body  passing  laws  for  the 
work  as  a  meeting  of  the  management  and  the  trade-unionists  for 
adjusting  conditions  and  relations  in  the  workshop.  In  fact  the 
trade-unionists  must  follow  the  path,  not  of  joint  responsibility  for 
industry,  but  of  collective  interference  with  industry.  The  attitude 
must  be  the  same  in  relation  to  proposals  for  joint  action  between 
employers  and  employees  over  areas  wider  than  the  single  works. 
The  maintenance  of  the  strength  and  independence  of  trade-unionism 
must  be  in  all  things  the  first  consideration.  No  immediate  step  that 
seems  a  gain,  however  great,  must  be  taken  if  it  involves,  even  in  the 
smallest  degree,  a  sacrifice  of  trade-union  iildependence  and  strength. 

These  are  the  main  general  considerations  which  are  present  to 
my  mind  in  relation  to  labor  policy  after  the  war.  If  they  seem  too 
largely  negative,  I  must  answer  that  we  cannot  hope  for  great  posi- 
tive advances  while  the  standards  of  organization,  leadership,  and 
intelligence  in  the  trade-union  movement  remain  what  they  are  today. 
We  can  only  seek  such  changes  as  will  reorganize  trade-unionism 


870       •  CURRENT  ECONOMIC  PROBLEMS 

internally  and  equip  it  intelligently  for  the  task  of  winning  control. 
Viewed  in  the  light  of  this  immediate  end  does  the  policy  put  forward 
seem  so  negative  after  all?  Workshop  control,  if  it  takes  the  form 
rather  of  interference  than  of  responsibility,  will  afford  the  most 
valuable  training  the  workers  can  have  for  their  greater  task,  the 
more  they  learn  to  intervene,  and  the  more  continuous  their  inter- 
vention becomes,  the  more  they  will  be  learning  how  to  control. 
Actual  control  they  will  win  only  when  they  have  learned  to  exercise 
control;  and  they  can  have  no  better  weapon  in  the  conflict  than  a 
fitness  for  victory. 

There  are,  of  course,  a  thousand  and  one  subsidiary  problems.  I 
have  concentrated  on  the  problem  that  seems  fundamental.  The  real 
issue  for  society  is  whether  industry  is  to  continue  its  development 
along  the  line  of  autocratic  control  from  above,  or  whether  industrial 
autocracy  is  to  be  displaced  by  the  industrial  democracy  of  national 
guilds. 

F.     SOME  RECONSTRUCTION  PROGRAMS 
382,     A  Business  Program" 

Pivotal  industries. — Conditions  brought  upon  us  by  the  European 
war  make  it  of  the  highest  importance  that  a  number  of  industries 
should  at  once  be  developed  in  the  United  States.  Large  investments, 
both  in  capital  and  skill,  have  been  placed  in  these  enterprises.  Upon 
the  production  of  some  of  them,  relatively  small  in  themselves,  the 
continuation  of  some  of  our  largest  industries  has  depended.  Some 
of  the  recently  developed  industries  have  national  importance  in 
fields  much  broader  than  the  markets  of  their  products  ;  for  they  may 
serve,  for  example,  to  promote  scientific  research,  which  will  add 
to  national  ef^ciency,  resources,  and  wealth  in  many  ways. 

It  becomes  essential,  therefore,  that  the  government  should  at 
once  ascertain  the  industries  which  have  been  developed  during  the 
European  war  and  those  the  maintenance  of  which  are  indispensable 
for  the  safety  of  our  industrial  structure  and  our  military  establish- 
ment. When  these  pivotal  industries  have  been  ascertained,  means 
suitable  to  their  nature  and  situations  should  at  once  be  provided  for 
their  encouragement  and  preservation. 

Industrial  co-operation. — The  war  has  demonstrated  that  through 
industrial  co-operation  great  economies  may  be  achieved,  waste  elim- 
inated, and  efficiency  increased.     The  nation  should  not  forget,  but 

27Adapted  from  the  resolutions  on  reconstruction  passed  by  the  War 
Emergency  Congress  of  the  United  States  Chamber  of  Commerce,  which  met 
at  Atlantic  City,  December  4-6,  1918. 


COMPREHENSIVE  SCHEMES  OF  REFORM  871 

rather  should  capitalize  these  lessons  by  adapting  effective  war  prac- 
tices to  peace  conditions  through  permitting  reasonable  co-operation 
between  units  of  industry  under  appropriate  federal  supervision. 

It  is  in  the  public  interest  that  reasonable  trade  agreements  should 
be  entered  into,  but  the  failure  of  the  government  clearly  to  define 
the  dividing  line  between  the  agreements  which  are,  and  those  which 
are  not,  in  unreasonable  restraint  of  trade,  or  to  provide  an  agency 
to  speak  for  it  on  application  of  these  proposing  to  enter  into  such 
agreements  in  effect  restricts  both  industry  and  the  general  public  of 
its  benefits.  The  conditions  incident  to  the  period  of  readjustment 
renders  it  imperative  that  all  obstacles  to  reasonable  co-operation  be 
immediately  removed  through  appropriate  legislation. 

Federal  Trade  Commission. — The  Federal  Trade  Commission 
was  created  to  make  the  administration  of  our  trust  legislation  ex- 
plicit and  intelligible,  and  to  provide  "the  advice,  the  definite  guid- 
ance, and  information"  which  business  enterprise  requires.  The 
normal  importance  of  the  commission's  task  is  now  tremendously  in- 
creased by  imperative  need  for  whole-hearted  and  sympathetic  co- 
operation between  the  government  and  industry  especially  during  the 
readjustment  period.  The  vacancies  in  the  commission's  membership 
should  be  promptly  filled  with  able  men  of  broad  business  experience 
and  clear  vision  prepared  to  assist  actively  in  discharging  these  task? 
along  constructive  lines. 

Industrial  relations. — The  convention  heartily  endorses  in  letter 
and  in  spirit  the  principles  of  the  industrial  creed  so  clearly  and 
forcibly  stated  in  the  paper  read  to  it  Thursday  morning  by  Mr.  John 
D.  Rockefeller,  Jr.,  and  urges  upon  all  units  of  industry  where  they 
may  not  be  employed,  the  application  of  such  principles. 

Public  zvorks. — The  development  of  public  w-orks  of  every  sort 
should  promptly  be  resumed  in  order  that  opportunities  of  employ- 
ment may  be  created  for  unskilled  labor. 

Taxation. — The  cessation  of  hostilities  brings  to  business  interests 
a  feeling  of  deep  concern  in  the  matter  of  taxation.  The  problems 
of  readjustment  are  made  more  difficult  through  inequalities  in  the 
present  law.  We  believe,  therefore,  that  in  the  consideration  of 
amendments  to  the  present  act  or  the  passage  of  new  revenue  legis- 
lation, the  views  expressed  by  organizations  of  commerce  and  in- 
dustry should  be  taken  into  consideration.  Ability  to  pay,  inventory 
values,  and  proper  reserves,  together  with  careful  survey  of  the 
amount  of  revenue  required  under  the  new  conditions,  are  matters  of 
vital  importance  to  business  interests  of  the  nation  during  the  re- 
adjustment period. 


872  CURRENT  ECONOMIC  PROBLEMS 

Inventories. — We  urge  that  Congress  should  give  grave  con- 
sideration to  the  grave  menace  now  facing  all  industry  due  to  the  fact 
that  both  raw  materials  and  finished  goods  are  carried  in  full  measure 
to  meet  the  extraordinary  requirements  of  the  government  and  of  the 
people,  and  that  in  large  part  the  stocks  have  been  acquired  at  ab- 
normal cost  and  are  therefore  carried  into  inventories  at  inflated 
values,  thereby  showing  apparent  profits  which  have  not  been  real- 
ized, and  which  probably  will  never  be  fully  realized.  These  are 
largely  bookkeeping  profits,  and  should  not  be  used  as  a  basis  for 
taxation.  We  therefore  recommend  that  any  tax  law  shall  provide 
that  during  present  conditions  the  taxpayer  shall  be  allowed  to  make 
a  deduction  from  his  apparent  profit  by  way  of  a  reserve  for  a  sub- 
sequent shrinkage  in  the  value  of  merchandise. 

Railroads. — The  Congress  of  the  United  States  should  speedily 
enact  legislation  providing  for  an  early  return  under  federal  charters 
to  their  owners  of  all  railroads  now  being  operated  by  this  govern- 
ment under  federal  regulations  permitting  the  elimination  of  waste- 
ful competition,  the  pooling  of  equipment,  combinations  or  consolida- 
tions through  ownership  or  otherwise  in  the  operation  of  terminals, 
and  such  other  practices  as  will  tend  to  economies  without  destroying 
competition  in  service. 

Means  of  communication. — We  are  opposed  to  government  own- 
ership and  operation  of  telegraphs,  telephones,  and  cables. 

Merchant  marine. — We  recommend  that  the  construction  of  a 
great  merchant  marine  be  continued  and  amplified,  and  that  its 
operation  under  American  control  be  kept  safe  by  such  legislation  as 
may  be  necessary  to  insure  its  stability  and  its  lasting  value  to 
American  industries. 

Public  utilities; — Public  utilities  have  faced  difficult  problems, 
which  have  been  accentuated  by  conditions  arising  out  of  the  war. 
The  development  and  efficiency  of  such  a  utility  as  local  transportation 
has  immediate  importance  for  every  community.  It  is  recommended 
that  the  Chamber  of  Commerce  of  the  United  States  appoint  a  com- 
mittee to  investigate  and  study  the  question  of  local  transportation 
as  it  relates  to  the  control  of  rates  and  services,  franchises,  taxes,  the 
attraction  of  capital  into  the  business,  and  such  other  questions  as  the 
committee  may  find  pertinent.  Such  a  committee  should  report  its 
recommendations  to  the  board  of  directors  of  the  National  Chamber. 

Water  poivers. — Industrial  activity  is  dependent  upon  the  avail- 
able supply  of  power.  A  bill  which  would  effect  the  development  of 
hydro-electric  power  upon  waterways  and  lands  which  are  subject 
to  federal  jurisdiction  is  now  before  a  committee  of  conference  of 


COMPREHENSIVE  SCHEMES  OF  REFORM  873 

the  two  houses  of  Congress.  It  is  important  that  federal  legislation 
on  this  subject  be  enacted  without  delay. 

International  reconstruction. — In  the  war  we  have  made  common 
cause  with  the  Allies.  We  should  likewise  make  common  cause  with 
them  in  seeking  the  solution  of  the  immediate  problems  of  recon- 
struction. These  problems  peculiarly  depend  for  their  solution  upon 
commerce.  Raw  materials  and  industrial  equipment  which  we  pos- 
sess the  Allies  urgently  require,  that  they  may  reconstitute  their 
economic  life.  We  should  deal  generously  with  them  in  sharing  these 
resources.  We  must  also  provide  them  with  credits  through  which 
they  may  make  the  necessary  payments. 

European  commission. — The  business  men  of  the  United  States, 
having  devoted  their  energies  and  resources  toward  winning  the  war, 
regardless  of  sacrifices  or  burdens,  in  support  of  the  principles  for 
which  this  country  fought,  appreciate  the  necessity  of  continuance  of 
unremitting  effort  that  the  world  may  be  restored  to  normal  condi- 
tions as  soon  as  possible  and  the  blessings  of  peace  be  brought  to  all 
peoples.  In  the  accomplishment  of  these  results  the  highest  efficiency 
of  the  great  commercial  and  industrial  powers  of  our  own  country 
and  that  of  the  Allied  nations  will  be  developed  only  through  co- 
operative effort  and  common  counsel. 

In  order,  therefore,  to  contribute  to  the  fullest  toward  the  prompt 
solution  of  this  problem  the  Chamber  of  Commerce  of  the  United 
States  is  requested  to  enlist  the  fullest  co-operation  of  national 
bodies  devoted  to  the  promotion  of  American  commerce  and  par- 
ticularly foreign  trade,  in  the  appointment  of  a  commission  represen- 
tative of  American  business,  which  shall  proceed  without  delay  to 
Europe  and  establish  machinery  for  the  following  purposes :  ( i )  To 
study  at  first  hand  the  reconstruction  needs  of  European  countries 
in  conjunction  with  the  business  men  of  these  nations  in  order  to 
advise  the  business  men  of  the  United  States  as  to  how  they  may 
be  most  helpful  in  meeting  the  necessities  of  Europe  and  caring  for 
the  interests  of  American  industry  and  commerce;  (2)  to  be  avail- 
able to  the  peace  delegates  of  the  United  States  for  any  needed  in- 
formation which  they  may  be  able  to  present. 

Foreign  trade  markets. — We  strongly  urge  upon  our  government 
the  vital  necessity  of  developing  our  foreign  trade  through  all  ap- 
propriate means  possible,  in  order  that  the  production  of  industry  may 
afford  employment  to  wage-earners  and  prosperity  to  the  nation. 

South  American  relations. — It  has  long  been  the  policy  of  this 
country  to  cultivate  relations  of  close  sympathy  with  the  nations  of 
the  western  hemisphere  as  expressed  in  the  Monroe  Doctrine.    We 


874  CURRENT  ECONOMIC  PROBLEMS 

believe  that  these  relations  should  be  supplemented  and  strengthened 
by  a  vigorous  development  of  our  commercial  and  financial  associa- 
tions with  our  neighbors  of  North  and  South  America.  The  govern- 
ment's control  of  shipping  should  be  brought  to  the  accomplishment 
of  this  purpose  as  soon  as  it  is  consistent  with  other  urgent  needs, 
and  the  work  of  the  Pan-American  Union  should  be  continued  and 
broadened  in  scope. 

Mexico. — By  provisions  in  a  constitution  adopted  while  much  of 
the  country  was  engaged  in  civil  strife,  and  through  subsequent  legis- 
lation, Mexican  authorities  have  threatened  rights  acquired  by  Ameri- 
cans in  good  faith,  especially  in  minerals,  including  petroleum. 
Against  threatened  confiscation  the  American  government  made 
formal  protests.  The  attitude  taken  by  the  American  government  is 
heartily  commended  as  in  accordance  with  obvious  justice. 

Education  for  foreign  trade. — In  the  larger  opportunities  which 
are  to  be  opened  to  American  business  men  to  play  a  part  in  the 
international  commerce  of  the  world  the  need  will  be  felt  for  more 
men  who  are  trained  to  a  knowledge  and  understanding  of  the  langu- 
age, the  business  methods,  and  the  habits  of  thought  of  foreign  lands. 
We  urge  our  industrials  to  take  steps  to  provide  opportunities  to 
young  men  to  obtain  an  education  in  the  practices  of  overseas  com- 
merce and  finance  and  in  the  practical  uses  of  foreign  languages.  We 
call  the  attention  of  the  government  and  of  educators  to  this  matter 
and  ask  that  special  efforts  be  made  to  supplement  the  valuable  work 
already  done  and  to  open  up  every  facility  to  the  furtherance  of  a 
successful  prosecution  of  this  valuable  work. 

Cost  accounting. — It  is  the  sense  of  this  convention  that  uniform 
cost  accounting  be  adopted  by  industries. 

National  Trade  Association. — The  experiences  of  the  war  clearly 
demonstrated  the  value  of  national  trade  organizations  and'  their 
service  to  the  country  as  well  as  to  industry.  This  conference  heartily 
approves  the  plan  of  organizing  each  industry  in  the  country  in  a 
representative  national  trade  association  and  expresses  the  belief  that 
every  manufacturer,  jobber,  and  producer  of  raw  materials  should 
be  a  member  of  the  national  organization  in  his  trade  and  cordially 
support  it  by  his  work. 

383.     A  Church  Program'^ 

Women  war  workers. — One  of  the  most  important  problems  of 
readjustment  is  that  created  by  the  presence  in  industry  of  immense 

28Adapted  from  Social  Reconstruction:  A  General  Survey  of  the  Prob- 
lems and  the  Remedies,  issued  by  the  National  Catholic  War  Council,  1919. 
This  represents  the  attitude  of  the  largest  single  religious  body  in  this  country. 


COMPREHENSIVE  SCHEMES  OF  REFORM  875 

numbers  of  women  who  have  taken  the  places  of  men.  Mere  justice 
dictates  that  these  women  should  not  be  compelled  to  suffer  any 
greater  loss  than  is  absolutely  necessary.  One  general  principle  is 
clear:  No  female  worker  should  remain  in  any  occupation  that  is 
harmful  to  health  or  morals.  Women  should  disappear  as  quickly  as 
possible  from  such  tasks  as  conducting  and  guarding  street  cars,  clean- 
ing locomotives,  and  a  great  many  other  activities  for  which  conditions 
of  life  and  their  physique  render  them  unfit.  Another  general  prin- 
ciple is  that  the  proportion  of  women  in  industry  ought  to  be  kept 
within  the  smallest  practical  limits.  If  we  have  an  efficient  national 
employment  service,  if  a  goodly  number  of  returned  soldiers  and 
sailors  are  placed  on  the  land,  and  if  wages  and  the  demand  for  goods 
are  kept  up  to  the  level  which  is  easily  attainable,  all  female  workers 
displaced  will  be  able  to  find  suitable  employment  in  other  parts  of 
the  industrial  field  or  in  those  domestic  occupations  which  sorely  need 
their  presence.  These  women  who  are  engaged  at  the  same  tasks  as 
men  should  receive  equal  pay  for  the  same  amounts  and  qualities 
of  work. 

Present  wage  rates. — The  general  level  of  wages  attained  during 
the  war  should  not  be  lowered.  In  a  few  industries  wages  have 
reached  a  plane  upon  which  they  cannot  possibly  continue.  But  the 
overwhelming  majority  should  not  be  compelled  to  undergo  any 
reduction  in  their  rates  of  remuneration  for  two  reasons :  first,  be- 
cause the  average  rate  of  pay  has  not  increased  faster  than  the  cost 
of  living;  second,  because  a  considerable  majority  of  the  wage- 
earners  in  the  United  States,  both  men  and  women,  were  not  receiving 
living  wages  when  prices  began  to  rise  in  191 5.  In  that  year  four- 
fifths  of  the  heads  of  families  obtained  less  than  $800,  while  two- 
thirds  of  the  female  wage-earners  were  paid  less  than  $400.  Even 
if  the  present  prices  of  goods  should  fall  to  the  level  on  which  they 
wages  would  not  exceed  the  equivalent  of  a  decent  livelihood  in  the 
were  in  191 5 — something  unhoped  for — the  average  present  rate  of 
case  of  the  vast  majority. 

Even  if  the  great  majority  of  workers  were  now  in  receipt  of  more 
than  living  wages,  there  is  no  good  reason  why  rates  of  pay  should  be 
lowered.  After  all  a  living  wage  is  not  necessarily  the  full  measure 
of  justice.  All  the  Catholic  authorities  on  the  subject  explicitly  de- 
clare that  this  is  only  the  minimum  of  justice.  In  a  country  as  rich 
as  ours,  there  are  very  few  cases  in  which  it  is  possible  to  prove  that 
the  worker  would  be  getting  more  than  that  to  which  he  has  a  right 
if  he  were  paid  something  in  excess  of  this  ethical  minimum.  Why 
then  should  we  assume  that  this  is  theTiormal  share  of  almost  the 


876  CURRENT  ECONOMIC  PROBLEMS 

whole  laboring  population?  Since  our  industrial  resources  are  suf- 
ficient to  provide  more  than  a  living  wage,  why  should  we  acquiesce 
in  a  theory  which  denies  them  this  measure  of  the  comforts  of  life? 

Such  a  policy  is  not  only  of  very  questionable  morality,  but  is 
unsound  economically.  The  large  demand  for  goods  which  is  created 
and  maintained  by  the  high  rate  of  wages  and  high  purchasing  power 
of  the  masses  is  the  surest  guarantee  of  a  continuous  and  general 
operation  of  industrial  establishments.  It  is  the  most  effective  in- 
strument of  prosperity  for  labor  and  capital  alike.  The  only  persons 
who  would  benefit  considerably  through  a  general  reduction  of  wages 
are  the  less  efficient  among  the  capitalists  and  the  more  comfortable 
sections  of  the  consumers.  The  wage-earners  would  lose  more  in  re- 
muneration than  they  would  gain  from  whatever  fall  in  prices  oc- 
curred as  a  direct  result  of  the  fall  in  wages.  On  grounds  both  of 
justice  and  sound  economics,  we  should  give  our  hearty  support  to 
all  legitimate  efforts  made  by  labor  to  resist  general  wage  reductions. 

The  minimum  zvage. — We  are  glad  to  note  that  there  is  no  longer 
any  serious  objection  urged  by  impartial  persons  against  the  legal 
minimum  wage.  The  several  states  should  enact  laws  providing  for 
the  establishments  of  wage  rates  that  will  be  at  least  sufficient  for  the 
decent  maintenance  of  a  family,  in  the  case  of  all  male  adults,  and 
adequate  to  the  decent  individual  support  of  female  workers.  In 
the  beginning  the  minimum  wage  for  male  workers  should  suffice 
only  for  the  present  needs  of  the  family,  but  they  should  be  gradually 
raised  until  they  are  adequate  to  future  needs  as  well ;  that  is,  they 
should  be  ultimately  high  enough  to  make  possible  that  amount  of 
saving  which  is  necessary  to  protect  the  worker  and  his  family 
against  sickness,  accident,  invalidity,  and  old  age. 

Industrial  management. — It  is  to  be  hoped  that  the  right  of  labor 
to  organize  and  deal  with  representatives  will  never  again  be  called 
into  question  by  any  considerable  number  of  employers.  In  addition 
to  this,  labor  ought  gradually  to  receive  greater  representation  in 
what  the  English  group  of  Quaker  employers  call  the  "industrial" 
part  of  business  management — "the  control  of  processes  and  machin- 
ery ;  nature  of  products;  engagement  and  dismissal  of  employees; 
hours  of  work,  rates  of  pay,  bonuses,  etc. ;  welfare  work,  shop  disci- 
pline ;  relations  with  trade  unions."  The  establishment  of  shop  com- 
mittees working  wherever  possible  with  the  trade-union  is  the  method 
suggested  by  this  group  of  employers  for  giving  the  employees  the 
proper  share  in  industrial  management.  There  can  be  no  doubt  that 
a  frank  adoption  of  these  means  and  ends  by  employers  would  not 
only  promote  the  welfare  of  the  workers  but  vastly  improve  the 


COMPREHENSIVE  SCHEMES  OF  REFORM  877 

relations  between  them  and  their  employers,  and  increase  the  ef- 
ficiency and  productiveness  of  each  establishment. 

Socialism. — It  seems  clear  that  the  present  industrial  system  is 
destined  to  last  for  a  long  time  in  its  main  outlines.  That  is  to  say, 
private  ownership  of  capital  is  not  likely  to  be  supplanted  by  a  col- 
lectivist  organization  of  industry  at  a  date  sufficiently  near  to  justify 
any  present  action  based  on  the  hypothesis  of  its  arrival.  This  fore- 
cast we  recognize  as  not  only  extremely  probable,  but  as  highly  de- 
sirable; for,  other  objections  apart,  socialism  would  mean  bureau- 
cracy, political  tyranny,  and  helplessness  of  the  individual  as  a  factor 
in  the  ordering  of  his  own  life;  and  in  general  social  inefficiency  and 
decadence. 

Main  defects  of  present  system. — Nevertheless  the  present  system 
stands  in  grevious  need  of  considerable  modifications  and  improve- 
ment. Its  main  defects  are  three :  Enormous  inefficiency  and  waste 
in  the  production  and  distribution  of  commodities ;  insufficient  in- 
comes for  the  great  majority  of  wage-earners ;  and  unnecessarily 
large  incomes  for  a  small  minority  of  privileged  capitalists.  The  evil 
in  production  and  in  the  distribution  of  goods  would  be  in  great 
measure  abolished  by  the  reforms  that  have  been  outlined.  Produc- 
tion will  be  greatly  increased  by  universal  living  wages,  by  adequate 
industrial  education,  and  by  harmonious  relations  between  labor  and 
capital,  on  the  basis  of  adequate  participation  by  the  former  in  all 
the  industrial  aspects  of  business  management.  The  wastes  of  com- 
modity distribution  could  be  practically  all  eliminated  by  co-operative 
mercantile  establishments  and  co-operative  selling  and  marketing  as- 
sociations. 

The  cure  for  them. — Nevertheless,  the  full  possibilities  of  in- 
creased reduction  will  not  be  realized  so  long  as  the  majority  of  the 
workers  remain  mere  wage-earners.  The  majority  must  somehow 
become  owners,  at  least  in  part,  of  the  instruments  of  production. 
They  can  be  enabled  to  reach  this  stage  gradually  through  co-oper- 
ative productive  societies  and  co-partnership  arrangements.  In  the 
former  the  workers  own  and  manage  the  industries  themselves;  in 
the  latter  they  own  a  substantial  part  of  the  corporate  stock  and 
exercise  a  reasonable  share  in  the  management.  However  slow  the 
attainment  of  these  ends,  they  will  have  to  be  reached  before  we  can 
have  a  thorough,  efficient  system  of  production,  or  an  industrial  and 
social  order  that  will  be  secure  from  the  dangers  of  revolution.  It  is 
to  be  noted  that  this  particular  modification  of  the  existing  order, 
though  involving  to  a  great  extent  the  abolition  of  the  wage-system, 
would  not  mean  the  abolition  of  private  ownership.  The  instruments 
of  production  would  still  be  owned  by  individuals,  not  by  the  state. 


878  CURRENT  ECONOMIC  PROBLEMS 

The  second  great  evil,  that  of  insufficient  income  for  the  majority 
can  be  removed  only  by  providing  the  workers  with  more  income. 
This  means  not  only  universal  living  wages,  but  the  opportunity  of 
obtaining  something  more  than  that  amount  for  all  who  are  willing 
to  work  hard  and  faithfully. 

For  the  third  evil  mentioned  above,  excessive  gains  by  a  small 
minority  of  privileged  capitalists,  the  main  remedies  are  prevention 
of  monopolistic  control  of  commodities,  adequate  government  regula- 
tion of  such  public  service  monopolies  as  will  remain  under  private 
operation,  and  heavy  taxation  of  private  incomes,  excess  profits,  and 
inheritances.  The  precise  methods  by  which  genuine  competition 
may  be  restored  and  maintained  among  businesses  that  are  naturally 
competitive  cannot  be  discussed  here.  But  the  principle  is  clear  that 
human  beings  cannot  be  trusted  with  the  immense  opportunities  for 
oppression  and  extortion  that  go  with  the  possession  of  monopoly 
power.  That  the  owners  of  public  service  monopolies  should  be  re- 
stricted by  law  to  a  fair  or  average  return  on  their  actual  investment 
has  long  been  a  recognized  principle  of  the  courts,  the  legislatures, 
and  public  opinion.  It  is  a  principle  which  should  be  applied  to  com- 
petitive enterprises  likewise  with  the  qualification  that  something  more 
than  the  average  rate  of  return  should  be  allowed  to  men  who  exhibit 
exceptional  efficiency.  However,  good  public  policy,  as  well  as  equity, 
demands  that  these  exceptional  business  men  share  the  fruits  of  their 
efficiency  with  the  consumer  in  the  form  of  lower  prices. 

Conclusion. — Neither  the  moderate  reforms  advocated  in  this 
paper,  nor  any  other  program  of  betterment  or  reconstruction,  will 
prove  reasonably  effective  without  a  reform  in  the  spirit  of  both 
labor  and  capital.  The  laborer  must  come  to  reaHze  that  he  owes  his 
employer  and  society  an  honest  day's  work  in  return  for  a  fair  wage, 
and  that  conditions  cannot  be  substantially  improved  until  he  roots 
out  the  desire  to  get  a  maximum  of  return  for  a  minimum  of  service. 
The  capitalist  must  likewise  get  a  new  viewpoint.  He  needs  to  learn 
the  long- forgotten  truth  that  wealth  is  stewardship,  that  profit-making 
is  not  the  basic  justification  of  business  enterprise,  and  that  there  are 
such  things  as  fair  profits,  fair  interest,  and  fair  prices. 

384.     A  Labor  Program-" 

I.      THE  TASK  OF  SOCIAL  RECONSTRUCTION 

That  the  task  of  social  reconstruction  to  be  undertaken  by  the 
government  ought  to  be  regarded  as  involving,  not  any  patchwork, 

29Adapted  from  the  resolutions  adopted  at  a  conference  of  the  British 
Labor  Party,  1918.  The  resolutions  omitted  refer  to  matters  of  merely  local 
or  temporary  importance.     These  resolutions  should  be  compared  with  the 


COMPREHENSIVE  SCHEMES  OF  REFORM  879 

jarrymandering  of  the  anarchic  individuahsm  and  profiteering  of  the 
competitive  capitalism  of  pre-war  time — the  breakdown  of  which, 
even  from  the  standpoint  of  productive  efficiency,  the  war  has  so 
glaringly  revealed — but  the  gradual  building  up  of  a  new  social  order, 
based  not  on  internecine  conflict,  inequality  of  riches,  and  dominion 
over  subject  races  or  a  subject  sex,  but  on  the  deliberately  planned 
co-operation  in  production,  distribution,  and  exchange,  the  systematic 
approach  to  a  healthy  equality,  the  widest  possible  participation  in 
power,  both  economic  and  political,  and  the  general  consciousness  of 
consent  which  characterize  a  true  democracy ;  and,  further,  in  order 
to  help  to  realize  the  new  social  order  and  to  give  legislative  effect 
to  the  labor  policy  on  reconstruction,  this  conference  emphasizes  the 
necessity  of  having  in  Parliament  and  the  country  a  vigorous,  cour- 
ageous, independent  and  unfettered  political  party. 

II.      THE  NEED  FOR  INCREASED  PRODUCTION 

That  the  conference  cannot  help  noticing  how  very  far  from  ef- 
ficient the  capitalistic  system  has  proved  to  be,  with  its  stimulus  of 
private  profit,  and  its  evil  shadow  of  wages  driven  down  by  competi- 
tion often  below  subsistence  level ;  that  the  conference  recognizes 
that  it  is  vital  for  any  genuine  social  reconstruction  to  increase  the 
nation's  aggregate  annual  production,  not  of  profit  or  dividend,  but  of 
useful  commodities  and  services;  that  this  increased  productivity 
obviously  is  not  to  be  sought  in  reducing  the  means  of  subsistence  of 
the  workers,  nor  yet  in  lengthening  their  hours  of  work,  for  neither 
"sweating"  nor  "driving"  can  be  made  the  basis  of  lasting  prosperity, 
but  in  the  socialization  of  industry  to  secure  (a)  the  elimination  of 
every  kind  of  inefficiency  and  waste;  (b)  the  application  both  of  the 
most  honest  determination  to  produce  the  very  best,  and  of  more 
science  and  intelligence  to  every  branch  of  the  nation's  work ;  to- 
gether with  (c)  an  improvement  in  social,  political,  and  industrial 
organization,  and  (d)  the  indispensable  marshaling  of  the  nation's 
resources  so  that  each  need  is  met  in  the  order  of,  and  in  proportion  to, 
its  real  national  importance. 


document  entitled  "Labor  and  the  New  Social  Order,"  which  was  prepared 
by  a  subcommittee  of  the  party.  One  section  of  this  report  is  presented  in 
reading  §  387  below.  It  seems  unnecessary  to  reprint  the  whole  report,  since 
it  is  already  available  in  a  supplement  to  the  issue  of  the  New  Republic  for 
February  16,  1918,  in  Clark,  Hamilton,  and  Moulton,  Readings  in  the  Eco- 
nomics of  War,  pp.  646-66,  in  Elisha  M.  Friedman,  Labor  and  Reconstruction 
in  Europe,  pp.  165-85,  and  in  Monthly  Labor  Reviezv,  Bureau  of  Labor 
Statistics,  VI,  63-83. 


88o  CURRENT  ECONOMIC  PROBLEMS 

III.      THE  MAINTENANCE  AND  PROTECTION  OF  THE  STANDARD  OF  LIFE 

1.  That  the  conference  holds  it  of  supreme  national  importance 
that  there  should  not  be  any  degredation  of  the  standard  of  life  of 
the  population ;  and  it  insists  that  it  is  the  duty  of  the  government  to 
see  to  it,  that  when  peace  comes,  the  standard  rate  of  wages  in  all 
trades  should,  relatively  to  the  cost  of  living,  be  fully  maintained. 

2.  That  it  should  be  made  clear  to  employers  that  any  attempt 
to  reduce  the  prevailing  rates  of  wages  or  to  take  advantage  of  the 
dislocation  of  demobilization  to  worsen  the  conditions  of  labor,  will 
lead  to  embittered  industrial  strife,  which  will  be  in  the  highest  degree 
detrimental  to  the  national  interests ;  and  the  government  should 
therefore  take  all  possible  steps  to  avert  such  a  calamity. 

3.  That  the  government  as  the  greatest  employer  of  labor,  should 
not  only  set  a  good  example  in  this  respect,  but  should  also  seek  to 
influence  employers  by  proclaiming  in  advance  that  it  will  not  attempt 
to  lower  the  standard  rates  or  conditions  in  public  employment,  by 
announcing  that  it  will  insist  upon  the  most  rigorous  observance  of 
the  fair-wage  clause  in  public  contracts,  and  by  recommending  every 
local  authority  to  adopt  the  same  policy. 

4.  That  one  of  the  urgent  needs  of  social  reconstruction  is  the 
universal  application  of  the  principle  of  the  protection  of  the  standard 
of  life,  at  present  embodied  in  the  factories,  workshops,  merchant 
shipping,  mines,  railways,  shops,  truck,  and  trade-board  acts,  together 
with  the  corresponding  provisions  of  the  public  health,  housing,  educa- 
tion, and  workmen's  compensation  acts ;  that  these  imperfectly  drafted 
and  piecemeal  statutes  admittedly  require  extension  and  amendment 
by  new  legislation,  providing  among  other  industrial  reforms,  for  the 
general  reduction  of  the  working  week  to  forty-eight  hours,  securing 
to  every  worker,  by  hand  or  by  brain,  at  least  the  prescribed  minimum 
of  health,  education,  leisure,  and  subsistence,  and  that,  in  particular, 
a  system  of  the  legal  basic  wage  needs  to  be  extended  and  developed, 
so  as  to  insure  to  every  worker  of  either  sex,  in  any  occupation,  in 
any  part  of  the  kingdom,  as  the  very  lowest  statutory  base  line  of 
wages  (to  be  revised  with  every  substantial  rise  in  prices),  not  less 
than  enough  to  provide  all  the  requirements  of  a  full  development  of 
body,  mind,  and  character,  from  which  the  nation  has  no  right  to 
exclude  any  class  or  section  whatever. 

IV.      THE   RESTORATION   OF   TRADE-UNION    CONDITIONS 

I.  That  this  conference  reminds  the  government  that  it  is  pledged 
unreservedly,  and  the  nation  with  it,  to  the  restoration  after  the  war 
of  all  rules,  conditions,  and  customs  that  prevailed  in  the  workshops 


COMPREHENSIVE  SCHEMES  OF  REFORM  88i 

before  the  war ;  and  to  the  abrogation,  when  peace  comes,  of  all  the 
changes  introduced  not  only  in  the  national  factories  and  the  5,000 
controlled  establishments,  but  also  in  the  large  number  of  others  to 
which  provisions  of  the  Munitions  Act  have  been  applied. 

2.  That  the  conference  places  on  record  its  confident  expecta- 
tion and  desire  that  if  any  employers  should  be  so  unscrupulous  as  to 
hesitate  to  fulfil  this  pledge,  the  government  will  see  to  it  that  there 
is  no  quibbling  evasion  of  an  obligation  in  which  the  whole  labor 
movement  has  an  interest. 

3.  The  conference  calls  upon  the  government  to  provide  adequate 
statutory  machinery  for  the  restoration  of  trade-union  customs  after 
the  war:  (a)  by  securing  that  all  provisions  necessary  to  enforce 
restoration  shall  continue  in  operation  for  a  full  year  after  the  re- 
strictive provisions  abrogating  trade-union  rules  have  been  termi- 
nated ;  (b)  by  removing  all  restrictions  upon  the  right  of  workmen  to 
strike  for  the  restoration  of  the  customs  abrogated ;  (c)  by  limiting 
compulsory  arbitration  strictly  to  the  war  period  and  providing  fully 
that  the  right  to  prosecute  an  employer  for  a  failure  to  restore  trade- 
union  customs  shall  continue  for  a  full  year  after  the  termination  of 
restrictive  powers. 

4.  The  conference  calls  for  the  abrogation  of  the  clauses  re- 
strictive of  personal  liberty  in  the  Munitions  of  War  Acts  and  in 
the  defense  of  the  realm  acts  immediately  upon  the  conclusion  of  hos- 
tilities. 

5.  The  conference  finally  urges  that  if  some  of  the  rules,  condi- 
tions, and  customs  are,  in  the  industrial  reorganization  that  is  con- 
templated, inconsistent  with  the  highest  production,  or  injurious  to 
other  sections  of  workers,  it  is  for  the  government,  as  responsible  for 
the  fulfilment  of  the  pledge,  to  submit  for  discussion  to  the  trade- 
unions  concerned  alternative  proposals  for  securing  the  standard 
wage  and  normal  day,  protecting  the  workers  from  unemployment, 
and  maintaining  the  position  and  dignity  of  the  crafts. 

V.      THE  PREVENTION  OF  UNEMPLOYMENT 

That  the  conference  cannot  ignore  the  likelihood  that  the  years 
immediately  following  the  war  will  include  periods  of  grave  disloca- 
tion of  profit-making  industry,  when  many  thousands  of  willing 
workers  will,  if  matters  are  left  to  private  capitalism,  probably  be 
walking  the  streets  in  search  of  employment;  that  it  is  accordingly 
the  duty  of  the  ministry  so  to  arrange  the  next  ten  years'  program  of 
national  and  local  government  works  and  services,  including  housing, 
schools,  roads,  railways,  canals,  harbors,  aflForestration,  reclamation, 


882  CURRENT  ECONOMIC  PROBLEMS 

etc.,  as  to  be  able  to  put  this  program  in  hand,  at  such  a  rate  and  in 
such  districts  as  any  temporary  congestion  of  the  labor  market  may 
require ;  that  it  is  high  time  that  the  government  laid  aside  the  pre- 
tense that  it  has  no  responsibility  for  preventing  unemployment ;  that 
now  it  is  known  that  all  which  is  required  to  prevent  the  occurrence 
of  any  widespread  or  lasting  unemployment  is  that  the  aggregate 
total  demand  for  labor  should  be  maintained,  year  in  and  year  out,  at 
an  approximately  high  level,  and  that  this  can  be  secured  by  nothing 
more  revolutionary  than  a  sensible  distribution  of  works  and  services 
so  as  to  keep  always  up  to  the  prescribed  total  the  aggregate  public 
and  capitalistic  demand  for  labor,  together  with  the  prohibition  of 
overtime  in  excess  of  the  prescribed  normal  working  day,  there  is  no 
excuse  for  any  government  which  allows  such  a  grave  social  calamity 
as  widespread  or  lasting  unemployment  ever  to  occur. 

VI.      UNEMPLOYMENT    INSURANCE 

That  to  meet  the  needs  of  individuals  temporarily  out  of  work, 
the  labor  party  holds  that  the  best  provision  is  the  out-of-work  pay 
of  a  strong  trade-union  duly  supplemented  by  a  government  subven- 
tion amounting  to  at  least  half  the  weekly  allowance ;  and  that  for  the 
succor  of  those  for  whom  trade-union  organization  is  not  available,  the 
state  unemployment  benefit,  raised  to  an  adequate  sum,  should  be 
'made  universally  applicable  in  all  industries, 

VII.      THE  COMPLETE  EMANCIPATION  OF  WOMEN 

That  the  conference  holds  that  the  changes  in  the  position  of 
women  during  the  war,  in  which  they  have  rendered  such  good  ser- 
vice, and  the  importance  of  securing  to  women  as  to  men  the  fullest 
possible  opportunities  for  individual  development,  make  it  necessary 
to  pay  special  attention  in  the  reconstruction  program  to  matters 
affecting  women ;  and,  in  particular,  the  conference  affirms : 

a)     With  regard  to  industry  on  demobilization: 

1.  That  work  or  maintenance  at  fair  rates  should  be  provided  for 
all  women  displaced  from  their  employment  to  make  way  for  men 
returning  from  service. 

2.  That  full  inquiry  should  be  made  into  trades  and  processes 
previously  held  to  be  unhealthy  or  unsuitable  for  women,  but  now 
being  carried  on  by  them,  with  a  view  to  making  recommendations 
as  to  the  condition  of  their  further  employment  in  such  trades. 

3.  That  all  women  employed  in  trades  formerly  closed  to  them 
should  only  continue  to  be  so  employed  at  trade-union  rates  of 
wages. 


COMPREHENSIVE  SCHEMES  OF  REFORM  883 

4.  That  trade-unions  should  be  urged  to  accept  women  members 
in  all  trades  in  which  they  are  employed. 

5.  That  the  principle  of  equal  pay  for  similar  duties  should  be 
everywhere  adopted. 

b)     With  regard  to  civil  rights: 

1.  That  all  legal  restrictions  on  the  entry  of  women  into  the 
professions  on  the  same  conditions  as  men  should  be  abrogated. 

2.  That  women  should  have  all  franchises,  and  be  eligible  for 
.  election  to  all  public  bodies  on  the  same  conditions  as  men. 

3.  That  systematic  provision  should  be  made  for  the  inclusion 
of  women  in  committees,  national  or  local,  dealing  with  any  subjects 
that  are  not  of  exclusively  masculine  interest. 

4.  That  the  present  unjust  provision  of  the  income  tax  law, 
under  which  the  married  woman  is  not  treated  as  an  independent 
human  being,  even  in  respect  of  her  own  property  or  earnings,  must 
be  at  once  repealed. 

VIII.      THE    RESTORATION    OF    PERSONAL    LIBERTY 

That  this  conference  regards  as  fundamental  the  immediate  repeal 
and  abrogation,  as  soon  as  the  war  ends,  of  the  whole  system  of  the 
military  service  acts,  and  of  all  the  provisions  of  the  defense  of  the 
realm  acts  restricting  freedom  of  speech,  freedom  of  publication, 
freedom  of  the  press,  freedom  of  travel,  and  freedom  of  choice  of 
residence  or  of  occupation. 

IX.      POLITICAL   REFORMS 

That  the  conference  reaffirms  its  conviction  that  no  lasting  settle- 
ment of  the  question  of  political  reform  can  be  reached  without  a 
genuine  adoption  of  (a)  complete  adult  suffrage;  (h)  absolute  equal 
rights  for  both  sexes ;  (c)  effective  provision  for  absent  electors  to 
vote  and  the  best  practicable  arrangements  for  insuring  that  every 
minority  has  its  proportionate  representation ;  (d)  the  same  civic 
rights  for  soldiers  and  sailors  as  for  officers  ;  (e)  shorter  Parliaments ; 
(f)  the  complete  abandonment  of  any  attempt  to  control  the  people's 
representatives  by  a  House  of  Lords. 

This  conference  calls  for  the  abolition  of  the  House  of  Lords 
without  replacement  by  any  second  chamber.  The  conference  further 
protests  against  the  disfranchisement  of  conscientious  objectors. 

X.       IRELAND 

That  the  conference  unhesitatingly  recognizes  the  claim  of  the 
people  of  Ireland  to  home  rule,  and  to  self-determination  in  all 


8«4  CURRENT  ECONOMIC  PROBLEMS 

exclusively  Irish  affairs ;  it  protests  against  the  stubborn  resistance  to 
a  democratic  reorganization  of  Irish  government  maintained  by  those 
who  alike  in  Ireland  and  Great  Britain  are  striving  to  keep  minorities 
dominant ;  and  it  demands  that  a  wide  and  generous  measure  of  home 
rule  should  be  immediately  passed  into  law  and  put  into  execution. 

Xr.      CONSTITUTIONAL   DEVELOPMENT 

That  the  conference  regards  as  extremely  grave  the  incapacity  of 
the  War  Cabinet  and  the  House  of  Commons  to  get  through  even  the 
most  urgently  needed  work;  it  considers  that  some  early  devolution 
from  W('s( minster  of  both  legislation  and  administration  is  impera- 
tively called  for;  it  suggests  that,  along  with  the  grant  of  home  rule 
lo  Ireland,  there  should  be  constituted  separate  statutory  legislative 
assemblies  for  Scotland,  Wales,  and  even  England,  with  autonomous 
.idniinisl ration  in  matters  of  local  concern  ;  and  that  the  Parliament  at 
Westminster  should  be  retained  in  the  form  of  a  Federal  Assembly 
for  the  United  Kingdom,  controlling  the  ministers  responsible  for  the 
dopartincnts  of  the  Federal  government,  who  would  form  also, 
together  with  ministers  representing  the  dominions  and  India,  the 
Cabinet  for  Commonwealth  affairs  for  the  Britannic  Commonwealth 
as  a  whole. 

XII.       LOCAL  GOVERNMENT 

That  in  order  to  avoid  the  evils  of  centralization  and  the  draw- 
backs of  bureaucracy,  the  conference  suggests  that  the  fullest  possi- 
ble scope  should  be  given,  in  all  branches  of  social  reconstruction, 
to  the  democratically  elected  local  governing  bodies. 

The  conference  holds,  moreover,  that  the  municipalities  and  county 
councils  should  not  confine  themselves  to  the  costly  services  of  educa- 
tion, sanitation,  and  police,  nor  yet  rest  content  with  acquiring  con- 
trol of  the  local  water,  gas,  electricity,  and  tramways,  but  that  they 
should  greatly  extend  their  enterprises  in  housing  and  town  planning, 
parks,  and  public  libraries,  the  provision  of  music  and  the  organiza- 
tion of  popular  recreation,  and  also  that  they  should  be  empowered  to 
undertake,  not  only  the  retailing  of  coal,  but  also  other  services  of 
common  utility,  particularly  the  local  supply  of  milk,  where  this  is  not 
already  fully  and  satisfactorily  organized  by  a  co-operative  societ}'. 

^^l^ther,  that  councils  be  elected  on  the  principle  of  proportional 
representation,  and  that  to  throw  the  position  open  to  all  persons,  rich 
and  poor,  all  councilors  should  be  provided  with  pa^Tnent  for  any 
necessary  traveling  expenses  and  for  the  time  spent  on  the  public 
service. 


COMPREHENSIVE  SCHEMES  OF  REFORM  885 

XIII.      EDUCATION 

That  the  conference  holds  that  the  most  important  of  all  the 
measures  of  social  reconstruction  must  be  a  genuine  nationalization 
of  education,  which  shall  get  rid  of  class  distinctions  and  privileges, 
and  bring  effectively  within  the  reach,  not  only  of  every  boy  and 
girl,  but  of  every  adult  male  citizen,  all  the  training,  physical,  mental 
and  moral,  literary,  technical,  and  artistic,  of  which  he  is  capable. 

That  the  conference  declares  that  the  Labor  Party  cannot  be  satis- 
fied with  a  system  which  condemns  the  great  bulk  of  the  children  to 
merely  elementary  schooling  with  accommodation  and  equipment 
inferior  to  that  of  the  secondary  schools,  in  classes  too  large  for 
efficient  instruction,  under  teachers  of  whom  at  least  one-third  are 
insufficiently  trained ;  which  denies  to  the  great  majority  of  teachers 
in  the  kingdom  alike  any  opportunity  for  all-round  culture,  as  well 
as  for  training  in  their  art,  an  adequate  wage,  reasonable  prospects 
of  advancement,  and  suitable  superannuation  allowances ;  and  which, 
notwithstanding  what  is  yet  done  by  way  of  scholarships  for  excep- 
tional geniuses,  still  reserve  the  endowed  secondary  schools,  and  even 
more  the  universities,  for  the  most  part,  to  the  sons  and  daughters 
of  a  small  privileged  class,  while  contemplating  nothing  better  than 
eight  weeks  a  year  continuation  schooling  up  to  eighteen  for  90  per 
cent  of  the  youth  of  the  nation. 

The  conference  accordingly  asks  for  a  systematic  reorganization 
of  the  whole  educational  system,  from  the  nursery  school  to  the  uni- 
versity, on  the  basis  of  (a)  social  equality  ;  (b)  the  provision  for  each 
age,  for  child,  youth,  and  adult,  of  the  best  and  most  varied  educa- 
tion of  which  it  is  capable,  and  with  due  regard  to  its  physical  wel- 
fare and  development,  but  without  any  form  of  military  training; 
(c)  the  educational  institutions,  irrespective  of  social  class  or  wealth, 
to  be  planned,  equipped,  and  staffed  according  to  their  several  func- 
tions, up  to  the  same  high  level  for  elementary,  secondary,  or  uni- 
versity teaching,  with  regard  solely  to  the  greatest  possible  educa- 
tional efficiency,  and  free  maintenance  of  such  a  kind  as  to  enable  the 
children  to  derive  the  full  benefit  of  the  education  given ;  and  (d) 
the  recognition  of  the  teaching  profession,  without  distinction  or 
grade,  as  one  of  the  most  valuable  to  the  community. 

XIV.       HOUSING 

That  the  conference,  noting  the  fact  that  the  shortage  of  habitable 
cottages  in  the  United  Kingdom  now  exceeds  one  million,  regards 
a  national  campaign  of  cottage  building  at  the  public  expense,  in 
town  and  country'  alike,  as  the  most  urgent  of  social  requirements. 


886  CURRENT  ECONOMIC  PROBLEMS 

That  the  attention  of  the  government  should  be  called  to  the  fact 
that,  until  steps  are  taken  to  insist  that  the  local  auhorities  acquire 
the  necessary  sites,  prepare  schemes,  plans,  and  specifications,  and 
obtain  all  required  sanctions,  actually  before  the  war  ends  there  is 
very  little  chance  of  the  half-a-million  new  cottages  urgently  needed 
in  England,  Scotland,  Ireland,  and  Wales  during  the  very  first  year 
of  demobilization  being  ready  for  occupation  within  that  time. 

That  it  is  essential  that  the  "Million  Cottages  of  the  Great  Peace," 
to  be  erected  during  the  first  two  or  three  years  after  the  war  by  the 
local  authorities,  with  capital  supplied  by  the  national  government 
free  of  interest,  should  be  worthy  to  serve  as  models  to  other  builders ; 
and  must  accordingly  be  not  only  designed  with  some  regard  to  ap- 
pearance, not  identical  throughout  the  land,  but  adapted  to  local  cir- 
cumstances, and  soundly  constructed,  spacious,  and  healthy ;  includ- 
ing four  or  five  rooms,  larder,  scullery,  cupboards,  and  fitted  bath,  but 
suitably  grouped,  not  more  than  ten  or  twelve  to  the  acre ;  and  pro- 
vided with  sufficient  garden  ground. 

XV.      THE   ABOLITION    OF   THE   POOR  AND   THE   DEVELOPMENT   OF   THE 
MUNICIPAl,    HEALTH    SERVICE 

That  the  conference  notes  with  satisfaction  the  decision  of  the 
government  both  to  establish  a  Ministry  of  Health  and  to  abolish 
the  whole  system  and  organization  of  the  poor  law. 

It  regards  the  immediate  reorganization,  in  town  and  country 
alike,  of  the  public  provision  for  the  prevention  and  treatment  of 
disease,  and  the  care  of  orphans,  the  infirm,  the  incapacitated,  and  the 
aged  needing  institutional  care,  as  an  indispensable  basis  of  any  social 
reconstruction. 

It  calls  for  the  prompt  carrying  out  of  the  government's  declared 
intention  of  abolishing,  not  merely  the  boards  of  guardians,  but  also 
the  hated  workshop  and  the  poor  law  itself,  and  the  merging  of  the 
work  hitherto  done  for  the  destitute  as  paupers  in  that  performed  by 
the  directly  elected  county,  borough,  and  district  councils  for  the 
citizens  as  such,  without  either  the  stigma  of  pauperism  or  the  hamper- 
ing limitations  of  the  poor  law  system. 

XVI.      TEMPERANCE  REFORM 

That  the  conference  records  its  sense  of  the  great  social  evil  and 
national  waste  caused  by  the  excessive  consumption  of  alcoholic 
liquors,  and  by  the  unfortunate  intemperance  of  a  relatively  small 
section  of  the  population ;  that  the  conference  sees  the  key  to  temper- 
ance reform  in  taking  the  entire  manufacture  and  retailing  of  alcoholic 


COMPREHENSIVE  SCHEMES  OF  REFORM  887 

drink  out  of  the  hands  of  those  who  find  profit  in  promoting  the 
utmost  possible  consumption;  and  the  conference  holds  that  in  con- 
junction with  any  expropriation  of  the  private  interests  the  electors 
of  each  locality  should  be  enabled  to  decide  as  they  see  fit :  (a)  to 
prohibit  the  sale  of  alcoholic  drink  within  their  own  boundaries ;  (h) 
to  reduce  the  number  of  places  of  sale  and  to  regulate  the  conditions 
of  sale;  (c)  to  determine  the  manner  in  which  the  public  places  of 
refreshment  and  social  intercourse  in  their  own  districts  should  be 
organized  and  controlled. 

XVII.      RAILWAYS   AND   CANALS 

That  the  conference  insists  upon  the  retention  in  public  hands  of 
the  railways  and  canals,  and  on  the  expropriation  of  the  present  stock- 
holders on  equitable  terms,  in  order  to  permit  of  the  organization,  in 
conjunction  with  the  harbors  and  docks,  and  the  posts  and  telegraphs, 
of  a  unified  national  public  service  of  communications  and  transport, 
to  be  worked,  unhampered  by  any  private  interest  (and  with  a  stead- 
ily increasing  participation  of  the  organized  workers  in  the  manage- 
ment) exclusively  for  the  common  good. 

The  conference  places  on  record  that,  if  any  government  shall 
be  so  misguided  as  to  purpose  to  hand  the  railways  back  to  the  share- 
holders or  should  give  the  companies  any  enlarged  franchise  by  pre- 
senting them  with  the  economies  of  unification  or  the  profits  of 
increased  railway  rates,  or  so  extravagant  as  to  bestow  public  funds 
on  the  re-equipment  of  privately  owned  lines,  the  Labor  Party  will 
offer  any  such  project  its  most  strenuous  opposition. 

XVIII.       COAL    AND    IRON    MINES 

That  the  conference  urges  that  the  coal  and  iron  mines,  now  under 
government  control,  should  not  be  handed  back  to  their  capitalist  pro- 
prietors, but  that  the  measure  of  nationalization,  which  became  im- 
perative during  the  war,  should  be  completed  at  the  earliest  possible 
moment,  by  the  expropriation  on  equitable  terms  of  all  private  inter- 
ests in  the  extraction  and  distribution  of  the  nation's  coal  (together 
with  iron  ore  and  other  minerals). 

The  conference  asks  that  the  supply  of  these  minerals  should 
henceforth  be  conducted  as  a  public  service  (with  a  steadying  in- 
creasing participation  in  the  management  of  the  workers  concerned), 
for  the  cheapest  and  most  regular  supply  to  industry  of  its  chief  source 
of  power,  the  retail  distribution  of  household  coal,  at  a  fixed  price, 
summer  and  winter  alike,  and  identical  at  all  railway  stations  through- 
out the  kingdom,  being  undertaken  by  the  elected  municipal  district  or 
county  council  for  the  common  good. 


CURRENT  ECONOMIC  PROBLEMS 

XIX.      LIFE  ASSURANCE 

That  the  conference  declares  that,  partly  as  a  means  of  affording 
increased  security  to  the  tens  of  thousands  of  policy  holders  whose 
bonuses  are  imperiled  by  capital  depreciation  and  war  risks,  and 
partly  in  order  to  free  the  nation  from  the  burdensome  and  costly 
system  of  the  industrial  insurance  companies,  the  state  should  take 
over  (with  equitable  compensation  to  all  interests  affected)  the  whole 
function  of  life  assurance,  giving  in  place  of  the  present  onerous 
industrial  insurance  policies  a  universal  funeral  benefit  free  of  charge ; 
putting  the  whole  class  of  insurance  agents  in  the  position  of  civil 
servants  administering  the  state  insurance  business ;  developing  to 
the  utmost  the  beneficial  work  of  the  friendly  societies  in  independence 
and  security,  and  organizing,  in  conjunction  with  these  societies,  on 
the  most  improved  principles,  a  safe  and  remunerative  investment  of 
popular  savings. 

XX.      CONTROL    OF    CAPITALISTIC    INDUSTRY 

That  the  conference  insists,  especially  in  view  of  the  rapid  develop- 
ment of  amalgamations,  on  the  necessity  of  retaining  after  the  war, 
and  of  developing  the  present  system  of  organizing,  controlling,  and 
auditing  the  processes,  profits,  and  prizes  of  capitalistic  industry ;  that 
the  economies  of  centralized  purchasing  of  raw  materials,  foodstuffs, 
and  other  imports  must  be  continued,  and,  therefore,  the  "rationing" 
of  all  establishments  under  a  collective  control ;  that  the  publicity  of 
processes  thus  obtained  has  a  valuable  effect  in  bringing  inefficient 
firms  up  to  a  higher  level ;  that  the  "costing"  of  manufacturers' 
processes  and  auditing  of  their  accounts,  so  as  to  discover  the  neces- 
sary cost  of  production,  together  with  the  authoritative  limitation 
of  prices  at  the  factory,  the  wholesale  warehouse,  and  the  retail  shop, 
affords,  in  industries  not  nationalized,  the  only  security  against  the 
extortion  of  profiteering ;  and  that  it  is  as  much  the  duty  of  the  gov- 
ernment to  protect  the  consumer  by  limiting  prices  as  it  is  to  protect 
the  factory  operative  from  unhealthy  conditions,  or  the  householder 
from  the  burglar. 

XXI.       NATIONAL  FINANCE 

I.  That,  in  view  of  the  enormous  debts  contracted  during  the 
war,  and  of  the  necessity  to  lighten  national  financial  burdens,  this 
conference  demands  that  an  equitable  system  of  conscription  of 
accumulated  wealth  should  be  put  into  operation  forthwith,  with 
exemptions  for  fortunes  below  ii,ooo,  and  a  graduated  scale  of  rates 
for  larger  totals,  believing  that  no  system  of  taxation  of  income  or 
profits  only  will  yield  enough  to  free  the  country  from  oppressive 


.  COMPREHENSIVE  SCHEMES  OF  REFORM  889 

debts,  and  that  any  attempt  to  tax  food  or  other  necessities  of  life 
would  be  unjust  and  ruinous  to  the  masses  of  the  people. 

2.  That  the  only  solution  of  the  difficulties  which  have  arisen 
is  a  system  by  which  the  necessary  national  income  shall  be  derived 
mainly  from  direct  taxation  alike  of  land  and  accumulated  wealth, 
and  of  income  and  profits,  together  with  suitable  import  upon  luxuries, 
and  that  the  death  duties  and  the  taxation  upon  unearned  incomes 
should  be  substntially  increased  and  equitably  regarded. 

3.  That  the  whole  system  of  land  taxation  should  be  revised  so 
that  by  the  direct  taxation  of  the  unearned  increment  of  land  values 
effect  should  be  given  to  the  fact  that  the  land  of  the  nation,  which 
has  been  defended  by  the  lives  and  sufferings  of  its  people,  shall 
belong  to  the  nation,  and  be  used  for  the  nation's  benefit. 

4.  That  this  conference  protests  against  the  subjection  of  co- 
operative dividends  to  the  excess-profits  tax  and  against  the  repeated 
attempts  to  bring  co-operative  dividends  within  the  scope  of  the  in- 
come tax. 

5.  That  the  Post  Office  Savings  Bank  should  be  developed  into  a 
national  banking  system  for  the  common  service  of  the  whole  com- 
munity. 

XXII.      THE  NEED  FOR  A  "PEACE  BOOK" 

That  in  the  opinion  of  this  conference  the  problem  of  the  social 
and  industrial  reconstruction  of  Great  Britain  after  the  war  is  of 
such  grave  importance  and  of  such  vital  urgency,  that  it  is  impera- 
tive, in  order  to  avoid  confusion  in  the  period  of  demobilization,  that 
the  main  outlines  of  policy  in  all  branches  should  be  definitely  formu- 
lated, upon  the  responsibility  of  the  minister  of  reconstruction,  before 
the  war  ends,  so  that  they  can  be  published  in  a  Peace  Book  for  pub- 
lic criticism  before  being  finally  adopted  by  the  Cabinet,  for  the 
authoritative  guidance  of  all  ministers  and  heads  of  departments. 


XVII 

THE   CONTROL    OF   INDUSTRIAL   DEVELOP- 
MENT 

Again,  we  must  remind  ourselves  that  it  is  not  enough  to  know  that  our 
system  as  a  whole  is  in  process  of  development.  Novelty  and  goodness  are  not 
one;  the  newer  society  because  of  its  newness  is  not  perforce  better  than  the 
old;  our  world,  though  transformed,  has  not  of  necessity  become  a  better 
worldJn  which  to  live.  Movement  there  always  is;  but  movement  may  or  may 
not  mark  an  advance.  This  possible  antithesis  between  development  and  prog- 
ress raises  perhaps  the  most  important  of  all  current  problems,  for  in  its  terms 
other  problems  must  find  their  "solution."  Should  society  allow  its  develop- 
ment to  take  its  "natural  course,"  or  should  it  attempt  to  control  it? 

No  absolute  answer  can  be  given  to  so  universal  a  question.  If  the  natural 
course  gives  evidence  of  being  the  path  we  would  mark  out,  obviously  we 
should  keep  our  hands  oflf.  If  for  such  a  reason  laissez  faire  is  deliberately 
chosen,  paradoxical  as  it  seem,  it  becomes  merely  a  convenient  instrument  of 
control.  But  if  the  "system  is  going  awry,"  what  shall  we  do?  Just  as 
obviously  we  should,  to  the  extent  of  our  intelligence  and  power,  attempt  to 
control  the  process. 

But  can  we  control  so  complex  and  many-sided  a  thing  as  social  develop- 
ment? Unfortunately  to  this  question  we  cannot  give  an  unqualified  affirma- 
time.  Many  social  "forces"  are  beyond  our  ken  and  power ;  others,  of  which 
we  have  some  knowledge,  cannot  be  reached  by  any  contrivances  which  we 
have  yet  perfected;  given  programs  promising  definite  results  have  the  per- 
versity to  produce  undreamed  of  complications ;  and  immediate  consequences 
have  fallen  into  the  disagreeable  habit  of  distracting  our  attention  from  more 
ultimate  and  important  results.  It  seems,  therefore,  that  the  wholesale  pre- 
scription of  "remedies"  and  the  amateurish  tinkering  with  parts  are  likely  to 
prove  dangerous.  Yet,  if  we  are  sufificiently  conscious  of  the  limitations 
under  which  we  are  working,  we  can  do  something  toward  directing  the  move- 
ment. We  know  something  of  the  elements  involved;  we  have  had  much 
experience  that  should  stand  us  in  some  stead ;  and  we  have  evolved  some 
very  remarkable  agencies  of  control.  If  we  proceed  cautiously,  make  our 
programs  flexible,  and  quickly  change  our  procedure  to  meet  the  unexpected 
contingencies  which  are  inevitable,  there  is  reason  for  faith  in  our  ability 
eventually  to  accomplish  much.  If  we  essay  the  task,  we  shall  need  a  knowledge 
of  the  means  of  control,  a  theory  of  the  use  of  these  means,  and  a  conscious- 
ness of  the  "end"  for  which  they  are  used.    Let  us  consider  these  in  turn. 

Even  if  our  desires  be  quite  modest,  they  will  necessitate  the  use  of 
numerous  and  varied  means  of  control.  The  changes  which  we  wish  to  effect 
may  be  in  the  structure  of  society,  in  institutions,  in  activities,  or  in  values ; 
they  may  call  for  immediate  and  mechanical  action  or  they  may  necessitate 
slow  and  gradual  adaptations ;  they  may  affect  almost  the  whole  of  society 
or  may  immediately  touch  only  a  single  aspect  of  life.  For  these  and  a 
myriad  other  uses  instruments  of  social  control  are  available.  The  state  can 
be  used  to  secure  quick  mechanical  changes ;  the  school  and  the  church  can 
be  used  slowly  to  effect  more  gradual  and  organic  adaptations ;  the  labor  union, 
by  sharp,  incisive  action,  can  immediately  further  the  interest  of  a  group ; 
the  interest  of  a  like  group  may  gradually  be  advanced  by  a  voluntary  asso- 
ciation using  more  peaceful  methods ;  press  and  public  opinion  can  reach  a 
large  part  of  society;  occupational  associations  and  codes  of  ethics  can  exercise 

8qo 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  891 

a  control  over  particular  groups ;  and  convention  and  tradition  through  their 
prohibitions  and  inhibitions,  can  effectively  direct  the  lives  and  activities  of  the 
individuals.  Each  of  these  agencies  in  its  own  way  can  be  used  to  make  the 
"system"  somewhat  different.  Because  of  the  multiplicity,  variety,  and  effi- 
ciency of  these  agencies — despite  the  gravity  of  our  ignorance — we  could  not 
escape  social  control  if  we  would. 

Our  theory  of  the  use  of  these  "forces"  has  been  very  gradually  built  up, 
and  as  yet  is  far  from  complete.  During  most  of  the  nineteenth  century,  when 
"the  country  was  in  a  stage  of  increasing  returns,"  when  self-reliance  was 
dominant,  and  when  men  dared  not  meddle  with  the  rising  machine-system 
which  they  very  imperfectly  understood,  the  dominant  theory  was  that  of 
laissez-faire.  This  theory  overlooked  entirely  the  influence  exerted  by  agen- 
cies other  than  the  state,  as  well  as  a  large  number  of  active  functions  per- 
formed by  government,  such  as  the  protection  of  property  and  the  maintenance 
of  contract.  At  present  the  hold  of  individualistic  theory  is  weakening.  The 
frontier  is  gone;  we  are  confronted  by  the  grave  problems  of  a  mature 
society;  we  are  less  prone  to  attribute  success  or  failure  to  personal  merit  or 
demerit ;  and  we  talk  of  "social  conditions"  and  "inequality  of  opportunity." 
All  of  this  inclines  us  to  depend  more  upon  authority,  and  threatens  a  radical 
extension  and  state  activity.  But  there  are  potent  checks  upon  this  attitude. 
The  interpretation  of  our  constitution  still  proceeds  from  individualistic  assump- 
tions ;  the  pecuniary  organization  of  society  still  gives  great  weight  to  the 
views  of  the  owners  of  "vested  wealth";  and  in  many  places  a  spirit  of 
abandon  in  legislation  is  doing  much  to  discredit  state  interference.  But  we 
are  quite  consciously  coming  to  complement  our  theory  of  the  province  of 
government  with  a  theory  of  the  use  of  other  agencies  of  control.  For  we 
are  learning  that  we  must  pay  for  what  we  get,  that  legislation  cannot  produce 
Utopias,  that  good  is  achieved  rather  than  acquired,  and  that  the  less  con- 
spicuous agencies  of  control  are  as  certain  as  they  are  slow. 

A  consciousness  of  the  end  for  which  these  means  are  used  is  hardest  for 
us  to  acquire.  But,  difficult  as  the  task  is,  we  must  realize  that,  if  we  attempt 
social  control  we  must  know  what  we  are  about;  we  must  have  a  tentative 
goal ;  we  must  appreciate  the  "end"  at  which  we  are  aiming.  To  achieve  that 
end  our  proposals  must  fit  together  into  consistent  programs ;  the  instruments 
of  control  which  we  use  must  complement  each  other.  This  does  not  mean 
that  there  must  be  no  element  of  antagonism  in  the  system,  but  rather  that  there 
must  not  be  the  spoiled  work  which  comes  from  the  confused  counsel  whose 
origin  is  in  dealing  with  problems  in  isolation.  Consciousness  of  the  "end" 
also  involves  looking  beyond  immediate,  proposals.  Beyond  conflicting  pro- 
posals, seemingly  unimportant,  lie  powerful  social  theories,  quite  contradictory 
in  the  kind  of  societies  they  tend  to  produce.  In  many  problems,  therefore,  the 
ultimate  issue  is  between  different  systems.  Shall  our  ideal  be  that  of  a 
personal  and  industrial  feudalism,  an  individualistic  America  of  the  nineteenth 
century,  a  socialized  Germany  of  the  Hohenzollerns,  an  idealized  and  Marxian- 
ized  state,  or  something  else?  Upon  our  conception  of  the  ideal  state  toward 
which  "progress"  should  carry  us  depends  our  "solution"  of  the  problems  which 
we  are  about  to  discuss. 

But  what,  then,  of  the  future?  What  is  going  to  become  of  society? 
When  will  it  solve  its  problems?  When  shall  we  attain  unto  peace  and  plenty? 
Perhaps  we  can  find  some  consolation  in  the  fact  that  even  the  wisest  of  men 
have  constantly  despaired  of  the  future  of  society.  Perhaps  we  can  solace 
ourselves  with  hope,  which  is  ours  eternally.  From  the  biblical  dream  of  the 
"New  Jerusalem"  to  Wells'  vision  of  "A  Modern  Utopia,"  we  have  had  pictures 
a-plenty  of  the  perfect  state  which  "some  day"  will  be  realized.  We  have 
always  had,  and  still  have,  wise  men  who  furnish  us  with  magical  formulae 
for  finding  "the  way  out."  While  most  of  these  are  so  simple  as  to  tax  our 
credulity,  few  of  them  fail  to  contain  some  germ  of  social  wisdom. 

But,  in  anticipating  the  future,  we  must  not  forget  that  our  social  resources 
are — and  ever  must  be — limited.  We  must  not  overlook  the  fact  that  the  inter- 
ests of  all  are  not  identical.    There  will  ever  be  the  necessity  for  a  struggle 


892  CURRENT  ECONOMIC  PROBLEMS 

with  finite  resources,  and  consequent  economy.  There  will  ever  be  competi- 
tion for  the  larger  shares  of  social  income.  If  we  intelligently  attempt  to  direct 
the  course  of  our  development,  if  we  try  honestly  to  make  the  best  possible 
contribution  to  the  solution  of  the  world-old  enigmas  of  society,  if  we  do  our 
best  to  rid  the  immediate  situation  of  its  grosser  incompatibilities,  there  is 
reason  for  thinking  that  development  will  more  closely  accord  with  that  which 
we  call  "progress,"  that  the  newer  social  world  will  be  somewhat  more  to  the 
liking  of  the  people  who  have  to  put  up  with  it  than  the  old.  We  shall  not  have 
freed  future  generations  from  having  to  "solve  problems,"  but  perhaps  we 
shall  have  given  them  new  problems  ictnewhat  further  removed  from  "the 
margin  of  life."  And  thus  we  come  to  the  end — and  to  the  beginning— of  our 
study. 

A.    INDUSTRY  AN  INSTRUMENT 
385.     A  Functional  Society^ 

BY  R.  H.  TAWNEY 

A  society  which  aimed  at  making  the  acquisition  of  wealth  con- 
tingent upon  the  discharge  of  social  obligations,  which  sought  to 
proportion  remuneration  to  service  and  denied  it  to  those  by  whom 
no  service  was  performed,  which  inquired  first  not  what  men  possess, 
but  what  they  can  make,  or  create,  or  achieve,  might  be  called  a  func- 
tional society,  because  in  such  a  society  the  main  subject  of  social 
emphasis  would  be  the  performance  of  functions. 

The  first  condition,  then,  of  the  right  organization  of  industry  is 
the  intellectual  conversion  which,  in  their  distrust  of  principles,  Eng- 
lishmen are  disposed  to  place  last  or  to  omit  altogether.  It  is  that 
emphasis  should  be  transferred  from  the  opportunities  which  it  offers 
individuals  to  the  social  functions  which  it  performs  ;  that  they  should 
be  clear  as  to  its  end  and  should  judge  it  by  reference  to  that  end,  not 
by  incidental  consequences  which  are  foreign  to  it,  however  brilliant 
or  alluring  those  consequences  may  be. 

What  gives  it  meaning  to  any  activity  which  is  not  purely  auto- 
matic is  its  purpose.  It  is  because  the  purpose  of  industry,  which  is 
the  conquest  of  nature  for  the  service  of  man,  is  neither  adequately 
expressed  in  its  organization  nor  present  to  the  minds  of  those  en- 
gaged in  it,  because  it  is  not  regarded  as  a  function  but  as  an  oppor- 
tunity for  personal  gain  or  advancement  or  display,  that  the  economic 
life  of  modern  societies  is  in  a  perpetual  state  of  morbid  irritation. 
If  the  conditions  which  produce  this  unnatural  tension  are  to  be 
removed,  the  change  can  only  be  effected  by  the  growth  of  a  habit  of 
mind  which  will  approach  questions  of  economic  organization  from 
the  standpoint  of  the  purpose  which  it  exists  to  serve,  and  which  will 

^Adapted  from  "The  Sickness  of  Acquisitive  Society,"  Hibbard  Journal, 
XVII  (1919),  356,  358-70.  Copyright  by  Williams  and  Norgate  (London), 
and  Leroy  Phillips  &  Co.  (Boston). 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  893 

apply  to  them  something  of  the  spirit  expressed  by  Bacon  when  he 
said  that  the  work  of  man  ought  to  be  carried  on  "for  the  glory  of 
God  and  the  relief  of  men's  estate." 

Viewed  from  that  angle,  issues  which  are  insoluble  when  treated 
on  the  basis  of  rights,  may  be  found  more  susceptible  of  reasonable 
treatment.  For  a  purpose  is,  in  the  first  place,  a  principle  of  limita- 
tion. It  determines  the  end  for  which,  and  therefore  the  limits  within 
which,  an  activity  is  to  be  carried  on.  It  divides  what  is  worth  doing 
from  what  is  not,  and  settles  the  scale  upon  which  what  is  worth  doing 
to  be  done.  It  is,  in  the  second  place,  a  principle  of  unity,  because  it 
supplies  a  common  end  to  which  efforts  can  be  directed,  and  submits 
interests  which  would  otherwise  conflict  to  the  judgment  of  an  over- 
ruling object.  It  is,  in  the  third  place,  a  principle  of  apportionment 
or  distribution.  It  assigns  to  the  different  parties  or  groups  engaged 
in  a  common  undertaking  the  place  in  which  they  are  to  occupy  in 
carrying  it  out.  Thus  it  establishes  order,  not  upon  chance  or  power, 
but  upon  a  principle,  and  bases  remuneration,  not  upon  what  men  can, 
with  good  fortune,  snatch  for  themselves,  nor  upon  what,  if  unlucky, 
they  can  be  induced  to  accept,  but  upon  what  is  appropriate  to  their 
function,  no  more  and  no  less,  so  that  those  who  perform  no  function 
receive  no  payment,  and  those  who  contribute  to  the  common  end 
receive  honorable  payment  for  honorable  service. 

The  practical  expression  of  the  idea  of  purpose  would  be  a  change 
in  the  prevalent  conceptions  both  of  ecomonic  activity  and  of  prop- 
erty. The  natural  result  of  emphasizing  rights  as  the  foundation  of 
social  organization  is  to  cause  industry  to  be  regarded  primarily  as 
a  private  enterprise  in  which  the  interest  of  the  community  is  indi- 
rect, and  in  which  it  intervenes  only  in  the  case  of  some  special  danger 
or  abnormal  abuse.  The  transference  of  emphasis  from  rights  to  func- 
tions would  result  in  industry  being  considered  primarily  as  a  social 
service ;  and,  however  the  principle  that  industry  is  a  social  service 
may  be  interpreted,  there  are  at  any  rate  three  implications  that  are 
involved  in  it. 

The  first  is  that  it  should  be  conducted  in  complete  publicity  with 
regard  both  to  costs  of  production  and  to  profits.  The  second  is  that 
the  primary  consideration  in  its  organization  should  be  that  the  com- 
munity should  be  offered  the  best  service  technically  possible  at  the 
lowest  price  compatible  with  adequate  payment  to  those  who  render 
it.  The  third  is  that,  when  all  charges  necessary  to  the  supply  of  a 
service  have  been  met,  any  surplus  which  remains  should  pass  to  the 
public. 

Equally  radical  would  be  the  modifications  in  the  prevalent  atti- 
tude toward  property.    A  sharp  distinction  would  be  drawn  between 


894  CURRENT  ECONOMIC  PROBLEMS 

property  which  is  used  by  the  owner  for  the  conduct  of  his  profession 
or  the  upkeep  of  his  household,  and  property  which  yields  an  income 
irrespective  of  any  personal  service.  The  former,  the  holding  of  the 
peasant,  or  the  tools  of  the  workman,  or  the  personal  possessions 
necessary  to  a  civilized  life,  would  be  regarded  as  legitimate,  for  they 
are  the  condition  of  service.  The  latter,  of  which  the  most  obvious 
examples  are  urban  ground  rents  or  mining  royalties,  would  be  re- 
garded as  illegitimate,  since  they  are  merely  a  pecuniary  lien  upon 
the  product  of  someone  else's  industry,  which  carries  no  obligation 
of  service  with  it. 

A  functional  society  would  extinguish  mercilessly  those  forms  of 
property  rights  which  yield  income  without  service.  It  would  treat 
all  forms  of  property  other  than  personal  possessions  as  subject  to 
the  eminent  domain  of  the  state ;  and  though  it  would  not  necessarily 
retain  their  administration  in  its  own  hands,  it  would  reserve  its  right 
to  resume  it  whenever  the  function  attached  to  them  was  not  dis- 
charged. 

It  would  not  seek  to  establish  any  visionary  communism;  for  it 
would  realize  that  a  free  disposal  of  a  sufficiency  of  personal  posses- 
sions is  necessary  for  a  healthy  individual  life,  and  would  distribute 
them  more  widely  by  abolishing  the  property  rights  in  virtue  of  which 
they  were  concentrated.  But  there  would  be  no  private  property  in 
urban  land;  it  would  be  owned  by  the  authorities  of  the  city  which 
is  built  upon  it,  as  in  many  continental  towns  it  is  owned  today,  and 
they  would  be  armed  with  powers  of  compulsory  acquisition  to  sup- 
ply the  need  for  space  for  a  growing  population. 

There  would  be  question  of  the  right  of  the  owner  of  agricultural 
land  to  use  it  for  sport.  There  would  be  private  property — subject 
to  the  right  of  compulsory  purchase — in  industrial  capital  used  by  the 
owners  for  the  purpose  of  production:  the  forge  of  the  smith,  the 
workshop  of  the  carpenter,  the  factory  of  the  man  who  is  at  once 
owner  and  manager.  But  there  would  be  an  end  of  the  property 
rights  in  virtue  of  which  the  welfare  of  the  industries  on  which  whole 
population  depends  are  administered  by  the  agents  and  for  the  profit 
of  absentee  shareholders. 

386.     The  Ethics  of  Industry- 

BY  JAMES  H,  TUFT? 

The  issues  are  so  involved  and  both  the  facts  and  their  interpreta- 
tions are  in  so  much  controversy  that  upon  most  economic  problems 
we  cannot  yet  formulate  sure  moral  judgments.     Yet  certain  prin- 

^Adapted  from  John  Dewey  and  James  H.  Tufts,  Ethics,  pp.  514-22. 
Copyright  by  Henry  Holt  &  Co.,  1908. 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  895 

ciples  emerge  with  a  good  deal  of  clearness.    We  state  some  of  the 
more  obvious. 

1.  Wealth  and  property  are  subordinate  in  importance  to  per- 
sonality.— The  life  is  more  than  meat.  Most  agree  to  this,  but  many 
fail  to  make  the  application.  They  may  sacrifice  their  own  health,  or 
human  sympathy,  or  family  life ;  or  they  may  consent  to  this  actively 
or  passively  as  employers,  or  consumers,  or  citizens,  in  the  case  of 
others.  A  civilization  which  loses  life  in  providing  the  means  of  life 
is  not  highly  moral.  A  society  which  can  afford  luxuries  for  some 
cannot  easily  justify  unhealthy  conditions  of  production  or  lack  of 
general  education.  A  society  which  considers  wealth  or  property  as 
ultimate,  whether  under  a  conception  of  "natural  rights"  or  other- 
wise, is  setting  the  means  above  the  end,  and  is  therefore  unmoral  or 
immoral. 

2.  Wealth  should  depend  on  activity. — The  highest  aspect  of  life 
on  its  individual  side  is  found  in  active  and  resolute  achievement,  in 
the  embodying  of  purpose  in  action.  Thought,  discovery,  creation, 
mark  a  higher  value  than  the  satisfaction  of  wants,  or  the  amassing 
of  goods.  If  the  latter  is  to  be  a  help  it  must  stimulate  activity,  not 
deaden  it.  Inherited  wealth  without  any  accompanying  incitement 
from  education  or  class  feeling  or  public  opinion  would  be  a  ques- 
tionable institution  from  this  point  of  view.  As  the  race  has  made 
its  ascent  in  the  presence  of  an  environment  which  has  constantly 
selected  the  most  active  persons,  society  in  its  institutions  and  con- 
sciously directed  processes  may  well  plan  to  keep  the  balance  between 
activity  and  reward. 

3.  Public  service  should  go  along  with  wealth. — Such  service,  in 
the  form  of  some  useful  contribution,  whether  to  the  production  or 
the  distribution  of  wealth,  to  the  public  order,  to  education,  to  the 
satisfaction  of  aesthetic  and  religious  wants,  might  be  demanded  as 
a  matter  of  common  honesty.  This  would  be  to  treat  it  as  a  just 
claim  made  by  society  upon  each  of  its  members.  There  is,  of  course, 
no  legal  claim.  The  law  is  far  from  adopting  as  its  motto,  "If  any 
man  will  not  work,  neither  let  him  eat."  Vagrancy  is  not  a  term 
applied  to  all  idlers.  Modern  law,  in  its  zeal  to  strengthen  the  insti- 
tution of  property,  releases  the  owner's  posterity  from  the  necessity 
of  useful  service.  The  old  theology  used  to  carry  the  conception  of 
inherited  or  imputed  sin  and  merits  to  extremes  which  modem  indi- 
vidualism rejects.  But  the  law  permits  inheritors  of  property  to 
receive  from  society  without  rendering  any  personal  return.  Merely 
"to  have  been  born"  is  hardly  sufficient  in  a  democratic  society. 

But  there  is  another  aspect — what  the  service  means  to  the  person 
himself.    It  is  his  opportunity  to  fulfil  his  function  in  the  social  organ- 


896  CURRENT  ECONOMIC  PROBLEMS 

ism.  A  person  is  as  large  as  his  purpose  and  will.  The  person,  there- 
fore, who  identifies  his  purposes  with  the  welfare  of  the  public  is 
thereby  identifying  himself  with  the  whole  social  body.  He  is  no 
longer  himself  alone ;  he  is  a  social  power.  This  is  true  of  the  leaders 
of  society ;  of  the  great  inventors  and  organizers  of  industry ;  and  of 
the  common  laborer  himself.  As  each  is  an  active  contributor,  he 
becomes  creative,  not  merely  receptive. 

4.  The  change  from  individual  to  collective  methods  of  industry 
and  business  demands  a  change  from  individual  to  collective  types 
of  morality. — Moral  action  is  either  to  accomplish  some  positive  good 
or  to  hinder  some  wrong  or  evil.  But  under  present  conditions  the 
individual  by  himself  is  practically  helpless  and  useless  for  either  pur- 
pose. It  was  formerly  possible  for  a  man  to  set  a  high  standard  and 
live  up  to  it,  irrespective  of  the  co-operation  of  others.  When  a 
seller's  market  was  limited  to  his  aquaintances,  it  might  well  be  that 
honesty  was  the  best  policy.  But  with  changes  in  business  condi- 
tions, the  worse  practices,  like  the  baser  coinage,  in  many  cases  have 
driven  out  the  better.  A  merchant  desires  to  pay  his  women  clerks 
a  living  wage.  But  his  rival  across  the  street  pays  only  half  the  wage 
necessary  for  subsistence,  and  puts  him  at  a  disadvantage.  This  rail- 
road defies  the  government  by  owning  coal  mines  as  well  as  transport- 
ing the  product;  that  public  service  corporation  has  obtained  its 
franchise  by  bribery;  this  corporation  is  an  employer  of  child  labor; 
that  finds  it  less  expensive  to  pay  a  few  damage  suits  than  to  adopt 
devices  which  protect  employees.  Does  a  man,  or  even  an  institution, 
act  morally  if  he  invests  in  such  corporations  in  which  he  finds  him- 
self hopeless  as  an  individual  stockholder  ?  If  he  sells  the  stock  at  the 
market  price  to  invest  the  money  elsewhere,  is  it  not  still  the  price  of 
fraud  or  blood?  The  individual  cannot  be  moral  in  independence. 
The  modern  business  collectivism  forces  a  collective  morality.  Indi- 
vidual morality  must  give  place  to  a  more  robust  or  social  type. 

5.  To  meet  the  change  to  corporate  agency  and  ownership  ways 
must  he  found  to  restore  personal  control  and  responsibility. — Free- 
dom and  responsibility  must  go  hand  in  hand.  The  "moral  liability 
limited"  theory  cannot  be  accepted  in  the  simple  form  in  which  it  now 
obtains.  If  society  holds  stockholders  responsible,  they  will  soon 
cease  to  elect  managers  merely  on  the  economic  basis  and  will  demand 
morality.  "Crime  is  always  personal,"  and  it  is  not  usual  for  subordi- 
nates to  commit  crimes  for  the  corporation  against  the  explicit  wishes 
of  higher  officials.  In  certain  lines  the  parties  concerned  have  sought 
to  restore  a  more  personal  relation.  It  has  been  found  possible  to 
engage  foremen  who  can  get  on  smoothly  with  workmen.     Labor 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  897 

unions  are  coming  to  see  the  need  of  conciliating  public  opinion  if 
they  are  to  gain  their  contests. 

6.  To  meet  the  impersonal  agencies  society  must  require  greater 
publicity  and  express  its  moral  standards  more  fully  in  law. — Pub- 
licity is  not  a  cure  for  bad  practices,  but  it  is  a  powerful  deterrent 
agency  so  long  as  the  offenders  care  for  public  opinion.  Publicity — 
scientific  investigation  and  public  discussion — is  indeed  indispensable, 
and  its  greatest  value  is  probably  not  in  the  exhilarating  discharge  of 
righteous  indignation,  but  in  the  positive  elevation  of  standards,  by 
giving  completer  knowledge  and  showing  the  fruits  of  certain  prac- 
tices. A  large  proportion  of  the  public  will  wish  to  do  the  right 
thing  if  they  can  see  it  clearly  and  can  have  public  support. 

But  the  logical  way  to  meet  the  impersonal  character  of  modern 
economic  agencies  is  by  the  moral  consciousness  embodied  in  the 
law.  The  law  is  not  to  be  regarded  chiefly  as  an  agency  for  punish- 
ing criminals.  It,  in  the  first  place,  defines  a  standard;  and,  in  the 
next  place,  it  helps  the  moral  man  disposed  to  maintain  this  standard 
by  freeing  him  from  unscrupulous  competition. 

7.  Every  member  of  society  should  share  in  its  wealth  and  in 
the  values  made  possible  by  it. — The  worth  and  dignity  of  every 
human  being  of  moral  capacity  is  fundamental  in  nearly  every  moral 
system  of  modern  times.  It  is  implicit  in  the  Christian  doctrine  of 
the  worth  of  a  soul,  in  the  Kantian  doctrine  of  personality,  in  the 
Benthamic  dictum,  "every  man  to  count  as  one."  It  is  imbedded  in 
our  democratic  theory  and  institutions.  With  the  leveling  and  equaliz- 
ing of  physical  and  mental  power  brought  about  by  modern  inven- 
tions and  the  spread  of  intelligence,  no  state  is  permanently  safe 
except  on  a  foundation  of  justice.  Justice  cannot  be  fundamentally  in 
contradiction  with  the  essence  of  democracy.  This  means  that  wealth 
must  be  produced,  distributed,  and  owned  justly ;  that  is,  so  as  to  pro- 
mote the  individuality  of  every  member  of  society,  while  at  the  same 
time  he  must  always  function  as  a  member,  not  as  an  individaul. 

387.     Surplus  Wealth  for  the  Common  Good^ 

In  the  disposal  of  the  surplus  above  the  standard  of  life,  society 
has  hitherto  gone  as  far  wrong  as  in  its  neglect  to  secure  the  necessary 
basis  of  any  genuine  industrial  efficiency  or  decent  social  order.  We 
have  allowed  the  riches  of  our  mines,  the  rental  value  of  the  lands 
superior  to  the  margin  of  cultivation,  the  extra  profits  of  the  fortunate 
capitalists,  even  the  material  outcome  of  scientific  discoveries — which 
ought  by  now  to  have  made  this  Britain  of  ours  immune  from  class 

'Adapted  from  the  resolutions  adopted  at  a  conference  of  the  British 
Labor  Party,  1918. 


898  CURRENT  ECONOMIC  PROBLEMS 

poverty  or  from  any  widespread  destitution — to  be  absorbed  by  indi- 
vidual proprietors;  and  then  devoted  very  largely  to  the  senseless 
luxury  of  an  idle  rich  class.  Against  this  misappropriation  of  the 
wealth  of  the  community,  the  Labor  party — speaking  in  the  interests, 
not  of  the  wage-earners  alone,  but  of  every  grade  and  section  of  pro- 
ducers by  hand  or  by  brain,  not  to  mention  also  those  of  the  genera- 
tions that  are  to  succeed  us,  and  of  the  permanent  welfare  of  the 
community — emphatically  protests.  One  main  pillar  of  the  house 
that  the  Labor  party  intends  to  build  is  the  future  appropriation  of 
the  surplus,  not  to  the  enlargement  of  any  individual  fortune,  but  to 
the  common  good.  It  is  from  this  constantly  arising  surplus  (to  be 
secured,  on  the  one  hand,  by  nationalization  and  municipalization 
and,  on  the  other,  by  the  steeply  graduated  taxation  of  private  in- 
comes and  riches)  that  will  have  to  be  found  the  new  capital  which 
the  community  day  by  day  needs  for  the  perpetual  improvement  and 
increase  of  its  various  enterprises,  for  which  we  shall  decline  to  be 
dependent  on  the  usury-exacting  financiers.  It  is  from  the  same 
source  that  has  to  be  defrayed  the  public  provision  for  the  sick  and 
infirm  of  all  kinds  (including  that  for  maternity  and  infancy)  which 
is  still  so  scandalously  insufficient ;  for  the  aged  and  those  prematurely 
incapacitated  by  accident  or  disease,  now  in  many  ways  so  imperfectly 
cared  for ;  for  the  education  alike  of  children,  of  adolescents,  and  of 
adults,  in  which  the  Labor  party  demands  a  genuine  equality  of  oppor- 
tunity, overcoming  all  differences  of  material  circumstances ;  and  for 
the  organization  of  public  improvements  of  all  kinds,  including  the 
brightening  of  the  lives  of  those  now  condemned  to  almost  ceaseless 
toil,  and  a  great  development  of  the  means  of  recreation.  From  the 
same  source  must  come  the  greatly  increased  public  provision  that  the 
Labor  party  will  insist  on  being  made  for  scientific  investigation  and 
original  research,  in  every  branch  of  knowledge,  not  to  say  also  for 
the  promotion  of  music,  literature,  and  fine  art,  which  have  been 
under  capitalism  so  greatly  neglected,  and  upon  which,  so  the  Labor 
party  holds,  any  real  development  of  civilization  fundamentally  de- 
pends. Society,  like  the  individual,  does  not  live  by  bread  alone — 
does  not  exist  only  for  perpetual  wealth  production.  It  is  in  the 
proposal  for  this  appropriation  of  every  surplus  for  the  common 
good — ^in  the  vision  of  its  resolute  use  for  the  building  up  of  the 
community  as  a  whole  instead  of  for  the  magnification  of  individual 
fortunes — that  the  Labor  party,  as  the  party  of  the  producers  by  hand 
or  by  brain,  most  distinctively  marks  itself  off  from  the  older  political 
parties,  standing,  as  these  do,  essentially  for  the  maintenance,  unim- 
paired, of  the  perpetual  private  mortgage  upon  the  annual  product  of 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  899 

the  nation  that  is  involved  in  the  individual  ownership  of  land  and 
capital. 

B.     CONTROL  BY  MAGIC— PANACEAS 
388.     Stable  Money  and  the  Future* 

BY  GEORGE  H.  SHIBLEY 

With  a  return  to  the  more  stable  bimetallic  standard  of  prices 
and  with  the  principle  established  that  "stability  in  the  measure  of 
prices  (exchange  value)  is  the  desideratum,"  the  people  of  the  United 
States  will  insist  that  the  measure  be  kept  practically  unfluctuating 
through  the  government  controlling  the  volume  of  paper  money. 

THIS  WILL  MAKE  STABLE  THE  MEASURE  OF  PRICES  THROUGHOUT  THE 

SPECIE-USING  COUNTRIES.  In  a  short  time,  then,  the  principle  will 
become  deeply  rooted  in  the  ethics  of  all  the  advanced  peoples  that 
stability  in  the  measure  of  prices  is  just — right.  Then  shall  we  have 
such  co-operation  among  nations  as  will  keep  specie  in  the  money 
of  the  several  countries,  and  by  so  doing  keep  an  equilibrium  in  the 
export  and  import  prices  of  these  countries  through  using  the  specie 
in  paying  balances  in  trade. 

With  a  stable  measure  of  prices  there  will  be  added  "a  wholly 
new  degree  of  stability  to  social  relations."  This  is  equivalent  to 
saying  that  with  general  prices  stable  there  will  be  steady  employ- 
ment and  the  consequent  good  times  and  the  dropping  away  of  nearly 
all  the  tariff  wars,    then  will  the  disarming  of  Europe  speedily 

COME  about  and  THE  ARBITRATION  OF  ALL  FUTURE  DIFFERENCES  BE 
agreed  upon  BY  THE  LEADING  NATIONS.  AND  WHEN  THIS  OCCURS 
THE  LESSER  NATIONS  WILL  BE  COMPELLED  TO  SUBMIT  THEIR  DISPUTES 
TO  ARBITRATION. 

This  is  not  visionary.  It  is  the  direction  toward  which  past  events 
point.  Are  we  to  progress  ?  Reader,  you  are  one  of  the  factors.  Is 
it  in  you  to  help  along  the  car  of  progress  ? 

389.     The  Way  Out= 

BY  JOHN  RAYMOND  CUMMINGS 

In  the  following  pages  I  undertake  to  prove  these  propositions : 
That  there  is  a  natural  money. 

♦Adapted  from  "The  50  Per  Cent  Fall  in  General  Prices,  the  Evil  Effects, 
the  Remedy,  Bimetallism  at  16  to  i,  and  Governmental  Control  of  Paper 
Money,  in  Order  to  Secure  a  Stable  Measure  of  Prices,"  in  Stable  Money: 
Monetary  History,  1850-1896,  pp.  722-23.  Copyright  by  the  Stable  Money  Pub- 
lishing Co.,  1896. 

^Adapted  from  Natural  Money:  The  Peaceful  Solution,  pp.  5-6.  Copy- 
right by  the  Bankers  Publishing  Co.,  1912.  See  also  the  author's  Social 
Autonomy :   The  New  Economic  Dispensation. 


900  CURRENT  ECONOMIC  PROBLEMS 

That  its  adoption  will  make  panics  impossible. 

That  after  a  term  of  years  natural  money  will  bring  our  bank- 
ing system  to  such  condition  that  every  bank  will  be  able  to  pay  all 
its  obligations  instantly.  Banks  will  then  be  the  accountants,  cus- 
todians, and  clearing-houses  for  all  the  people. 

That  in  the  course  of  time  (probably  within  fifty  years)  natural 
money  will  put  all  business  on  a  cash  basis. 

That  in  a  like  period  the  interest  rate  for  property  loans  will  fall 
to  I  or  2  per  cent,  and  probably  will  disappear  from  money  loans. 

Natural  money  will  enable  the  government  to  take  over  all  the 
land  and  all  the  privately  owned  public  utilities  on  terms  very  liberal 
to  present  owners,  without  issuing  a  bond  and  without  hardship  and 
injustice. 

It  will  enable  the  government  to  build  during  the  same  period  a 
million  miles  of  highway  at  a  cost  of  $10,000  the  mile. 

To  irrigate  and  drain  a  large  proportion  of  the  area  needing  irri- 
gation and  drainage. 

To  develop  tens  of  millions  of  horse  power  from  water  and  dis- 
tribute it  throughout  the  country. 

To  develop  internal  waterways  on  a  scale  hitherto  unattempted 
and  undreamed  of. 

It  will  raise  wages  and  end  strikes  and  lockouts. 

It  will  establish  natural  wages  and  secure  equity  as  between 
employers  and  employees. 

It  will  pay  off  the  government  debt  and  make  future  debt  impos- 
sible. 

It  will  end  our  present  industrial  warfare  and  bring  now  dis- 
cordant classes  into  harmonious  co-operation,  inaugurating  an  era  of 
progress  and  prosperity  such  as  the  world  has  not  even  conceived  of. 

390.     Universal  Federation*^ 

BY  KING  C.  GILLETTE 

"World  Corporation"  will  result  in  a  new  civilization,  new  in 
every  part  of  its  structure  of  mind  and  matter.  The  whole  aspect 
of  nature  will  assume  new  meanings  and  ends,  for  it  will  be  seen 
by  new  senses  of  interpretation.  With  our  present  individual  knowl- 
edge, we  cannot  conceive  it ;  or,  if  we  could,  we  would  not  believe  it 
possible. 

^Adapted  from  World  Corporation,  pp.  216-19.  Copyright  by  the  author, 
1910. 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  901 

Who  is  there  wise  enough  to  predict  what  will  result  after  "world- 
corporation"  has  been  launched,  after  the  people  realize  what  its  suc- 
cess will  mean,  what  the  outcome  will  be  ?  Who  can  foresee  to  what 
degree  of  enthusiasm  the  people  will  rise  in  their  desire  and  hope  for 
emancipation !  Man  is  emotional,  and  quickly  carried  forward  upon 
waves  of  popular  excitement;  and  it  is  these  great  tidal  waves  of 
emotion  that  mark  the  revolutionary  changes  throughout  history. 
The  gradual  growth  of  a  thought,  an  idea  which  has  within  it  a  germ 
of  human  progress,  finds  its  culmination  in  emotion,  and  change  is 
brought  about  quickly  and  decisively. 

The  thought  that  humanity  is  on  the  borderland  of  a  new  system, 
a  new  epoch-making  period  of  the  world's  history,  is  spreading  from 
mind  to  mind,  and  rapidly  changing  preconceived  ideas  of  life  and 
man's  relation  to  man  and  to  nature.  The  fever  of  excitement  is 
already  beginning  to  course  through  the  veins,  and  only  waits  on  con- 
viction to  burst  into  flame. 

The  elimination  of  competition  by  the  centralization  of  industry 
into  corporations  and  trusts,  and  its  resulting  economies,  has  set 
the  individual  to  thinking.  He  begins  to  doubt  his  old  belief  that 
competition  is  necessary  to  progress ;  he  asks  himself  questions  and 
seeks  the  answers  in  his  own  mind,  and,  when  these  answers  are 
not  forthcoming,  he  asks  others.  Discussions  are  heard  on  every 
hand  in  regard  to  corporations  and  trusts,  and  newspapers  and  maga- 
zines are  largely  devoted  to  this  same  subject.  All  are  asking :  What 
is  the  outcome  of  this  evolution  that  is  taking  place?  What  is  a  cor- 
poration ?  What  is  a  trust  ?  Are  they  not  miniature  corporate  gov- 
ernments of  capital  and  individuals?  And  gradually  the  thought 
begins  to  dawn — the  thought  which  is  going  to  rise  to  a  culminating 
point  within  the  next  few  years,  and  carry  men  off  their  feet ;  which 
will  crowd  out  every  selfish  idea — the  thought  that  the  emancipa- 
tion OF  the  human  race  is  in  our  hands.  By  a  single  stroke 
humanity  can  change  a  system  of  extravagance,  disorder,  injustice, 
and  crime  into  one  of  order,  equity,  and  virtue.  Nothing  stands  in 
the  way ;  for  where  is  there  any  difference  between  the  control  of  a 
part  of  industry  by  a  few  individuals  and  the  control  of  all  industry 
by  all  ?  This  is  the  thought  that  will  be  acted  upon ;  this  is  the  thought 
that  will  make  men  forget  self  and  pour  their  minds  and  wealth  with 
equal  prodigality  into  the  treasury  of  "world-corporation." 

Enthusiasm  is  the  foundation  of  power  which  centralizes  force 
and  destroys  every  barrier  between  itself  and  its  purpose.  It  makes 
an  army  out  of  scattered  parts.    It  leads  to  "world-corporation." 


902  CURRENT  ECONOMIC  PROBLEMS 

391.     A  New  Earth^ 

BY  L.  G.   CHIOZZA  MONEY 

It  would  be  a  great  pity,  if  anyone  were  to  imagine  that  the 
changes  necessary  to  secure  the  just  reward  of  all  forms  of  labor 
are  either  difficult  to  effect  or  likely  to  cause  dislocation  in  the  mak- 
ing. The  greater  number  of  our  industrial  concerns  are  already 
shaped  in  the  form  of  limited  Hability  companies,  the  shareholders  in 
which  are  dumb,  while  the  management  is  in  the  hands  of  paid 
officials.  The  reform  which  needs  to  be  effected  is  to  substitute  the 
community  at  large  for  the  dumb  shareholders.  Management,  ability, 
invention,  would  be  properly  rewarded,  as  they  are  now  rewarded 
in  some  cases,  and  as  they  are  not  now  rewarded  in  many  cases.  The 
only  change  would  be  the  gradual  substitution  of  the  community  for 
the  shareholders,  and  the  consequent  disappearance  of  unearned  in- 
comes. Such  portions  of  the  product  as  were  necessary  for  applica- 
tion as  new  capital  would  be  so  applied  by  the  community.  For  the 
rest,  the  whole  of  the  product  would  go  to  labor.  Savings,  the  neces- 
sary saving,  without  which  labor  would  go  without  tools,  would  be 
simply  and  automatically  effected,  and  capital  would  take  its  true  and 
rightful  place  as  the  handmaiden  of  labor. 

Let  us  not  go  farther  without  a  vision  and  a  hope.  That  vision, 
that  hope,  is  not  of  a  regimented  society,  but  of  a  community  relieved 
from  nine-tenths  of  its  present  irksome  routine  and  carking  care. 
If  the  individual  is  to  be  set  free  it  can  only  be  in  a  society  so  organ- 
ized as  to  reduce  the  labor  employed  in  the  production  of  common 
necessities  to  a  minimum.  The  minimum  cannot  be  secured  without 
the  organization  of  each  of  the  great  branches  of  production  and  dis- 
tribution. Common  needs  can  be  satisfied  with  little  labor  if  labor  be 
properly  applied.  The  work  of  a  few  will  feed  a  hundred  or  supply 
exquisite  cloth  for  the  clothing  of  fifty.  The  work  of  a  few  hours  per 
day  of  every  adult  member  of  the  community  will  be  ample  to  supply 
every  comfort  in  each  season  to  all.  Thus  set  free,  the  lives  of  men 
will  turn  to  the  uplifting,  individual  work  which  is  the  pride  of  every 
craftsman.  The  dwellings  of  men  will  contain  not  only  the  socialized 
products  within  common  reach,  t(ut  the  proud  individual  achieve- 
ments of  their  inmates.  The  simple  and  beautiful  clothing  of  the 
community  will  chiefly  be  made  of  fabrics  woven  in  the  socialized 
factories,  but  it  will  often  be  worked  by  the  loving  hands  of  women, 
A  happy  union  of  labor  economized  in  routine  work  and  labor  lavished 
upon  individual  work  will  uplift  the  crafts  of  the  future  and  the  char- 
acter of  those  who  follow  them.    The  abominations  of  machine-made 

^Adapted  from  Riches  and  Poverty,  pp.  324-29.  Published  by  Methuen  & 
Co.,  1905. 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  903 

ornament  will  disappear,  and  art  be  wedded  to  everyday  life.  Each 
new  invention  to  save  labor  in  mining,  or  tilling,  or  building,  or  spin- 
ning, will  be  hailed  with  joy  as  a  release  from  toil  and  a  gift  of  more 
time  in  which  to  do  individual  work. 

The  inventor,  the  originator,  now  unhappily  compelled  to  hunt 
for  a  capitalist  and  bow  low  his  genius  before  some  individual  dis- 
tinguished only  for  that  gift  of  acquisitiveness,  that  business  ability, 
which  is  the  lowest  attribute  of  mankind,  will  see  his  idea  put  to  the 
test  and  reap  not  unholy  gains  but  the  honor  of  his  fellows  if  it  is 
not  found  wanting.  The  painter,  no  longer  compelled  to  paint  por- 
traits for  the  rich  and  not  necessarily  beautiful,  will  ally  his  gifts 
with  the  common  life  of  men  and  be  carried  in  triumph  before  the 
enduring  monuments  of  his  genius.  The  organizer,  the  man  of  ar- 
rangement, will  be  invited  to  exercise  his  talent,  not  in  overreaching 
and  despoiling  his  fellows,  but  in  planning  their  welfare  in  a  thou- 
sand new  schemes  of  development. 

No  host  of  wasteful  workers  will  be  found  in  the  industrial 
camp.  Accounts  will  be  simple  and  clerks  few.  No  travelers, 
agents,  or  touts  will  be  needed  to  push  doubtful  commodities.  The 
sham  and  the  substitute  will  be  found  only  in  museums.  It  will  be 
obviously  ridiculous  to  employ  any  but  good  materials,  for  labor 
can  only  be  economized  by  producing  the  things  which  are  the  best 
of  their  kind.  Policies  of  insurance,  those  typical  documents  of  a 
community  of  prey,  will  be  read  in  the  public  archives  with  much  the 
same  feeling  as  we  now  read  a  warrant  for  the  burning  of  a  Bruno. 
The  young  men  who  now  waste  their  time  in  ruling  up  books  in' 
banks  and  insurance  offices  or  in  serving  writs  will  find  manly  and 
useful  work.  The  production  of  commodities  will  be  commensurate 
with  the  labor  put  forth,  unemployment  will  be  one  of  the  few 
crimes  known  to  the  statute-book,  and  last,  but  not  least,  the  eco- 
nomic dependence  of  women  will  cease. 

The  attainment  of  such  ends  will  only  be  difficult  as  long  as  we 
refuse  to  apply  scientific  methods  to  the  ordering  of  common  af- 
fairs. It  is  in  the  domain  of  politics  alone  that  men  refuse  to  apply 
first  principles  to  the  solution  of  problems.  The  mental  daring 
which  has  accomplished  so  much  in  engineering,  in  astronomy,  in 
surgery,  in  every  department  of  science,  is  replaced  in  the  sphere  of 
politics  by  a  timorous  tinkering  with  admitted  evils.  With  things 
the  scientist  has  worked  marvels  in  a  single  century.  With  those 
marvels  the  politician  has  done  little.  The  scientist  has  applied  his 
skill  to  locomotion;  the  politician  has  refused  to  avail  himself  of 
that  skill  in  order  to  distribute  the  population  healthily.  The  scien- 
tist has  stated  the  conditions  of  health ;  the  politician  has  refused 


904  CURRENT  ECONOMIC  PROBLEMS 

to  create  those  conditions.  The  scientist  has  supplied  the  tools ;  the 
politician  has  neglected  to  take  them  up. 

The  problem  of  riches  and  poverty  is  of  the  simplest.  It  pre- 
sents none  of  the  difficulties  which  attach  to  the  measurement  of 
the  mass  of  the  sun,  or  the  treatment  of  such  a  disease  as  cancer. 
Science  has  presented  us  with  such  instruments  that  we  can  easily 
create  a  tremendous  superfluity  of  commodities  if  we  choose  to  do 
so.  We  know  how  to  produce;  we  know  how  to  transport  the  re- 
sults of  our  production.  The  appliances  at  our  command  could  fur- 
nish many  more  foot-tons  of  work  than  are  needed  to  give  proper 
housing,  suitable  clothing  and  good  food  to  every  unit  of  the  com- 
munity. There  is  here  no  impenetrable  secret ;  we  have  read  enough 
in  the  book  of  Nature  to  control  her  forces  to  effect;  our  power 
of  production  is  not  too  small,  but  already  greater  than  our  need. 
If  invention  went  no  farther,  if  science  now  came  to  a  standstill, 
we  should  have  tools  more  adequate  to  abolish  poverty. 

Unfortunately  the  politicians  and  the  economists  have  never  dis- 
cussed the  question  of  poverty  from  this  point  of  view.  Volumes 
have  been  written  on  such  subjects  as  "rent,"  "interest,"  or  "value," 
but  nothing  has  been  done  to  enquire  how  much  work  is  needed  to 
feed,  clothe  and  house  a  community,  and  how  best  that  work  may  be 
accomplished.  In  designing  an  engine,  the  man  of  science  considers 
the  work  to  be  done  and  the  known  means  to  do  it.  For  want  of 
that  agreement  and  determination,  for  want,  that  is,  of  a  wise  col- 
lectivism, the  greater  number  of  our  people  are  poor.  It  is  a  world 
of  service  which  a  civilization  would  substitute  for  a  world  of  serf- 
dom and  pain.  But  if,  realizing  that  the  world  has  no  room  for 
the  idle,  the  people  would  rise  to  a  freedom  only  bounded  by  the 
knowledge  of  and  necessity  for  collective  decision,  then  there  is  the 
broadest  avenue  for  hope  and  the  clearest  call  to  action.  The 
achievements  of  those  who  are  gone,  these  are  the  inheritance  of  the 
people.  The  only  true  riches  of  the  nation,  men  and  women,  these 
are  the  people  themselves.  The  people  have  but  to  will  it,  and  we 
set  our  faces  toward  a  civilization. 

C.     CONTROL  BY  METHOD 
392.     Control — Agitation  vs.  Method^ 

BY  WESLEY  C.  MITCHELL 

The  effect  of  the  war  upon  our  attitude  toward  the  use  of  facts 
for  the  guidance  of  policy  links  the  present  stake  of  civilization  with 

^Adapted  by  permission  from  "Statistics  and  Government,"  Quarterly  Pub- 
lications of  the  American  Statistical  Association,  XVI  (1918),  228-32. 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  905 

man's  savage  past.  Anthopologists  have  come  to  recognize  that  catas- 
trophes have  played  a  leading  role  in  advancing  culture.  The  savage 
and  the  barbarian  are  such  conservative  creatures  that  nothing  short 
of  a  catastrophe  can  shake  them  out  of  their  settled  habits,  make  them 
critical  of  old  taboos,  drive  them  to  use  their  intelligence  freely. 

In  physical  science  and  in  industrial  technique,  it  is  true,  we  have 
emancipated  ourselves  largely  from  the  savage  dependence  upon 
catastrophes  for  progress.  For  in  these  fields  of  activity  we  have 
developed  a  habit  of  criticizing  old  formulations,  of  testing  what  our 
fathers  accepted,  of  experimenting.  We  keep  discarding  the  good 
for  the  better,  even  when  not  under  pressure.  The  result  is  a  fairly 
steady  rate  of  advance — advance  so  regular  that  we  count  upon  it  in 
laying  plans  for  the  future.  Today  we  are  sure  that  ten  years  hence 
our  present  scientific  ideas  and  our  present  industrial  machinery  will 
be  antequated  in  good  part. 

In  science  and  in  industry  we  are  radicals — radicals  relying  upon 
a  tested  method.  But  in  matters  of  social  organization  we  retain  a 
large  part  of  the  conservatism  characteristic  of  the  savage  mind.  A 
great  catastrophe  may  force  us  for  a  little  while  to  take  the  problems 
of  social  organization  seriously.  While  under  stress  we  make  rapid 
progress.  But  when  the  stress  is  past  we  relapse  gratefully  into  our 
comfortable  faith  in  thinking  that  has  been  done  for  us  by  our 
fathers. 

I  know  that  there  are  ardent  folk  who  will  challenge  these  con- 
tentions at  least  for  the  present.  They  trust  that  the  outburst  of 
patriotic  fervor  brought  on  by  the  war  will  carry  us  triumphantly 
forward  for  a  generation.  They  count  on  the  generous  self-sacrifice 
which  all  classes  have  shown  to  solve  the  problems  of  peace  as  they 
have  solved  the  problems  of  war.  Certainly  we  shall  never  be  pre- 
cisely where  we  were  before  the  war.  But  just  as  certainly  we  shall 
not  remain  what  we  have  been  during  the  war.  We  cannot  depend 
upon  any  carrying  over  of  war  psychology  to  organize  democracy 
in  peace. 

The  "social  reformer"  we  have  always  with  us,  it  is  true,  or 
rather  most  of  us  are  "social  reformers"  of  some  kind.  We  all  ad- 
mire the  qualities  that  go  to  make  the  leaders  in  social  reform — warm 
sympathy  for  the  oppressed,  courage  to  face  ridicule,  flaming  zeal 
in  the  face  of  indifference,  tact  and  energy  in  conducting  crusades. 
But  an  indefinite  succession  of  campaigns  to  secure  this,  that,  and  the 
other  specific  reform  is  what  we  have  been  having  for  a  long,  long 
time.  Many  of  the  reforms  on  which  our  grandfathers,  our  fathers, 
and  our  youthful  selves  have  set  our  hearts  have  been  achieved.    Yet 


9o6  CURRENT  ECONOMIC  PROBLEMS 

the  story  of  the  past  in  matters  of  social  organization  is  not  a  story 
that  we  should  like  to  have  continued  for  a  thousand  and  one  years. 
Reform  by  agitation  or  class  struggle  is  a  jerky  way  of  moving  for- 
ward, uncomfortable  and  wasteful  of  energy.  Are  we  not  intelligent 
enough  to  devise  a  steadier  and  a  more  certain  method  of  progress? 

Most  certainly  we  could  not  keep  social  organization  what  it  is 
even  if  we  wanted  to.  We  are  not  emerging  from  the  hazards  of  war 
into  a  safe  world.  On  the  contrary,  the  world  is  a  very  dangerous 
place  for  a  society  framed  as  our  is,  and  I  for  one  am  glad  of  it. 
The  dangers  are  increased  by  our  very  progress  in  industry  and  in 
democracy.  Not  long  ago  an  English  physicist  re-emphasized  the  fact 
that  modern  Christendom  is  using  up  at  an  ever-increasing  pace  the 
energy  stored  during  long  ages  in  the  coal  fields,  and  pictured  the 
doubtful  fate  of  human  kind  as  hanging  on  the  race  between  science 
and  the  atom.  Has  not  the  time  come  to  apply  our  intelligence  to 
taking  stock  of  the  resources  that  the  earth  still  holds  and  to  develop- 
ing methods  of  utilization  that  will  protect  our  future  ?  As  for  demo- 
cratic progress,  we  know  that  men  who  can  read  and  vote  make  rest- 
less citizens  in  a  state  where  their  work  is  not  interesting  to  them 
and  where  their  rewards  do  not  satisfy  their  sense  of  justice.  Such 
is  the  present  stage  of  affairs  with  millions  of  aggressive  Americans. 
They  can  be  counted  upon  to  change  things  by  turmoil  if  things  are 
not  changed  by  method. 

Our  first  and  foremost  concern  is  to  develop  some  way  of  carry- 
ing on  the  indefinitely  complicated  processes  of  modern  industry  and 
interchange  day  by  day,  despite  all  tedium  and  fatigue,  and  yet  keep- 
ing ourselves  interested  in  our  work  and  contented  with  the  division 
of  the  product.  This  is  a  task  of  supreme  difficulty — a  task  that  calls 
for  intelligent  experimentation  and  detailed  planning  rather  than  for 
agitation  and  class  struggle.  What  is  lacking  to  achieve  the  end, 
indeed,  is  not  so  much  good-will  as  it  is  knowledge,  above  all  knowl- 
edge of  human  behavior. 

Our  best  hope  of  the  future  lies  in  the  extension  to  social  organiza- 
tion of  the  methods  which  we  already  employ  in  our  most  progres- 
sive fields  of  effort.  In  science  and  in  industry,  I  have  said,  we  do 
not  wait  for  catastrophes  to  force  new  ways  upon  us.  We  do  not 
rely  upon  the  propelling  power  of  great  emotion.  We  rely,  and  with 
success,  upon  quantitative  analysis  to  point  the  way ;  and  we  advance 
because  we  are  constantly  improving  and  applying  such  analysis. 

While  I  think  that  the  development  of  social  science  offers  more 
hope  for  solving  our  social  problems  than  any  other  line  of  endeavor, 
I  do  not  claim  that  these  sciences  in  their  present  state  are  very 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  907 

serviceable.  They  are  immature,  speculative,  filled  with  controver- 
sies. Their  most  energetic  exponents  are  still  in  the  stage  of  develop- 
ing new  "viewpoints,"  beginning  over  again  on  a  different  plan  in- 
stead of  carrying  farther  the  analysis  of  their  predecessors.  In  part 
the  social  sciences  represent  not  what  is  so  much  as  what  their  writers 
think  ought  to  be.  In  short,  the  social  sciences  are  still  childish.  Nor 
have  we  any  certain  assurance  that  they  will  ever  grow  into  robust 
manhood,  no  matter  what  care  we  lavish  upon  them.  They  are  blind 
leads  of  speculation  in  which  past  generations  have  mined  industri- 
ously for  ages  with  little  gain.  Perhaps  the  social  sciences  will  prove 
more  like  metaphysics  than  like  mechanics,  more  like  theology  than 
like  chemistry.  The  race  may  always  shape  its  larger  destinies  by  a 
confused  struggle  in  which  force  and  fraud,  good  intentions,  fiery 
zeal,  and  rule  of  thumb  are  more  potent  factors  than  measurement 
and  planning.  Those  of  us  who  are  concerned  with  the  social 
sciences,  then,  are  engaged  in  an  uncertain  enterprise ;  perhaps  we 
shall  win  no  great  treasures  for  mankind.  But  certainly  it  is  our  task 
to  work  out  this  lead  with  all  the  intelligence  and  the  energy  we  pos- 
sess until  its  richness  or  sterility  be  demonstrated. 

The  social  sciences,  however,  cover  an  immense  field,  and  it  is  not 
probable  that  we  shall  encounter  failure  or  success  in  all  its  parts. 
The  parts  which  are  most  promising  just  now  include  the  field  of 
statistics.  Measurement  is  one  of  the  outstanding  characteristics  of 
science  at  large,  whether  in  the  field  of  inorganic  matter  or  life  pro- 
cesses. Social  statistics,  which  is  concerned  with  the  measurement 
of  social  phenomena,  has  many  of  the  progressive  features  of  the 
physical  sciences.  It  shows  forth  right  progress  in  knowledge  of 
fact,  in  technique  of  analysis,  and  in  refinement  of  results.  It  is 
amenable  to  mathematical  formulation.  It  is  capable  of  forecasting 
group  phenomena.  It  is  objective.  A  statistician  is  usually  either 
right  or  wrong,  and  his  successors  can  demonstrate  which.  Statis- 
ticians are  not  continually  beginning  their  science  all  over  again  by 
developing  new  viewpoints.  When  one  investigator  stops,  the  next 
investigator  begins  with  larger  collections  of  data,  with  extensions 
into  fresh  fields,  or  with  more  powerful  methods  of  analysis.  In  all 
these  respects,  the  position  and  prospects  of  social  statistics  are  more 
like  the  position  and  prospects  of  the  natural  sciences  than  like  those 
of  the  social  sciences. 

Above  all,  social  statistics  even  in  its  present  stage  is  directly 
applicable  over  a  wide  range  in  the  management  of  practical  affairs, 
particularly  the  affairs  of  government.  The  practical  value  of  sta- 
tistics is  readily  demonstrable  even  to  a  busy  executive.    Once  secure 


9o8  CURRENT  ECONOMIC  PROBLEMS 

a  quantitative  statement  of  the  crucial  elements  in  an  official's  prob- 
lem, draw  it  up  in  concise  form,  illuminate  the  tables  with  a  chart 
or  two,  bind  the  memorandum  in  an  attractive  cover  tied  with  a  new 
bowknot,  and  it  is  the  exceptional  man  who  will  reject  your  aid. 
Thereafter  your  trouble  will  not  be  to  get  your  statistics  used,  but  to 
meet  the  continual  calls  for  more  figures,  and  to  prevent  your  convert 
from  taking  your  estimates  more  literally  than  you  take  them  your- 
self. 

We  may  well  cherish  high  hopes  for  the  immediate  future  of 
social  statistics.  In  contributing  toward  a  quantitative  knowledge, 
of  social  facts,  in  putting  knowledge  at  the  disposal  of  responsible 
officials,  we  are  contributing  a  crucially  important  part  toward  achiev- 
ing the  greatest  task  that  confronts  mankind  today — the  task  of  de- 
veloping a  method  by  which  we  may  make  cumulative  progress  in 
social  organization. 

393.     The  Socialization  of  Knowledge^ 

BY  J.  MAURICE  CLARK 

As  the  war  rolls  over  us,  and  wakes  us  to  the  need  of  doing  the 
impossible,  we  suddenly  become  aware  that  we  have  resources  of 
knowledge  that  are  comparatively  little  utilized.  The  consumer 
for  the  most  part  orders  his  diet  in  sublime  ignorance  of  true  food 
values,  and  wages  an  unequal  contest  with  the  swiftly  changing  arts 
of  adulteration  and  imitation.  Nowadays  his  guidance  requires 
mobilized  knowledge  rather  than  unmobilized  habit,  and  knowledge 
of  a  detailed  scientific  character  about  a  multitude  of  things  such  as 
only  specialized  researches  can  supply.  The  consumer  has  not  hired 
these  things  done  for  him,  partly  because  he  did  not  know  how  badly 
he  needed  them,  and  partly  for  the  reason  that  knowledge  is  not 
appropriable  like  the  ordinary  commodity  and  its  production  is  largely 
an  unpaid  service.  The  present  wave  of  public  education  into  the 
mysteries  of  proteins  and  calories,  then,  is  but  a  phase  of  an  inevitable 
development,  due  to  science  and  scientific  methods  of  production. 

Producers  as  well  as  consumers  suffer  from  imperfect  utilization 
of  the  existing  stock  of  knowledge  of  their  trade.  The  "state  of  the 
arts,"  apart  from  patents  and  secret  processes,  is  properly  a  national 
asset,  but  there  is  no  comprehensive  machinery  for  organizing  it  on  a 
national  scale.  The  standardization  of  methods,  combining  the  best 
that  is  found  anywhere,  can  not  only  raise  the  average  efficiency  of 

^Adapted  from  "The  Basis  of  War-Time  Collectivism,"  American  Eco- 
nomic Review  (December,  1917),  pp.  772-90.  Copyright  by  the  American 
Economic  Association. 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  909 

industry ;  it  can  even  show  the  most  efficient  how  to  improve  still 
farther  by  strengthening  his  weak  points.  The  present  channels  for 
interchange  of  knowledge  are  more  efficient  between  producers  than 
between  consumers,  and  complete  pooling  might  injure  the  incentive 
to  private  inventiveness  in  the  future.  One  of  the  most  promising 
fields  for  standardization  is  that  of  labor  policies,  for  here  the  rivalries 
between  employers  do  not  come  into  the  foreground  as  they  do  in  the 
case  of  mechanical  devices  or  chemical  formulae  and  they  feel  that 
there  is  little  to  lose  by  the  pooling  of  labor  policies.  Moreover,  the 
gain  an  employer  can  make  from  successful  treatment  of  labor  has 
not,  apparently,  been  an  effective  enough  incentive  to  get  the  labor 
problem  solved  for  the  nations.  What  is  needed  here  is  a  discrimin- 
ating policy.  For  the  immediate  emergency  any  amount  of  pooling 
that  can  be  secured  in  any  field  will  be  clear  gain,  and  will  have  no 
bad  effects  on  future  progress.  After  the  war,  if  the  socializing  of 
trade  knowledge  is  to  be  continued  in  any  industries,  there  will  be  need 
of  a  more  formal  system,  fortified  with  more  substantial  inducements. 
Meanwhile  the  experience  of  the  war,  if  properly  utilized,  will  be 
furnishing  valuable  testimony  as  to  where  the  greatest  gains  are  to 
be  had. 

As  these  words  were  being  written  the  morning  paper  arrived, 
with  the  announcement  of  a  new  American  aeroplane  engine,  as  good 
as  the  best  foreign  engines,  and  combining  many  of  their  best  features, 
but  capable  of  being  turned  out  in  large  numbers  by  American 
standardized  machine-process  methods,  rather  than  with  much  hand 
labor  of  many  artisan-technicians,  as  abroad.  This  achievement^" 
seems  to  have  been  made  possible  chiefly  by  the  pooling  of  engineer- 
ing talent  and  of  different  designs  and  trade  secrets,  under  an  in- 
centive strong  enough  to  spur  men  to  work  twenty-four  hours  a  day. 
There  is  a  prospect  of  continued  progress,  also,  but  chiefly  under  the 
spur  of  the  most  active  of  all  forms  of  competition ;  namely,  the  com- 
petition at  the  fighting  front. 

Such  things  prove  that  there  are  unused  possibilities  for  immediate 
advancement  in  private  industries  where  patents  or  secret  processes 
are  held,  or  where  local  producers  are  out  of  touch  with  each  other's 
achievements.  They  give  one  a  sense  of  the  sudden  liberation  of 
pent-up  forces  that  reacts  into  sheer  exasperation  at  the  obstacles  of 
ignorance  and  inertia  which  hamper  us,  and  the  walls  of  secrecy  and 
proprietary  prohibition  which  we  erect  at  such  pains  and  guard  so 
sedulously.  But  they  do  not  prove  that  all  competitive  incentives 
can  be  discarded  and  all  competitive  barriers  broken  down  if  we  wish 
to  keep  on  progressing. 


9IO  CURRENT  ECONOMIC  PROBLEMS 

There  are  certain  fields  where  the  progress  that  is  due  to  the  spur 
of  private  incentive  is  hardly  notable  enough  and  rapid  enough  to  be 
worth  keeping,  if  keeping  it  involves  sacrificing  any  experiment 
which  has  a  prospect  of  showing  really  substantial  results.  These 
backward  fields  are  chiefly  those  in  which  business  is  in  the  hands  of 
many  small  producers,  or  carried  on  in  small  places  with  the  aid  of 
more  handicraft  skill  than  of  mechanical  devices  and  engineering  or 
scientific  methods.  Very  small  producers  cannot  afford  to  experi- 
ment extensively,  nor  to  study  the  methods  of  other  producers  in  the 
attempt  to  standardize  their  own,  and  it  would  be  ruinously  wasteful 
duplication  of  work  if  they  were  to  do  so  as  individuals.  Extremely 
small  producers  cannot  even  be  expected  to  be  in  a  position  to  organize 
themselves  effectively  into  associations  to  do  this  sort  of  thing  for 
them,  although  that  is  one  way  in  which  the  dilemma  may  in  many 
cases  be  solved.  Another  solution,  far  less  desirable,  is  the  extinction 
of  small  producers  by  larger  ones  who  can  afford  the  study  and  in- 
vestigation required  to  standardize  efficiency  and  attain  it. 

This  would  amount  to  sacrificing  the  small  producers,  not  because 
they  cannot  be  as  usetul,  or  perhaps  more  useful,  than  large  ones  in 
the  actual  work  of  production,  but  because  they  cannot  organize  and 
standardize  their  work  as  well  as  carry  it  on.  But  if  the  standardizing 
can  be  done  for  them  by  some  large  agency,  they  may  prove,  on 
account  of  their  more  direct  contact  with  the  details  of  the  business 
and  on  account  of  the  more  intimate  relation  between  owner,  work- 
man, and  consumer,  to  be  better  adapted  to  handling  the  industrial 
problems  which  hinge  on  these  unstandardized  and  very  human 
relations.  For  example,  if  systems  of  accounting,  stock  keeping, 
organization  of  space,  and  delivery  can  be  standardized  for  the  var- 
ious kinds  of  retailers  by  studies  made  on  a  large  scale,  and  market 
information  secured  by  some  large-scale  agency,  the  small  retailer 
will  have  presented  to  him  the  means  of  equaling  the  advantages 
which  the  chain  store  now  has  over  him  in  these  matters,  and  he  need 
not  spend  his  time  and  energy  on  the  kind  of  problem  at  which  he  is 
necessarily  working  at  a  very  heavy  disadvantage,  but  can  spend  it 
all  on  the  sort  of  problem  which  no  standardized  system  can  solve 
for  him,  studying  his  customers'  tastes,  and  adapting  his  policy  to 
the  peculiarities  of  his  local  market. 

If  local  producers  are  so  far  out  of  touch  with  each  other  that  they 
make  no  attempt  to  imitate  each  other's  strong  points,  but  each 
continues  in  his  own  groove,  satisfied  with  the  methods  he  has  devel- 
oped himself  and  with  his  achievements  in  those  parts  of  the  process 
in  which  he  himself  may  be  superior,  this  fact  itself  is  evidence  that 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  911 

the  competitive  stimulus  is  not  strong  enough  to  do  the  work  we  rely 
on  it  to  do.  Producers  who  are  in  no  sharper  competition  than  this 
are  not  receiving  the  kind  of  competitive  stimulus  that  is  likely  to 
lead  to  rapid  industrial  progress.  In  such  a  case  one  need  not  be 
afraid  of  the  weakening  of  competitive  stimulus  which  would  come 
from  pooling  the  knowledge  of  the  trade,  for  there  is  so  little  stimulus 
to  lose.  There  would  be  no  grave  danger  even  in  going  to  the  length 
of  standardizing  the  process  and  trusting  to  co-operative  enterprise, 
or  the  "instinct  of  workmanship,"  or  even  to  governmental  experi- 
mentation, for  the  means  of  future  progress. 

Beside  those  cases  in  which  the  private  incentive  system  is  notably 
weak,  there  are  cases  in  which  a  co-operative  or  public  agency  is 
equipped  to  do  the  work  notably  well.  Where  the  chief  thing  needed 
is  accuracy,  and  the  most  important  industrial  quality  is  disinterested- 
ness, there  is  little  need  of  the  stimuli  of  ordinary  industrial  competi- 
tion, and  they  may,  indeed,  be  fatal  to  the  peculiar  reliability  of  result 
that  is  wanted.  In  the  case  of  employment  agencies,  for  example,  we 
are  rapidly  finding  out  that  the  disinterestedness  of  a  public  agency 
is  a  far  more  essential  quality  than  any  of  the  good  points  which 
private  enterprise  may  have  in  this  field.  This  is  in  essence  simply 
another  form  of  the  socialization  of  economic  knowledge.  The 
diffusing  of  information  about  prices  is  an  important  service  which 
may  in  some  cases  be  well  rendered  by  private  enterprises,  but  is  by 
no  means  certain  to  be  rendered  at  all  unless  some  public  agency  takes 
the  responsibility. 

One  clear  case  of  this  is  the  work  of  testing  whether  things  con- 
form to  standards  where  standards  have  already  been  established. 
In  other  words,  it  is  the  sort  of  work  which  the  present  Federal  Bu- 
reau of  Standards  is  doing,  with  an  ever-widening  scope.  The  work 
of  establishing  standards  themselves,  based  on  the  best  existing 
practice,  or  on  the  combination  of  the  best  single  elements  to  be  found 
in  existing  practice,  into  a  new  standard  better  than  anything  actually 
found ;  such  work  as  this,  in  well-selected  fields,  is  clearly  a  proper 
function  of  government  in  the  present  state  of  industrial  and  scientific 
development.  But  how  about  the  work  of  breaking  new  ground  and 
making  new  discoveries?  Is  not  government  proverbially  cautious 
and  unenterprising  in  its  conduct  of  productive  enterprises? 

Yes,  public  enterprise  is  cautious,  and  has  often  proved  unenter- 
prising, but  nevertheless  the  conclusion  which  seems  so  obvious  does 
not  necessarily  follow,  namely,  that  it  is  useless  to  look  to  government 
for  any  industrial  iniiovation.  When  a  government  official  is  given 
a  task  it  is  not  the  part  of  caution  to  do  nothing  at  all.    But  it  is  the 


912  CURRENT  ECONOMIC  PROBLEMS 

part  of  caution  to  see  to  it  that  the  task  is  accompHshed  with  as  few 
risks  as  possible  of  doing  anything  which  may  prove  to  be  an  ex- 
pensive mistake.  If  the  task  is  the  running  of  an  industry  or  the 
rendering  of  a  definite  material  service,  the  public  manager  will  stick 
to  established  methods  if  they  work  tolerably  well,  and  what  experi- 
menting he  does  will  involve  the  risking  of  the  tolerable  result  al- 
ready obtained,  or  at  least  will  involve  an  expense  which  will  be  a 
burden  on  his  financial  showing,  and  so  to  that  extent  a  risking  of 
his  present  tolerable  result.  And  experiments  are  extremely  likely 
to  go  wrong. 

But  suppose  the  business  with  which  this  public  official  is  charged 
is  that  solely  of  experimenting?  He  has  no  other  service  whose 
results  may  be  endangered  by  the  failure  of  any  given  experiment  to 
materialize.  What  will  he  do?  He  will  do  his  job,  and  try  to  show 
results — a  thing  he  can  do  only  by  continued  achievement.  H  he  is 
working  in  competition  with  private  laboratories,  he  is  under  the 
genuine  competitive  stimulus,  with  all  that  this  implies. 

"  D.     CHECKS  ON  DEVELOPMENT 

394.     Industrial  Freedom  and  Prosperity^" 

BY  JAMES  J.   HILL 

Among  the  radical  and  permanent,  as  distinguished  from  the 
partial  and  temporary,  causes  of  bad  times,  one  stands  out  pre- 
eminent by  the  volume  of  its  effects  and  the  persistence  with  which 
it  has  raged  all  over  the  country,  namely,  the  legislative  crusade 
against  business,  I  speak  here  of  no  particular  act,  for  the  business 
interests  of  the  country  as  a  whole  have  been  under  fire  for  more  than 
ten  years.  The  attack  has  steadily  increased  in  violence  and  de- 
creased in  discrimination.  The  ingenuity  of  restless  minds  has  taxed 
itself  to  invent  new  restrictions,  new  regulations,  new  punishments 
for  guilty  and  innocent  alike. 

While  existing  laws  were  allowed  to  fall  into  more  or  less  disuse, 
new  laws  were  heaped  on  one  another.  Each  of  these  invaded  some 
new  territory,  laid  the  hand  of  authority  upon  some  new  occupation, 
drew  closer  the  circle  of  business  interference  to  bureaucracy.  In- 
novation scarcely  stopped  short  of  declaring  any  distinct  business 
success  prima  facie  evidence  of  crime!"  The  country  is  feeling  the 
inevitable  effect. 

^''Adapted  from  an  address  delivered  before  the  Rochester  Chamber  of 
Commerce,  December  5,  1914. 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  913 

When  hostile  regulation  goes  to  this  extent,  without  promise  of 
limit  to  either  its  objects  or  its  orders,  business  comes  to  a  halt 
though  tariff  rates  are  raised  to  the  skies.  It  cuts  down  present 
activity,  and  it  puts  a  veto  on  all  expansion.  The  present  may  be 
obscure,  but  the  future  looks  black.  For  here  industry  begins  to 
feel  the  indispensable  effects  of  capital  withdrawn,  and  to  realize  the 
effects  that  follow  its  withdrawal. 

Nowadays  it  is  the  fashion  to  overlook  the  claim  of  capital  in 
production.  The  mistake  is  costly.  For  new  plants  will  not  be  built, 
raw  material  will  not  be  bought,  wages  cannot  be  paid  unless  capital 
is  ready  in  sufficient  quantities.  It  will  be  ready  only  on  condition 
that  it  expects  to  earn  at  least  a  reasonable  profit.  There  is  no 
reason  why  it  should  take  the  risks  present  in  even  the  most  con- 
servative employment  unless  there  is  a  possibility  of  commensurate 
profit.  That  possibility  must  have  a  promise  of  continuance  suffi- 
cient to  make  it  worth  while  to  go  into  the  enterprise  at  all. 

Now  it  is  exactly  these  indispensables,  a  fair  return  and  a  reason- 
able lease  of  life,  that  continuous  legislation  against  business  has  de- 
stroyed, or  has  threatened  to  destroy.  Politicians  have  acted  upon  the 
theory  that  it  is  good  to  burn  down  your  house  because  a  chimney 
smokes.     Fire  has  been  started  in  many  places. 

Our  progress  toward  a  centralized  paternalism  is  so  marked  and 
has  gone  so  far  that  the  Socialist  has  little  reason  to  complain  that 
his  party  has  not  secured  a  majority.  Every  year  sees  the  transac- 
tion of  business  made  more  expensive  by  laws  prescribing  multiplied 
and  costly  reports,  ordering  expensive  improvements  or  additional 
services,  laying  new  taxes,  compelling  the  hiring  of  additional  em- 
ployees. 

This  is  the  history  of  paternalism,  of  centralization,  since  the 
beginning.  Under  the  tribute  it  attempts  to  levy,  business  in  the 
United  States  will  eventually  become  unable  to  conform  to  the  oner- 
ous conditions  of  the  new  era.  It  would  be  some  compensation  if 
the  governing  system  were  efficient.  But  it  is  as  incompetent  as  it  is 
expensive.  This  is  not  the  fault  of  any  man  or  party ;  it  inheres 
in  the  method  itself,  and  in  the  persistent  American  delusion  that 
democracy  can  afford  to  overlook,  in  its  selection  of  governing  in- 
struments, the  question  of  fitness.  Nowhere  else  outside  the  strictly 
barbarous  countries  is  the  idea  that  public  place  should  presuppose 
some  direct  business  qualification  so  contemptuously  rejected. 

Industries  which  represent  billions  of  capital,  capital  belonging 
largely  to  people  of  moderate  means,  are  under  the  order  of  officials 
chosen  for  political  reasons,  many  of  whom  could  not  earn  on  their 


914  CURRENT  ECONOMIC  PROBLEMS 

merits  a  salary  large  enough  to  keep  them  alive  in  the  service  of  the 
concerns  which  are  now  at  their  mercy.  It  is  not  malevolence,  it  is 
not  corruption,  that  strikes  at  the  heart  of  business  so  dominated; 
it  is  the  ignorance  of  well-meaning  men  who  have  been  placed,  for 
political  considerations,  where  they  do  not  belong,  where  they  can 
do  no  good,  and  may  be  able  to  do  immense  harm. 

It  is  a  master-stroke  of  irony  that  while  business  all  over  the 
country  has  been  spending  time,  effort,  and  money  in  an  endeavor 
to  realize  efficiency,  the  governments  to  which  it  must  render  an 
account  and  whose  orders  it  must  obey  remain  the  most  striking 
examples  of  inefficiency  to  be  found  anywhere  in  the  world. 

The  main  outlines  of  the  business  situation  are  clear.  The 
country  may  enter,  after  the  close  of  the  European  war,  upon  a 
period  of  remarkable  prosperity.  So  it  will  be  given  the  task  of 
providing  for  a  time  for  a  maintenance  of  a  considerable  portion  of 
the  world's  industry.  The  great  and  continued  demand  should  be 
a  guaranty  of  a  corresponding  prosperity.  It  would  be  so  if  no  arti- 
ficial conditions  intervened.  But,  to  realize  this,  both  capital  and 
business  initiative  must  have  reasonable  freedom.  But  it  is  less  easy 
to  take  advantage  of  opportunities  than  ever  before.  At  every 
promising  opening  industry  sees  a  sign-board,  erected  by  public 
authority,  bearing  the  words  "No  thoroughfare."  If  the  next  five 
years  are  to  repeat  the  history  of  the  last  ten,  there  can  be  no  gen- 
eral improvement  and  no  general  prosperity  in  the  United  States. 

These  words  are  not  spoken  hopelessly.  The  American  people 
have  an  enormous  fund  of  underlying  common-sense.  It  is  funda- 
mentally conservative,  though  it  loves  to  follow  the  circus  parade 
once  in  a  while,  listen  to  the  music,  and  applaud  the  clown.  Since, 
its  own  well-being  is  now  definitely  at  stake,  it  is  not  unreasonable 
to  hope  that  it  will  take  a  few  simple  steps  toward  the  realization 
cf  its  hopes. 

The  first  and  indispensable  requirement  is  a  respite  from  attack 
for  the  business  interests  of  the  country.  So  great  are  its  recupera- 
tive powers  that  probably  one  or  two  years  of  freedom  from  fore- 
boding as  well  as  from  assault  would  accomplish  great  things  for 
industry. 

Subordinate  the  extension  of  the  sphere  of  governing  power  to 
an  improvement  of  its  quality.  It  is  time  for  all  to  remember  that 
no  man  has  a  right  to  hold  public  office,  from  the  top  to  the  bottom, 
unless  he  has  knowledge  of  that  line  of  work. 

Rest  from  agitation,  intelligent  economy,  efficiency,  harmonious 
co-operation  for  business  institutions  as  well  as  for  political  divi- 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  915 

sions — ^these  are  not  abtruse  ideas.  They  are  things  as  long  familiar 
and  as  little  reverenced  by  the  mass  of  men  as  the  contents  of  the 
Decalogue.  We  must  go  back  to  them  or  suffer  the  penalty  paid  by 
every  creative  thing  that  defies  the  law  of  the  physical  or  that  of 
the  moral  order  of  the  w^orld. 

395.     The  Futility  of  Utopian  Legislation^^ 

BY  ELIHU  ROOT 

When  proposals  are  made  to  change  our  fundamental  institu- 
tions there  are  certain  general  conditions  that  should  be  observed. 

The  first  is  that  free  government  is  impossible  except  through 
prescribed  and  established  governmental  institutions,  which  work 
out  the  ends  of  government  through  many  separate  human  agents, 
each  doing  his  part  in  obedience  to  law.  Popular  will  cannot  execute 
itself  directly  except  through  a  mob.  Popular  will  cannot  get  itself 
executed  through  an  irresponsible  executive,  for  that  is  autocracy. 
An  executive  limited  only  by  the  direct  expression  of  popular  will 
cannot  be  held  to  responsibility  against  his  will,  because,  having 
possession  of  all  the  powers  of  government,  he  can  prevent  any 
true,  free,  and  general  expression  adverse  to  himself.  We  should, 
therefore,  reject  every  proposal  which  involves  the  idea  that  the 
people  can  rule  only  by  voting. 

A  second  is  that  in  estimating  the  value  of  any  system  of  govern- 
mental institutions  due  regard  must  be  had  to  the  true  functions 
of  government  and  to  the  limitations  imposed  by  nature  upon  what 
it  is  possible  for  the  government  to  accomplish.  We  all  know  that 
we  cannot  abolish  all  the  evils  in  the  world  by  statute,  nor  can  we 
prevent  the  inexorable  law  of  nature  which  decrees  that  suffering 
shall  follow  vice,  and  all  the  evil  passions  and  folly  of  mankind. 
Law  cannot  give  to  depravity  the  rewards  of  virtue,  to  indolence 
the  rewards  of  industry,  to  indifference  the  rewards  of  ambition,  or 
to  ignorance  the  rewards  of  learning.  The  utmost  that  government 
can  do  is  measurably  to  protect  men,  not  against  the  wrong  they  do 
themselves,  but  against  the  wrong  done  by  others,  and  to  promote 
the  slow  process  of  educating  mind  and  character  to  a  better 
knowledge  and  nobler  standards  of  life  and  conduct. 

We  all  know  this,  but  when  we  see  how  much  misery  there  is  in 
the  world,  and  some  things  that  government  may  do  to  mitigate 
it,  we  are  prone  to  forget  how  little,  after  all,  it  is  possible  for  any 

^1  Adapted  from  Experiments  in  Government  and  the  Essentials  of  the 
Constitution,  pp.  11-22.     Copyright  by  the  Princeton  University  Press,  1913. 


91 6         CURRENT  ECONOMIC  PROBLEMS 

government  to  do.  The  chief  motive  power  that  has  moved  man- 
kind along  the  course  of  development  that  we  call  the  progress  of 
civilization  has  been  the  sum-total  of  intelligent  selfishness  in  a  vast 
number  of  individuals,  each  working  for  his  own  support,  his  own 
gain,  his  own  betterment.  It  is  that  which  has  cleared  the  forests 
and  cultivated  the  field  and  built  the  ships  and  railroads,  made  the 
discoveries  and  inventions,  softened  by  intercourse  the  enmities  of 
nations,  and  made  possible  the  wonders  of  literature  and  art.  Grad- 
ually, during  the  long  process,  selfishness  has  grown  more  intelligent, 
with  a  broader  view  of  the  individual  benefit  from  the  common  good, 
and  gradually  the  influences  of  nobler  standards  of  altruism,  justice, 
and  sympathy  have  impressed  themselves  upon  the  conception  of 
right  conduct.  But  the  complete  control  of  such  motives  will  be 
the  millennium.  Any  attempt  to  enforce  a  millennial  standard  now 
by  law  must  necessarily  fail.  Indeed  no  such  standard  can  ever  be 
forced.  It  must  come,  not  by  superior  force,  but  from  the  changed 
nature  of  man. 

A  third  is  that  it  is  not  merely  useless  but  injurious  for  govern- 
ment to  attempt  too  much.  It  is  manifest  that  to  enable  it  to  deal 
with  the  new  conditions  we  must  invest  government  with  the  au- 
thority to  interfere  with  the  individual  conduct  of  a  citizen  to  a 
degree  hitherto  unknown  in  this  country.  While  the  new  conditions 
of  industrial  life  make  it  plainly  necessary  that  many  such  steps  shall 
be  taken,  they  should  be  taken  only  so  far  as  they  are  necessary 
and  effective.  Interference  with  individual  liberty  by  government 
should  be  jealously  watched  and  restrained,  because  the  habit  of 
undue  interference  destroys  that  independence  of  character  without 
which,  in  its  citizens,  no  free  government  can  endure.  Just  so  far  as 
a  nation  allows  its  institutions  to  be  molded  by  its  weakness  of  char- 
acter rather  than  by  its  strength,  it  creates  an  influence  to  increase 
weakness  at  the  expense  of  its  strength.  Undue  interference  by 
government  is  at  the  expense  of  individual  initiative,  energy,  enter- 
prise, courage,  independent  manhood. 

A  fourth  is  that  in  the  nature  of  things  all  government  must  be 
imperfect  because  men  are  imperfect.  Every  system  has  its  short- 
comings and  inconveniences;  and  these  are  seen  and  felt  as  they 
exist  in  the  system  under  which  we  live,  while  the  shortcomings  and 
inconveniences  of  other  systems  are  forgotten  or  ignored.  It  is  not 
unusual  to  see  governmental  methods  reformed  and,  after  a  time 
long  enough  to  forget  the  evils  that  caused  the  change,  to  have  a  new 
movement  for  reform  which  consists  in  changing  back  to  substan- 
tially the  same  old  methods  that  were  cast  out  by  the  first  reform. 
The  recognition  of  shortcomings  is  not  in  itself  sufficient  to  warrant 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  917 

a  change  of  system.  There  should  be  an  effort  to  estimate  and  com- 
pare the  shortcomings  of  the  system  to  be  substituted,  for  although 
they  may  be  different  they  will  certainly  exist. 

A  fifth  is  that,  whatever  changes  in  government  are  to  be  made, 
we  should  follow  the  method  which  undertakes  as  one  of  its  cardinal 
points  to  hold  fast  that  which  is  good.  When  we  take  account  of 
all  that  governments  have  sought  to  do  and  have  failed  to  do  in 
this  world,  we  find  as  a  rule  that  the  application  of  new  theories, 
though  devised  by  the  most  brilliant  constructive  genius,  have  availed 
but  little  to  preserve  the  people  for  any  long  periods  from  the  evils 
of  despotism  on  one  hand  or  of  anarchy  on  the  other,  or  to  raise 
any  considerable  portion  of  the  mass  of  mankind  above  the  hard 
conditions  of  oppression  and  misery.  And  we  find  that  our  system 
of  government,  built  up  in  a  practical  way  through  many  centuries, 
has  done  more  to  preserve  liberty,  justice,  security,  and 
freedom  of  opportunity,  for  many  people  for  a  long  period,  than  any 
other  system  of  government  ever  devised.  Human  nature  does  not 
change  very  much.  The  forces  of  evil  are  hard  to  control,  as  they 
have  always  been.  It  is  easy  to  fail  and  hard  to  succeed  in  reconciling 
liberty  and  order. 

396.     The  Price-System  and  Development^ ^ 

BY  WALTON  H.  HAMILTON 

A  response  to  immediate  pecuniary  interest  has  greater  influence 
upon  the  conduct  of  individuals  than  a  consciousness  of  their  more 
ultimate  interests  as  members  of  competing  groups ;  yet  out  of  their 
responses  to  individual  interest,  so  diverse  and  so  contradictory,  a 
coherent  social  development  has  sprung. 

This  coherence  has  its  source  in  the  organization  of  the  personnel 
of  our  industries  in  the  form  of  a  hierarchy.  At  its  apex  are  the 
enterprisers,  recipients  of  large  incomes,  endowed  with  comprehen- 
sive industrial  powers,  and,  perhaps  most  important  of  all,  possessed 
of  unusual  control  over  public  opinion.  Their  vantage  position  has 
come  with  the  great  transformation  of  life  and  values  which  we  call 
the  industrial  revolution.  The  nature  and  scope  of  this  will  be  made 
clear  by  a  brief  comparison  of  the  older  craft  system  and  the  newer 
machine  process. 

The  craft  system  tends  to  a  diffusion  of  wealth  and  industrial 
initiative.     It  has  its  basis  in  the  tool,  whose  cost  is  small  and 

i^Adapted  from  "The  Price-System  and  Social  Policy,"  Journal  of 
Political  Economy,  XXVI  (1918),  54-66.  Copyright  by  the  University  of 
Chicago. 


9i8  CURRENT  ECONOMIC  PROBLEMS 

whose  utility  extends  to  an  infinitude  of  tasks.  Where  it  still 
dominates  technique,  as  in  agriculture  and  retail  selling,  productive 
establishments  are  small,  numerous,  and  widely  scattered.  The 
prevailing  type  of  organization  is  the  personal  establishment  or 
the  partnership.  Among  those  engaged  in  these  industries  there 
may  be  something  of  a  common  viewpoint,  system  of  thought,  and 
scheme  of  ideals.  Where  these  exist  they  are  unconsciously  held 
and  owe  their  strength,  not  to  communication  and  organization,  but 
to  the  influence  of  similar  working  conditions.  But  the  disorganiza- 
tion attending  the  multitude  of  establishments  prevents  the  rise  of  a 
clearly  defined  group-consciousness  which  finds  expression  in  a  con- 
certed program.  Nor  is  there  present  the  host  of  dependents  who 
can  be  persuaded,  at  least  for  the  moment,  that  their  interests  are 
identical  with  those  of  their  employers.  Lacking  means  for  forcing 
their  viewpoint  and  ideals  upon  their  own  and  other  groups,  the 
men  busied  with  the  craft  technique  are  in  positions  of  small  strategic 
importance. 

The  modern  industrial  system,  on  the  contrary,  tends  to  a  con- 
centration of  wealth  and  industrial  control.  It  has  as  its  basis  the 
machine,  which  is  a  complicated  collection  of  parts,  costing  much  in 
labor  and  accumulated  wealth,  and  useful  for  a  highly  specialized 
task.  The  specific  character  of  its  work  makes  necessary  in  a  single 
establishment  a  large  number  of  machines  differentiated  in  function. 
The  small  contribution  which  can  be  allowed  it  for  the  work  which  it 
performs  upon  a  single  unit  of  product  inhibits  its  use  in  any  save 
large  establishments.  Accordingly  plants  using  the  new  technique 
are  likely  to  be  of  immense  size,  small  in  number,  and  highly  con- 
centrated. Their  corporate  form  of  organization  puts  control  of 
them  in  the  hands  of  a  small  number  of  men.  This,  with  the  small 
number  of  really  large  establishments,  gives  rise  to  a  group  differing 
from  others  in  wealth,  in  industrial  function,  and  in  habits  of  life. 
The  small  number  and  the  identity  of  function  facilitate  communi- 
cation and  lead  to  the  informal  rise  of  common  habits  of  thought, 
industrial  ideals,  and  methods  of  action.  In  time  there  arises  among 
them  a  conscious  sense  of  solidarity  of  interests.  However  much 
they  compete  with  each  other,  they  are  alike  opposed  to  legislation  or 
informal  action  designed  to  increase  the  prices  of  cost  goods.  Like- 
wise they  are  agreed  as  to  the  desirability  of  any  proposal  promising 
a  further  expansion  of  business.  The  ease  of  communication  and 
the  identity  of  interests  permit  these  and  similar  beliefs  and  desires  to 
find  expression  in  a  consistent  program.  A  connection  between  the 
realization  of  this  program  and  the  dividends  which  they  regularly 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  919 

expect  is  sufficient  for  its  diffusion  in  the  much  larger  circle  of  the 
owners  of  the  industries. 

The  vantage-point  held  by  the  enterprisers  is  further  emphasized 
by  the  unique  position  which  the  industries  that  they  command 
occupy  in  the  public  mind.  The  concern  of  the  American  intellect 
is  distributive  rather  than  collective;  particular  rather  than  general. 
It  thinks  in  terms  of  the  single  establishment  which  it  sees  rather 
than  of  the  nation-wide  industry  which  it  can  perceive  only  in  the 
abstract.  It  attributes  immense  importance  to  manufacturing  be- 
cause of  the  vast  smokestacks,  the  massive  piles  of  brick,  and  the 
hosts  of  laborers  of  the  single  establishment.  It  denies  a  like  social 
importance  to  agriculture  because  it  cannot  escape  the  picture  of  two 
buildings  upon  a  hundred  acres,  an  assortment  of  small  tools,  and 
an  antiquated  use  of  horse-power.  Its  un familiarity  with  totals  leads 
it  habitually  to  see  in  every  new  establishment  an  increase  in  wealth 
rather  than  a  mere  diversion  of  capital  from  other  lines  of  endeavor. 
So  firm  is  the  conviction  that  machine  industries  are  all  good  that 
one  finds  no  city  insisting  that  its  importance  is  to  be  measured  by 
other  things  than  the  number  of  its  factories  and  population.  He 
detects  no  evidence  of  a  civic  pride  which  insists  that  problems  are 
growing  faster  than  they  can  be  solved  and  that  industrial  expansion 
be  halted  until  they  be  got  in  hand.  On  the  contrary,  convention  is 
giving  an  even  added  importance  to  machine  industry.  The  public, 
for  instance,  sees  in  the  industrial  plant  the  city  possessed  of  its  wide 
variety ;  in  the  farm,  the  country  with  its  dull  monotony.  Likewise 
it  attributes  the  great  increase  in  material  wealth  and  the  advance 
in  the  standard  of  living  entirely  to  the  machine  process,  oblivious 
alike  to  the  contributions  of  the  industries  still  using  the  tool  and 
to  the  gifts  of  a  benevolent  nature. 

The  strategic  position  of  the  managerial  class  makes  easy  the 
dissemination  of  their  viewpoint  and  would-be  policies.  The  very 
nature  of  the  productive  process  which  runs  its  interminable  length 
from  raw  materials  to  finished  goods  furnishes  many  opportunities 
for  propaganda.  Only  a  few  of  its  many  operations  are  performed 
in  establishments  making  large  use  of  machinery.  It  connects  at 
many  points  with  businesses  in  which  the  newer  technique  has  only 
a  nominal  hold.  These  smaller  concerns  are  under  the  necessity  of 
disposing  of  their  products  and  of  securing  profits  regularly.  In 
many  cases  they  produce  raw  materials  which  the  larger  concerns 
use;  in  others  they  sell  to  laborers  employed  in  the  large  establish- 
ments ;  in  still  others  they  turn  out  goods  whose  uses  are  complemen- 
tary to  those  of  the  products  of  large  businesses.    With  an  eye  to 


920  CURRENT  ECONOMIC  PROBLEMS 

immediate  profits  they  see  a  benefit  to  themselves  in  the  advancement 
of  the  pecuniary  interests  of  the  large  establishments.  They  are  thus 
disposed  to  the  favorable  reception  and  advocacy  of  proposals  promis- 
ing immediate  pecuniary  returns  to  the  larger  concerns. 

A  second  connection  favorable  to  the  dissemination  of  such 
views  is  the  existence  of  industries  and  professions  subsidiary  to 
technical  production.  In  the  development  of  the  industrial  system 
a  number  of  such  complementary  businesses  have  grown  up.  Chief 
among  them  are  the  agencies  for  credit,  such  as  banks,  loan  and 
mortgage  associations,  insurance  companies,  and  the  exchanges. 
Their  common  concern  with  finance  unites  them  into  a  single  com- 
pact group  in  which  the  larger  establishments  are  dominant,  and 
which  penetrates  into  every  nook  and  corner  of  the  industrial  system. 
The  larger  establishments  perform  functions  essential  to  large-scale 
industrial  operations  and  derive  their  profits  from  that  source.  In 
many  cases  they  are  creatures  of  manufacturing,  mining,  and  trans- 
portation companies.  Their  connections  result  in  an  identification 
of  their  interests  with  those  of  large  industrial  corporations.  Their 
position  in  the  financial  system  makes  easy  a  dissemination  of  their 
opinions  among  the  men  in  smaller  establishments.  Finally  the 
intimate  connections  of  the  financial  system  with  all  kinds  of  busi- 
nesses give  opportunity  for  a  general  circulation  of  managerial  theory 
and  opinion. 

A  kindred  subsidiary  interest  is  the  legal  profession.  In  the 
transformation  which  has  come  over  it  in  the  last  half  century,  law 
has  become  an  adjunct  to  business.  Its  practitioners  have  constant 
association  with  members  of  the  managerial  class,  they  are  fre- 
quently called  to  managerial  positions,  the  possibility  of  the  most 
lucrative  employment  comes  from  that  source,  and  the  career  of 
the  lawyer  of  importance  is  spent  in  advancing  business  interests. 
As  a  complement  to  personal  interest  the  nature  of  the  system  in 
terms  of  which  the  lawyer  does  his  thinking  makes  him  a  ready, 
even  if  unconscious,  agent  of  propaganda.  For  it  is  evident  that 
the  individualistic  assumptions  of  the  law,  with  their  implication  of 
the  substantial  immutability  of  social  arrangements,  are  strikingly  in 
harmony  with  the  managerial  theory  of  the  universe. 

Ihe  press  constitutes  a  third  vehicle  for  the  dissemination  of 
this  theory.  Both  the  magazine  with  its  country-wide  circulation 
and  the  newspaper  whose  influence  is  confined  to  a  single  city  have 
fallen  under  corporate  ownership.  While  the  personal  traditions 
of  an  earlier  age  have  not  entirely  departed,  the  concern  is  organ- 
ized as  a  money-making  venture,  its  stockholders  cry  aloud   for 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  921 

dividends,  and  its  policy  tends  to  be  regulated  by  business  princi- 
ples. To  this  end  it  must  have  both  advertising  and  subscriptions. 
But  its  revenue  comes  largely  from  the  former,  and  the  latter  is  of 
importance  only  as  indicative  of  a  circulation  that  can  be  made  to 
appeal  to  the  advertiser.  In  view  of  this,  the  independence  of  the 
editors  has  been  giving  way  to  a  subordination  to  the  business  office. 
The  latter  has  come  to  exercise  a  censorship  both  over  news  and 
over  editorial  expression.  The  first,  taking  the  form  of  standards 
of  taste  as  to  what  is  to  be  published,  becomes  a  matter  of  aesthetics 
rather  than  one  of  liberty  of  utterance.  The  restraints  upon  editorial 
utterance  are  more  open,  but  even  here  the  question  is  merely  one  of 
maintaining  the  traditional  policy  of  the  paper.  Because  of  these 
changes  a  large  part  of  the  press  has  come  to  a  willing,  even  if  un- 
conscious, instrument  for  the  dissemination  of  fact  and  fiction  favor- 
able to  the  immediate  pecuniary  interests  of  the  managerial  class. 
All  of  these,  bankers,  brokers,  lawyers,  advertising  managers,  editors, 
and  what-nots,  have  intimate  personal  relations  with  responsible 
business  men.  These  tend  to  a  common  viewpoint,  common  habits  of 
thought,  and  a  common  theory  of  social  welfare. 

The  social  policy  which  the  price-system  permits  to  be  formu- 
lated accordingly  meets  two  requirements.  The  first  is  a  demand 
for  a  preservation  against  collective  action  seeking  to  change  con- 
ventional arrangements,  for  a  change  in  the  fundamental  conditions 
under  which  industry  is  carried  on  is  accompanied  by  radical  dis- 
turbance in  the  structure  of  prices.  These  are  manifest  in  financial 
disorder,  friction,  scrapping  of  capital,  unemployment  of  labor,  and 
other  disadvantages  pertinent  to  the  temporary  breakdown  of  the 
system.  The  second  is  an  approval  of  a  program  of  exploitation 
or  expansion  which  gives  promise  of  increases  in  pecuniary  incomes. 
In  anticipation  of  these  the  members  of  all  social  groups  regard 
the  disorganization  incident  to  enlargement  as  a  slight  inconven- 
ience. Thus  the  immediate  interests  of  the  groups  unite  in  a  pro- 
gram favorable  to  the  creation  of  new  money-making  opportunities 
and  opposed  to  changes  in  institutions. 

Thus  the  price-system  plays  a  conservative  role  in  social  develop- 
ment. It  is  true,  as  has  been  so  ably  argued,  that  men  do  not  renounce 
radical  programs  because  of  any  conscious  fear  that  their  reaHzation 
will  bring  economic  disorganization  and  social  chaos.  Yet,  if  we  were 
possessed  of  the  eighteenth-century  belief  in  the  moral  efficacy  of 
man's  instincts,  we  might  argue  that  intuitively  men  obey  just  this 
restraint.    Each  is  conservative  in  action  lest  radical  changes  sweep 


922  CURRENT  ECONOMIC  PROBLEMS 

away  his  income.  But  one's  income  is  but  an  aspect  of  the  price- 
system,  and  its  disappearance  a  mere  incident  of  a  more  or  less  gen- 
eral disintegration  of  the  price-structure.  Hence  the  instinct  which 
leads  one  to  protect  his  income  really  functions  to  the  preservation 
of  the  price-system  against  radical  changes  bringing  with  them  gen- 
eral economic  demoralization.  On  this  basis  one  who  believes  in  the 
system  as  ordained  can  easily  see  in  the  scheme  of  articulated  prices  a 
safety  device,  an  institution  whose  function  is  the  preservation  of 
industrialism  by  protecting  it  against  innovation.  Certainly  we  may 
concur  by  admitting  that  the  price-system  imposes  restraint  upon 
innovation  and  thus  gives  continuity  to  industrial  development. 

E.     CONTROL  BY  EDUCATION 
397.     Education  and  ControP^ 

Education  is  much  more  than  a  scheme  of  formal  instruction. 
It  includes  all  those  agencies  which  help  the  individual  to  adapt  him- 
self to  his  social  and  intellectual  environment.  It  comprehends  all 
those  institutions  which  supply  him  with  an  understanding  that  en- 
ables him  to  co-operate  with  his  fellows  in  changing  that  environment. 
In  this  sense,  in  addition  to  the  formal  system  of  schools,  it  includes 
many  activities  of  the  church,  the  stage,  the  press,  and  the  pulpit. 
Its  domain  extends  into  office  and  factory;  its  tools  include  many 
parts  of  the  business  and  industrial  process.  In  short,  it  includes  all 
the  instruments  and  agencies  which  are  used  for  the  organization  and 
dissemination  of  knowledge,  thought,  and  opinion. 

In  this  larger  sense  education  is  an  effective  antidote  against  an 
attempt  to  dispose  of  our  complicated  problems  of  social  well-being 
by  superstitious  and  magical  processes.  Ignorance  has  always  had 
a  welcome  for  panaceas  and  has  always  arduously  believed  that  al- 
most anything  is  the  better  for  a  little  "tinkering."  Now  that  the 
war  is  gone,  there  is  too  generally  a  disposition  to  think  that  all  our 
ills  can  be  cleared  away  by  the  use  of  "industrial  councils,"  "a  League 
of  Nations,"  or  a  return  of  the  party  in  opposition  to  power.  If  the 
periodicals  are  to  be  believed,  "The  Tinkers'  Chorus"  might  well 
become  the  national  anthem.  At  such  a  time  it  is  well  to  remember 
that  new  ways  of  doing  things  cannot  be  made  to  work  at  the  hands 
of  those  whose  minds  cannot  comprehend  them  or  whose  hearts  are 
hardened  against  them.  Understanding  sets  the  eft'ective  limit  of 
accomplishment.  As  individual  knowledge  and  vision  is  limited, 
action  for  the  common  good  is  inhibited.    A  program  for  improve- 

^3An  editorial,  1918. 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  923 

ment  has  an  effective  check  in  public  opinion.     Since,  under  most 
favorable  circumstances,  understanding  moves  slowly  from  point  to 
■point,  we  will  never  lack  a  plethora  of  problems. 

If,  then,  "understanding"  is  the  "limiting  factor"  in  social  and 
economic  development,  it  is  well  to  note  particularly  the  contribution 
which  it  makes  to  the  social  process,  and  to  determine  how  that  con- 
tribution can  be  increased.  In  a  society  such  as  ours  the  functions  of 
education  can  be  briefly  set  forth  as  follows : 

1.  It  is  necessary  to  the  conservation  of  our  human  resources. 
Every  child  born  into  the  world  brings  with  him  a  bundle  of  latent 
resources.  Some  of  these  will  be  developed  in  any  environment ; 
some  become  atrophied,  whatever  the  conditions  of  life.  What  talents 
and  aptitudes  are  developed  depend  upon  the  conditions  of  develop- 
ment. For  the  sake  of  the  child  it  is  imperative  that  he  be  given 
the  opportunity  to  develop  the  highest  talents  he  possesses  which 
can  be  of  use  in  the  society  in  which  he  lives.  This  opportunity 
should  not  be  contingent  upon  his  desire  or  the  choice  of  his  parents. 
Compulsory  "education  is  not  the  imposition  of  an  obligation ;  it  is 
a  right.  Only  by  its  exercise  can  justice  be  granted  to  the  individual. 
Only  through  it  can  society  enjoy  its  resources.  Ours  is  an  inter- 
dependent society  in  which  each  enjoys  the  fruits  of  the  other's  labor. 
If  all  are  to  live  well,  it  is  imperative  that  the  human  resources  used 
in  the  industrial  process  shall  be  developed  resources. 

2.  It  is  necessary  to  the  utilization  of  knowledge.  The  basis  of 
our  society  is  a  complicated  machine  technique.  Every  occupation, 
profession,  and  activity  in  life  is  hedged  about  with  a  complicated 
body  of  knowledge  and  procedure.  Agricultural  experts  tell  us  that 
knowledge  of  agriculture  is  a  generation  or  two  in  advance  of  its 
application.  Students  of  medicine  insist  that  their  science  is  many 
decades  in  advance  of  everyday  hygiene.  Accountants  have  devised 
systems  of  business  records  far  in  advance  of  those  in  general  use. 
Education  must  bring  to  all  sorts  and  conditions  of  men  both  the 
knowledge  needed  in  their  occupations  and  the  more  complex 
technique  which  has  to  do  with  health,  leisure,  and  enjoyment  in  the 
great  society. 

3.  It  is  necessary  to  the  organization  of  opinion.  In  an  autocracy 
knowledge  of  the  decorous  process  of  state  and  the  devious  ways 
of  industry  can  remain  the  property  of  the  few.  The  small  group 
which  acts  for  all  alone  needs  to  be  informed  and  to  make  up  its 
mind.  In  a  democracy,  where  rulers  keep  their  "ears  to  the  ground," 
public  opinion  is  the  ultimate  basis  of  policy.  If  all  are  to  decide 
about  what  concerns  all ;  and  if  they  are  to  decide  wisely  and  well, 
they  must  be  informed.     But  this  is  not  enough.     On  vital  points 


924  CURRENT  ECONOMIC  PROBLEMS 

there  must  be  agreement  of  opinion.  Your  opinion  is  not  mine,  and 
mine  is  not  that  of  another.  If  each  remains  what  it  is,  there  is  no 
basis  for  action.  But  if  there  can  be  discussion,  understanding  will 
emerge,  out  of  which  intelligent  action  can  spring.  In  a  democracy 
education  is  essential  to  a  public  opinion,  based  upon  knowledge, 
which  can  control  the  development  of  industrial  society. 

4.  It  is  necessary  to  make  democracy  real.  The  society  in  which 
we  live  is  a  complicated  one.  Almost  all  questions  relating  to  the 
commonwealth  are  intricate  and  baffling.  The  opinions  we  pick  up 
on  the  street  or  the  intuitions  we  glean  from  our  inner  conscious- 
nesses about  monopoly,  taxation,  and  industrial  relations,  are  vague 
and  undependable.  Since  the  people  control,  the  people  must  have 
knowledge  and  understanding  if  they  are  to  choose  wisely.  In  ig- 
norance they  can  impose  conditions  upon  the  organization  of  industry 
or  of  life  which  will  cost  dearly.  Only  through  education  can  they 
free  themselves  from  the  tyranny  of  the  demagogue  and  impose  upon 
all  conditions  for  the  good  of  all.  Above  all,  in  a  democracy,  it  is 
necessary  for  them  to  see  common  problems  in  terms  oi  the  complex 
industrial  society  within  which  we  have  our  precious  existences. 
Only  such  education  will  protect  all  of  us  against  the  ill  and  mistaken 
judgments  of  the  great  mass  of  men.  Without  it,  the  ignorant  will 
enslave  themselves  and  us.    With  it  they  have  the  key  to  freedom. 

In  brief,  education  serves  the  double  function  of  protecting  the 
individual  and  society.  It  enables  him  to  make  the  most  of  his  latent 
talents  and  to  chose  his  course  of  life  intelligently.  It  enables  all 
of  us  to  enjoy  the  goods  and  services  produced  by  developed  human 
beings  adopted  to  their  environment,  rather  than  the  far  smaller  gifts 
of  crude  human  material  unfitted  to  its  work.  It  permits  the  organi- 
zation of  knowledge  and  of  opinion  which  are  indispensable  to  a 
control  of  the  common  arrangements  under  which  we  work  and  live. 
Without  it  there  can  be  no  freedom  in  a  democracy. 

398.     The  Function  of  Vocational  Training^" 

BY  EDWIN  F.  GAY 

It  is  evident  that  our  educational  organization  has  not  kept  pace 
with  our  industrial  organization.  The  surrender  of  its  educational 
function  by  industry  and  trade  was  apparent  with  the  advent  of  the 
industrial  revolution,  and  has  become  more  obvious  with  its  progress 
from  country  to  country,  from  industry  to  industry,  and  from  in- 

i^Adapted  from  "Preparation  for  Trade.  Domestic  and  Foreign,"  Pro- 
ceedings of  the  Second  Pan-American  Scientific  Congress  (1915),  sec.  iv,  Part 
I,  pp.  50-52. 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  925 

dustry  to  commerce.  Meanwhile,  the  educational  system  with  its 
conservative  ideas  and  traditional  methods  has  only  commenced  to 
adjust  itself  to  the  radically  changed  conditions  of  the  industrial 
environment 

The  older  social  organization  of  Europe  had  evolved  an  educa- 
tional equipment  fairly  sufficient  to  its  needs.  It  was  a  society  pre- 
dominantly agricultural,  with  industry  and  trade  limited  to  small 
individual  units  operating  in  local  or  restricted  markets,  and  with 
a  small  governing  class  assisted  by  a  group  professionally  trained 
for  the  church,  the  law  courts  and  the  public  administration.  Its 
agricultural  workers  were  largely  illiterate,  but  the  traditional  lore 
of  husbandry  and  housewifery  was  passed  on  securely  from  genera- 
tion to  generation.  The  hard  labor  of  the  fields  and  the  home,  to- 
gether with  the  proverbs  and  tales  of  the  fireside,  long  furnished 
the  schooling  of  the  masses. 

Even  the  educational  institutions  of  the  time  were  adjusted  to 
the  requirements  of  the  agricultural  community.  Our  long  summer 
school  vacation,  now  an  absurd  anachronism,  is  the  survival  from 
what,  to  use  a  modern  term,  we  may  call  a  part-time  system.  The 
young  recruits  from  the  handicraft  shop  and  the  trader's  counting- 
house  were  trained  by  a  system  of  long-time  apprenticeship,  under 
the  eye  of  the  master  in  shop  and  home,  which  gave  the  necessary 
but  not  highly  specialized  proficiency  and  returned  in  labor  a  fair 
compensation  for  the  time  and  trouble  of  instruction.  For  this  group 
and  for  a  small  part  of  the  agricultural  class  the  rudiments  of  read- 
ing, writing,  and  arithmetic  came  gradually  to  be  provided  by  sup- 
plementary teaching. 

The  higher  schools  for  the  few  of  the  upper  classes,  following 
mediaeval  and  humanistic  models,  were  not  merely  engaged  in  pre- 
serving the  thin  classical  tradition  as  a  veneer  to  the  leisure  class, 
but  gave  the  essential  foundation  for  a  professional  career.  Latin, 
for  instance,  was  a  necessary  tool  for  the  churchman,  the  lawyer, 
the  administrator,  and  the  diplomat.  The  education  of  the  univer- 
sity was  vocational.  The  whole  educational  system,  crude  and  im- 
perfect as  it  was,  was  firmly  rooted  in  a  relatively  stable  social  organ- 
ization and  was  adapted  to  its  simple  needs.  From  its  long  per- 
sistence it  developed  on  its  formal  side  a  traditional  authority  and 
prestige  which,  upheld  zealously  by  its  university  leadership,  has  been 
maintained,  with  perhaps  some  impairment,  through  a  century  of 
defective  readjustment. 

Compared  with  the  slow-moving  industrial  changes  of  earlier 
periods,  the  modern  factory  system,  with  its  sudden  and  eruptive 


926  CURRENT  ECONOMIC  PROBLEMS 

force  and  its  enormous  social  reactions,  may  justly  be  called  revo- 
lutionary. It  has  undermined  and  is  still  undermining  theoretical 
education  for  the  working  life  which  was  given  under  the  older 
order,  and  it  is  now  making  great  demands  upon  the  school,  formerly 
only  a  subordinate  adjunct,  which  the  school  has  been  unprepared 
to  meet.  The  extreme  subdivision  of  labor  which  characterizes 
modern  business  organization  has  inevitably  destroyed  the  institution 
of  apprenticeship.  Factory  products  have  supplanted  the  diversified 
handiwork  of  the  home.  The  new  marketing  methods,  reaching  a 
wider  and  denser  mass  of  consumers,  like  the  large-scale  production 
which  called  them  into  being,  are  developing  large  distributing  or- 
ganizations within  which  the  giving  of  a  comprehensive  trade  educa- 
tion is  increasingly  impossible.  Even  in  agriculture  the  new  spirit 
of  scientific  method  and  commercial  enterprise  is  displacing  old 
custom.  The  farmer's  children  can  no  longer  trust  the  wise  saw 
and  ancient  precept  handed  down  from  the  elders. 

The  business  man  is  apt  to  take  the  schoolmaster  to  task  for  a 
great  gap  in  our  educational  equipment,  the  absence  of  a  satisfactory 
vocational  training,  for  which  the  business  man's  modern  methods 
are  responsible.  The  school  must  take  up  this  burden,  almost  en- 
tirely relinguished  by  industry  and  trade. 

The  democratic  ideals  of  the  young  republic  have  combined  with 
educational  conservatism  to  check  an  early  differentiation  in  the 
character  of  training.  Such  differentiation  is  easier  in  a  stratified 
society  with  clearly  marked  class  distinctions,  but  in  one  in  which 
the  ideal  of  equality  of  opportunity  exists  and  where  newly  settled 
regions  have  opened  wide  to  all  the  door  of  opportunity,  there  is 
reluctance  to  force  the  child  to  an  early  choice  of  occupation.  Parents 
tend  to  choose  for  their  children  that  school  which  keeps  the  choice 
of  career  open  rather  than  that  which  definitely  determines  it.  This 
helps  to  account  for  the  acquiescence  in  the  non-vocational  character 
of  much  of  our  education.  The  school  has  hesitated  to  assume  the 
increased  responsibility  of  directing  the  vocational  destiny  of  its 
pupils.  Until,  therefore,  the  higher  school  has  come  under  the 
serious  pressure  of  its  social  and  economic  environment,  it  has  been 
content  to  follow  the  scholastic  ideals  appropriate  to  the  different 
social  class  for  which  in  earlier  times  its  educational  facilities  were 
provided. 

It  is  clear  that  for  mastery  in  any  occupation  there  must  be  syste- 
matic training  in  the  chosen  vocation.  Our  difficulty  has  been  that, 
with  the  unavoidable  withdrawal  of  the  business  man  from  direct 
educational  guidance  and  with  the  reluctance  of  the  school  to  under- 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  927 

take  the  new  responsibility,  the  boy  and  the  girl  were  ill  equipped 
for  the  work  of  life.  Too  often  there  has  been  no  systematic  training 
at  all.  Not  only  was  there  a  failure  to  meet  the  economic  needs 
of  the  world  outside  the  school,  but  with  the  absence  of  a  definite 
vocational  motive  there  was  also  a  failure  to  interest  the  student  in 
the  deferred  values  of  the  studies  pursued  within  the  school.  The 
school  was  rendering  service  with  its  broadening  cultural  studies, 
but  it  was  not  satisfactorily  fulfilling  its  function  eitner  to  society 
or  to  the  individual. 

399.     Education  and  Social  The  cry  ^^ 

BY  A.  GLUTTON  BROCK 

Behind  all  educational  theory  there  must  be  social  theory.  We 
must  know  what  we  wish  society  to  be  before  we  can  know  what 
we  wish  education  to  be.  All  ideas  about  education  are  based  upon 
ideas  about  society,  even  where  no  social  theory  is  consciously  ex- 
pressed. Thus  there  is  a  view  of  society  as  a  machine  existing  for 
some  material  purpose,  either  for  national  survival  or  the  survival 
of  the  human  race,  and  of  €very  individual  as  a  part  of  that  machine. 
Where  that  view  of  society  is  held,  education  is  conceived  of  as  a 
means  of  discovering  what  part  each  individual  is  by  nature  suited 
to  play  in  the  machine,  and  of  training  them  all  for  their  parts  when 
their  fitness  has  been  discovered. 

With  this  theory  of  education  is  commonly  associated  the  idea 
of  the  educational  ladder,  which  many  people  believe  to  be  demo- 
cratic. By  means  of  this  ability  is  discovered  in  all  classes,  and  an 
able  boy  has  his  chance  of  becoming  a  member  of  the  governing  class, 
no  matter  who  his  parents  may  have  been.  The  educational  ladder 
existed  in  some  form,  in  the  Roman  Empire  and  in  the  Catholic 
Church  of  the  Middle  Ages.  It  still  exists,  to  some  extent,  in  the 
Roman  Church,  so  that  a  peasant  may  become  a  pope.  But,  while 
it  may  raise  an  able  boy  out  of  his  class,  the  educational  ladder  does 
not  necessarily  improve  the  circumstances  of  those  who  remain  in 
the  class  of  their  birth,  and,  according,  to  all  mechanical  theories  of 
society,  that  improvement  is  not,  of  itself,  to  be  aimed  at.  Society 
is  in  the  first  place  a  machine,  and  the  first  necessity  is  to  train  all 
to  play  their  parts  in  that  machine.  If  they  are  lowly  parts,  then 
the  more  narrow  and  specialized  the  training,  the  better.    It  would 

i^Adapted  from  "Two  Views  of  Society — and  Education,"  Workers'  Edu- 
cation Association  Yearbook  for  1918,  pp.  33-'?8.  Copyright  by  the  Workers' 
Educational  Association. 


928  CURRENT  ECONOMIC  PROBLEMS 

be  folly  to  educate  them  to  become  discontented  with  the  functions 
they  have  to  perform.  For  the  good  of  the  machine  they  are  neces- 
sarily sacrificed,  as  human  beings,  to  their  mechanical  efficiency. 
They  are  broken  in  like  domestic  animals  and  trained  to  expect  only 
the  amount  of  happiness  compatible  with  the  proper  performance 
of  their  functions. 

Again,  there  is  the  humanistic  conception  of  society  and  of  educa- 
tion. The  essence  of  humanistic  education  is,  not  merely  that  it 
should  not  be  vocational — in  some  cases  it  might  be  vocational — but 
that  what  is  learned  should  be  learned  for  the  love  of  the  subject. 
In  humanistic  education  all  thought  of  the  struggle  of  life  is  banished, 
and  it  seems  desirable  only  to  those  who  believe  that  the  universe 
is  so  happily  constituted  that  an  individual  and  a  society  can  be 
fitted  for  the  struggle  of  life  by  an  education  which  ignores  it.  It 
is  based,  therefore,  upon  a  certain  faith,  a  faith  contrary  to  the  belief 
that  society  is  a  machine  constructed  for  success  in  some  form  of  the 
struggle  for  life.  According  to  that  faith  a  society  so  constituted  will 
not  in  the  long  run  win  the  success  it  aims  at.  He  that  would  save  his 
life  shall  lose  it.  Rather  the  popular  aim  of  society  is  to  sacrifice 
no  one  individual,  either  to  other  individuals  or  to  a  general  efficiency. 

This  education  is  called  humanistic  because  it  is  based  on  the 
belief  that  men  are  first  of  all  men,  not  animals,  servants,  or  tools. 
This  belief  we  all  profess  to  hold  in  so  far  as  we  accept  the  Christian 
view  of  life ;  but  in  practice  most  of  us  are  a  little  afraid  of  it.  Where 
this  view  of  life  is  held,  the  mechanical  theory  of  society  must  be 
rejected.  Society  must  be  regarded,  not  as  a  machine  constructed 
for  some  definite  material  purpose,  but  as  an  association  of  human 
beings.  Being  alive,  then,  it  is  not  fully  aware  of  its  purpose.  All 
living  things  discover  the  purpose  of  their  life,  so  far  as  they  do 
discover  it,  by  living.  It  is  not  made  for  them  as  for  a  machine. 
They  grow  in  consciousness  as  in  other  things,  and  always  there  is 
before  them  a  goal  of  which  they  are  never  conscious. 

Society,  then,  being  composed  of  human  beings,  exists  for  them, 
for  all  and  each  of  them,  in  the  present.  Its  test  is  their  happiness, 
which  is  not  to  be  sacrificed  to  any  theory  about  the  future  of  society 
or  to  any  hard  and  fast  definition  of  its  end.  For  we  know  this, 
at  least,  that  the  aim  is  to  be  discovered,  so  far  as  it  is  discoverable, 
by  all  the  members  of  society,  and  not  by  any  select  body  of  men 
scientifically  observing  society  as  if  it  were  a  foreign  and  inferior 
object.  And  the  members  of  society  have  the  best  chance  of  dis- 
covering its  end,  and  of  achieving  it,  if  they  are  themselves  happy, 
if  they  are  all  living  well  in  their  relations  with  each  other,  if  al! 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  929 

have  opportunity  for  the  development  and  exercise  of  the  highest 
faculties. 

For,  since  society  is  itself  a  living  thing,  its  life  is  the  life  of 
all  its  members.  None  of  them  can  be  unhappy  or  unwise  without 
communicating  unhappiness  and  unwisdom  to  the  whole.  That  so- 
ciety is  the  best  and  healthiest  in  which  the  higher  functions  are  most 
generally  distributed,  and  in  which  all  men  are  educated  with  a  view 
to  the  exercise  of  those  higher  functions.  That,  I  need  hardly  say, 
is  the  democratic  theory.  It  is  based  upon  the  conception  of  society 
as  a  living  thing,  not  as  a  machine,  and  we  must  judge  all  theories 
and  measures  which  profess  to  be  democratic  by  this  test. 

Now  if  we  apply  the  democratic  theory  to  education  we  shall 
find  that  we  are  led  to  certain  difficult  and  dangerous  conclusions. 
For  the  educator  every  child  will  be,  not  the  raw  material  out  of 
which  a  part  of  the  social  machine  can  be  made,  but  a  human  being 
whose  life  is  to  be  part  of  the  life  of  society.  And  to  the  educator 
all  these  children,  being  human  beings,  will  be  equal.  His  business 
is  to  develop  them  as  human  beings  without  regard  to  the  particular 
stations  they  may  have  to  occupy  when  they  are  grown  up.  To  him 
these  differences  in  station  and  in  functions  will  be  evils,  even  if 
necessary  evils. 

Thus,  if  people  tell  him  that  the  children  of  the  poor  ought  not 
to  be  taught  music,  since  music  will  be  of  no  use  to  them  in  the  fac- 
tory, his  answer  will  be  that  to  him  they  are  not  the  children  of 
the  poor,  but  children,  and  that  children  should  be  taught  music.  If 
our  present  society  is  of  such  a  nature  that  music  is  of  no  use  to  the 
poor,  then  by  learning  music  the  poor  will  become  aware  of  the  de- 
fects of  our  society,  will  see  that  it  treats  them  as  parts  of  a  machine, 
not  as  living  beings  with  the  higher  human  desires.  And,  if  they 
are  aware  of  these  defects,  they  may  themselves  attempt  to  remove 
them.  We  have  to  choose  at  present  between  a  society  in  which  the 
poor  are  aware  of  higher  desires  unsatisfied  and  one  in  which  they 
are  not  aware  of  higher  desires  at  all.  It  is  a  choice  of  evils,  but 
the  question  is,  which  choice  will  lead  to  greater  evils  ? 

One  who  holds  the  humanistic  theory  of  education  will  not  ask 
himself  whether  his  teaching  is  hkely  to  produce  discontent,  for  he 
does  not  see  society  as  a  machine  or  education  as  a  means  of  making 
the  machine  run  smoothly.  If  he  arouses  discontent  in  his  pupils 
by  arousing  their  higher  desires,  then  it  is  the  business  of  society, 
including  his  pupils,  to  remove  the  causes  of  discontent.  Such  dis- 
content is  to  him  divine. 


930  CURRENT  ECONOMIC  PROBLEMS 

If,  accepting  the  machine  theory,  we  educate  the  masses  of  the 
people  so  that  they  are  fit  only  for  a  low  quality  of  labor,  we  train 
them  also  to  a  misapplication  of  labor,  and  so  to  an  inevitable  war 
of  class  against  class,  carried  on  by  them  with  a  blindness  equal  to 
our  own.  There  is  no  way  out  of  it  except  to  see  them  in  their 
childhood  just  as  we  see  our  own  children,  to  see  them  as  members 
of  our  own  family,  and  to  deny  ourselves  for  their  education  as  we 
should  deny  ourselves  for  the  education  of  our  own  children.  For 
if  we  as  a  society  are  not  a  machine  for  the  turning  out  of  trash  and 
the  fomenting  of  a  class  war,  we  are  a  family,  which  is  the  type  of 
all  living  societies,  and  the  happiness  of  the  family  depends  on  the 
education  of  all  its  members.  You  cannot  turn  some  of  them  into 
tools  or  drudges  without  making  the  life  of  the  rest  duller  and  poorer 
and  less  happy.  You  cannot  escape  from  your  poor  relations,  how- 
ever much  you  may  try  to  forget  them.  At  least,  the  more  you  suc- 
ceed in  forgetting  them,  the  more,  and  the  more  bitterly,  they  will 
remember  you. 

400.     A  Primary  Culture  for  Democracy^^ 

BY   CHARLES   H.   COOLEY 

One  who  looks  even  a  little  beneath  the  surface  of  things  may 
see  that  there  is  no  question  more  timely  than  that  of  culture,  and 
none  which  has  more  need  of  fresh  and  fundamental  conceptions. 
It  is  by  no  means  merely  a  question  of  the  decoration  of  life,  or  of 
personal  enjoyment ;  it  involves  the  whole  matter  of  developing  large- 
minded  members  for  that  strong  democracy  which  we  hope  we  are 
building.  Without  such  members  such  a  democracy  can  never  exist, 
and  culture  is  essential  to  the  power  and  efficiency,  as  well  as  the 
beauty  of  the  social  whole. 

We  may  all  agree  that  culture  means  the  development  of  the 
human  and  social,  as  distinct  from  the  technical,  side  of  life.  Our 
recent  growth,  so  far  at  least  as  it  is  realized  in  our  institutions,  has 
been  mainly  technical,  the  creation  of  an  abundant  economic  system 
and  a  marvellous  body  of  natural  science,  neither  of  them  achieve- 
ments of  a  sort  to  center  attention  upon  what  is  broadly  human. 

Our  democracy,  in  spite  of  its  supposed  materialism,  has  long 
had  at  heart  the  ideal  of  culture.  We  are  not  satisfied  with  beholding 
the  multiplication  of  material  things,  nor  even  with  the  hope  of 
greater  justice  in  their  distribution;  we  want  joy,  beauty,  hope, 

i^Adapted  from  an  article  with  the  foregoing  caption  in  Publications  of  the 
American  Sociological  Society,  XIII  (1918),  1-17.    Copyright. 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  931 

higher  thoughts,  a  larger  life,  a  fuller  participation  in  the  great  human 
and  divine  whole  in  which  we  find  ourselves.  Even  those  popular 
movements  which  formulate  their  ends  in  material  terms  are  not 
really  materialistic  but  get  their  strongest  appeal  from  the  belief 
that  these  ends  are  the  conditions  of  a  fuller  spiritual  life. 

Another  reason  for  turning  our  thoughts  to  culture  is  that  the 
economic  outlook  demands  it.  We  are  apparently  entering  upon  a 
period  of  cheap,  standardized  production  upon  an  enormous  scale, 
which  will  multiply  commodities  and  perhaps  increase  leisure,  but 
will  make  little  demand  upon  the  intelligence  of  the  majority  of 
producers  and  offer  no  scope  for  mental  discipline.  Work  is  becom- 
ing less  than  ever  competent  to  educate  the  worker,  and  if  we  are  to 
escape  the  torpor,  frivolity,  and  social  irresponsibility  engendered 
by  this  condition,  we  must  offset  it  by  a  social  and  moral  culture 
acquired  in  the  schools  and  in  the  community  life. 

Our  culture  must  be  a. function  of  our  situation  as  a  whole.  If  it 
does  not  function  in  the  whole,  it  is  nothing.  I  am  in  sympathy  with 
those  who  cling  to  the  great  humanistic  traditions  of  the  past.  There 
can  be  no  real  culture  that  is  altogether  new ;  it  can  only  be  a  fresh 
growth  out  of  old  stems ;  but  it  must  be  that ;  it  must  be  new  in  the 
sense  that  it  is  wholly  reanimated  by  the  spirit  of  our  own  time.  Any 
attempt  to  impose  an  old  culture  upon  us  merely  because  the  educated 
class  cherish  it,  or  because  it  can  be  supported  by  general  arguments 
which  have  no  reference  to  our  needs,  must  fail.  Through  control 
of  institutions  the  classicist,  the  scientist,  or  the  religionist  may  for 
a  time  force  the  forms  of  an  old  learning  upon  a  new  generation ;  but 
before  long  all  that  does  not  vigorously  function  in  the  life  of  the 
day  will  slough  off  and  be  forgotten. 

Certainly  no  culture  can  be  real  for  us  that  is  not  democratic 
This  does  not  mean,  however,  that  it  must  be  superficial,  or  com- 
monplace, or  uniform.  Democracy  is  at  bottom  a  humane,  inclusive, 
and  liberal  organization  of  life,  and  a  democratic  culture  will  be 
based  upon  large  conceptions,  meeting  the  needs  of  the  plain  people 
as  well  as  of  the  privileged  classes,  and  worked  out  largely  through 
the  schools  and  other  popular  institutions.  The  idea  that  such  a 
culture  must  lack  refinement  and  distinction  has  no  basis  in  sound 
theory.  An  undemocratic  humanism,  in  our  time,  is  not  humanism 
at  all. 

We  should  recognize,  however,  that  such  traditional  culture  as 
we  have  is  not  democratic  for  the  most  part,  but  involves  the  inheri- 
tance, through  an  upper  class,  of  the  conceptions  of  an  outworn 
society.     The  very  word  "culture"  is  in  somewhat  bad  odor  with 


932  CURRENT  ECONOMIC  PROBLEMS 

people  of  democratic  sympathies,  because  it  suggests  a  parasitic 
leisure.  Nothing  could  be  more  timely  than  that  the  plain  people 
should  take  up  the  idea,  re-interpret  it  from  their  point  of  view,  and 
give  it  a  chief  place  on  the  program  of  reform. 

A  living  culture  is  not  only  an  organic  part  of  life  as  a  whole, 
but  it  is  a  complex  thing  in  itself.  It  must  embrace  two  main  aspects : 
a  common  or  primary  culture  of  knowledge  and  sentiment  diffused 
through  the  whole  people,  and  a  variety  of  more  elaborate  culture 
processes,  informed  with  the  common  spirit  but  developed  by  small 
groups  in  diverse  fields  of  achievement.  The  aim  of  a  common 
culture  must  be  a  humane  enlargement  of  the  thought  and  spirit  of 
the  people,  including  especially  primary  social  knowledge  and  ideals ; 
inculcated  in  no  abstract  form,  but  appealing  to  the  imagination  and 
assimilated  with  experience. 

Of  the  studies  now  pursued  in  our  primary  schools  those  most 
plainly  suited  to  be  the  means  of  culture  are  language  and  history, 
because  they  deal  directly  with  the  larger  human  life.  Language 
studies  should  make  the  individual  a  member  of  the  continuing 
organism  of  thought  and  enable  his  spirit  to  grow  by  interaction  with 
it.  For  our  people  this  means  self-expression  and  a  beginning  ap- 
preciation of  literature.  Other  languages,  modern  and  ancient,  be- 
long to  specialized  culture,  not  to  that  of  the  whole  people. 

It  might  perhaps  be  thought  that  history  would  be  a  study  of 
the  humane  development  of  mankind  in  the  past,  bringing  home  to  our 
knowledge  and  sympathy  the  common  life  and  upward  struggle  of  the 
people,  and  so  leading  to  an  understanding  of  the  social  questions  of 
our  own  day.  But  it  is  not  that  in  any  great  degree  at  the  present 
time.  Although  some  teachers  of  history  are  striving  to  reanimate 
their  subjects  in  accordance  with  modern  social  conceptions,  it  is  my 
impression  that  this  movement  is  only  beginning  and  that  the  study 
of  history  in  the  schools  conduces  little  to  an  understanding  of  mat- 
ters of  social  and  economic  betterment. 

The  central  thing  in  the  study  of  the  past  common  to  all  Amer- 
ican children  should  be  the  history  of  our  own  country,  conceived  in 
a  social  spirit  as  our  part  in  the  universal  struggle  for  humane  ideals 
of  life,  political  democracy  and  federation,  economic  opportunity, 
social  freedom,  and  higher  development  of  every  sort.  It  should  be 
easy  to  treat  American  history  in  this  way  and  to  keep  it  in  constant 
relation  to  the  ideals  and  endeavors  of  our  own  day. 

No  aspect  of  history  is  better  suited  to  the  uses  of  culture  than 
is  the  economic  aspect,  the  age-long  striving  for  material  support, 
comfort,  and  leisure,  along  with  the  development  and  mutations  of 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  933 

social  classes,  leading  to  our  own  problems  of  social  justice.  These  are 
cultural  because,  on  the  one  hand,  they  appeal  to  actual  interest  and 
daily  observation,  while,  on  the  other,  they  lead  directly  to  the  most 
urgent  questions  of  social  progress.  The  fact  that  history  has  slighted 
these  things,  and  that  men  may  pass  as  experts  in  it  who  have  made  no 
serious  study  of  them,  is  itself  explicable  only  by  historical  causes. 

However  this  may  be,  it  is  clear  that  on  grounds  of  culture  every 
child  ought  to  know  something  of  the  struggles  of  the  unprivileged 
masses  to  gain  a  share  of  the  opportunity  and  outlook  achieved  by  a 
privileged  few.  Our  middle  and  upper  classes  are  still,  for  the  most 
part,  limited  to  a  view  of  such  matters  that  is  both  undemocratic  and 
uncultured,  and  which  the  schools  do  little  to  correct. 

It  seems  that  instruction  in  economics  and  sociology,  of  a  simple 
and  concrete  kind,  must  be  a  part  of  universal  democratic  culture. 
How  this  should  be  related  to  history  is  perhaps  an  open  question, 
but  certainly  the  latter,  as  it  is  now  understood,  is  wholly  inadequate. 
When  all  these  studies  are  informed  by  a  common  spirit  it  may  be 
possible  to  unite  them. 

So  intimate  and  so  abiding  is  our  relation  to  nature  that  natural 
science  may  well  claim  a  place  in  any  scheme  for  a  basic  humane 
culture.  It  would  include  enough  of  this  to  impress  the  mind  with 
the  rule  of  law  in  nature  and  to  enable  it  to  understand  the  experi- 
mental method  by  which)man  discovers  this  law  and  adapts  it  to  his 
ends. 

I  must  add  that  any  school  culture  depends  for  its  reality  upon 
the  personality  of  those  who  impart  it.  If  the  teachers  and  textbook 
writers  were  overflowing  with  those  larger  views  and  sentiments  that 
are  culture,  the  students  would  invariably  get  them.  This  in  turn 
depends  upon  that  more  adequate  recognition  by  the  public  of  the 
place  of  teachers  as  leaders  and  exemplars  of  culture,  from  which 
intelligent  selection  and  support  would  flow.  The  whole  question  is 
one  that  we  cannot  solve  by  any  mere  change  in  the  curriculum,  but 
is  implicated  with  the  spirit  and  organization  of  the  community. 

401.     The  Function  of  the  College'^ 

BY  ALEXANDER  MEIKLEJOHN 

Let  Other  men  do  what  they  may ;  we  have  a  task  that  overtops 
them  all.  We  have  a  part,  a  leading  part,  to  play  in  making  a  mind 
for  a  nation.     That  is  the  goal  on  which  our  eyes  are  fixed,  the 

i^Adapted  from  "The  Mind  of  the  Nation,"  an  address  delivered  at  a 
dinner  of  the  Amherst  College  Alumni  Association  of  Boston,  February  4,  1916. 


934  CURRENT  ECONOMIC  PROBLEMS 

adventure  in  which,  student  and  teacher  aHke,  we  are  engaged.  And 
so  I  take  this  as  my  theme,  the  mission  of  the  college  in  helping  to 
make  a  mind  for  this  nation. 

Has  this  nation  a  mind  of  its  own?  I  fear  not.  A  mind  is  an 
activity  which  gathers  up  disconnected  opinions,  impulses,  desires, 
doubts,  theories,  and  brings  them  into  correlation  and  unity.  Ideas, 
when  they  are  within  the  same  mind,  become  responsible  one  to  an- 
other. Each  of  them  must  pay  regard  to  all  the  rest.  They  cannot 
live  in  isolation,  nor  yet  in  little  separate  groups.  The  mind  de- 
mands of  them  that  they  shall  come  together  in  genuine  unity  of 
spirit  and  of  truth.  This  seeking  after  unity  is  the  very  essence  of 
the  thought-life  of  an  individual,  and  only  in  the  measure  in  which 
one  achieves  it  can  he  be  said  to  be  alive  at  all.  Just  so  it  is  in  the 
thought  of  a  nation.  If  we  as  a  people  can  succeed  in  making  our 
separate  thinking  responsible  one  to  another,  then  as  a  people  we 
have  a  mind.  But  if  our  thinkings  fall  apart,  we  are  without  a 
common  mind  and  we  must  suffer  all  the  ills  of  those  who  go  through 
life  not  knowing  what  they  do  nor  seeing  where  they  go. 

Is  the  place  of  judgment  to  be  found  in  the  newspaper?  My  im- 
pression is  that  we  do  not  so  regard  it.  Do  we  not  commonly  think 
of  it  as  a  special  pleader,  as  representative  of  some  "interest,"  as 
used  by  forces  to  further  their  ends,  rather  than  as  judge  and  critic 
rising  above  all  interests  and  seeking  to  assign  to  each  its  due  measure 
of  significance  and  truth  ?  It  may  be  that  we  are  not  fair  in  thinking 
this.  But  whether  it  is  fair  or  not,  so  long  as  this  opinion  prevails, 
the  newspaper  cannot  be  for  us  the  maker  of  understanding.  Nor 
can  the  magazine  or  book  perform  this  service.  And  for  another  set 
of  reasons  neither  the  church  nor  yet  the  home  can  furnish  what  we 
need.  No  one  of  these  commands  our  thinking  as  a  whole.  And 
even  less  our  public  men  are  able  to  bring  our  thinking  under  their 
control.  They  too  are  talked  about,  not  as  the  men  we  trust  to  lead 
and  guide  us,  but  as  the  advocates  of  parties,  sections,  interest,  creeds. 

Where  then  shall  we  find  the  place  of  understanding,  where  go 
that  judgment  may  be  given  upon  the  issues  of  our  common  life? 
More  than  any  other  institutions,  it  seems  to  me,  the  school  and 
college  must  assume  the  task.  And  especially  the  liberal  college 
must  endeavor  to  become  the  place  where  the  common  mind  is  made 
and  moulded.  The  liberal  college  is  a  place  where  men  are  trying 
to  gather  up  the  elements  of  our  common  life,  of  our  moral,  religious, 
aesthetic,  political,  economic,  and  social  experience,  so  that  we  may 
understand  them,  may  bring  them  into  relation,  may  make  of  them  an 
interpretation  of  human  living.     And  for  this  task  we  must  have 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  935 

within  the  college  leaders  of  men's  thought.  The  liberal  college 
cannot  be  merely  a  teacher  of  boys.  It  can  teach  boys  properly  only 
as  it  becomes  a  place  of  counsel  and  guidance  for  men.  The  college 
teacher  must  win  and  keep  the  confidence  of  his  fellows  as  one  who 
leads  them  in  the  work  of  understanding.  He  must  command  their 
trust  both  by  integrity  and  by  power.  No  man  may  say  of  him  that 
he  is  the  servant  of  an  interest.  Rich  and  poor,  radical  and  con- 
servative, the  breaker  down  and  builder  up,  alike  must  find  him 
square  and  true  and  free.  And  in  intelligence,  as  well  as  in  integrity, 
he  must  be  leader  of  his  fellows.  He'  is  a  man  set  apart  to  learn,  to 
think,  to  study,  to  inquire,  to  question,  to  conclude — a  man  whose 
thinking  on  the  matters  he  considers  should  be  better  than  that  of 
other  men,  just  as  the  cobbler's  shoes  are  better  than  those  which  you 
or  I  would  fashion  if  we  tried  to  make  them  for  ourselves.  To  lead 
in  thinking  through  the  fundamental  issues  of  our  common  life — that 
is  the  task  of  liberal  college  and  of  liberal  teacher.  And  they  must  win 
the  confidence  of  men  that  they  can  guide  in  making  up  the  people's 
mind  upon  the  things  which  are  most  precious  and  significant  within 
the  nation's  life. 

E.     THE  FUTURE  OF  INDUSTRIAL  SOCIETY 
402.     Progress  and  Discontents^ 

,  BY  THOMAS  BABBINGTON  MACAULAY 

It  may  at  first  sight  seem  strange  that  society,  while  constantly 
moving  forward  with  eager  speed,  should  be  constantly  looking 
backward  with  tender  regret.  But  these  two  propensities,  incon- 
sistent as  they  may  appear,  can  easily  be  resolved  into  the  same 
principle.  Both  spring  from  our  impatience  of  the  state  in  which 
we  actually  are.  That  impatience,  while  it  stimulates  us  to  surpass 
preceding  generations,  disposes  us  to  overrate  their  happiness.  It 
is,  in  some  sense,  unreasonable  and  ungrateful  in  us  to  be  constantly 
discontented  with  a  condition  which  is  constantly  improving.  But, 
in  truth,  there  is  constant  improvement  precisely  because  there  is 
constant  discontent.  If  we  were  perfectly  satisfied  with  the  present, 
we  should  cease  to  contrive,  to  labor,  and  to  save  with  a  view  to  the 
future.  And  it  is  natural  that,  being  dissatisfied  with  the  present, 
we  should  form  a  too  favorable  estimate  of  the  past. 

In  truth,  we  are  under  a  deception  similar  to  that  which  misleads 
the  traveler  in  the  Arabian  desert.  Beneath  the  caravan  all  is  dry 
and  bare ;  but  far  in  advance,  and  far  in  the  rear,  is  the  semblance  of 

i^Adapted  from  History  of  England,  I  (1848),  chap.  iii. 


936  CURRENT  ECONOMIC  PROBLEMS 

refreshing  waters.  The  pilgrims  hasten  forward  and  find  nothing  but 
sand  where  an  hour  before  they  had  seen  a  lake.  They  turn  their 
eyes  and  see  a  lake  where,  an  hour  before,  they  were  toiling  through 
sand.  A  similar  illusion  seems  to  haunt  nations  through  every  stage 
of  the  long  progress  from  poverty  and  barbarism  to  the  highest  de- 
grees of  opulence  and  civilization.  But,  if  we  resolutely  chase  the 
mirage  backward,  we  shall  find  it  recede  before  us  into  the  regions 
of  fabulous  antiquity.  It  is  now  the  fashion  to  place  the  Golden 
Age  of  England  in  times  when  noblemen  were  destitute  of  comforts 
the  want  of  which  would  be  intolerable  to  a  modern  footman,  when 
farmers  and  shopkeepers  breakfasted  on  loaves,  the  very  sight  of 
which  would  raise  a  riot  in  a  modern  workhouse,  when  to  have  a 
clean  shirt  once  a  week  was  a  privilege  reserved  for  the  higher  class 
of  gentry,  when  men  died  faster  in  the  purest  country  air  than  they 
now  die  in  the  most  pestilential  lanes  of  our  towns,  and  when  men 
died  faster  in  the  lanes  of  our  towns  than  they  now  die  on  the  coast 
of  Guiana.  We,  too,  shall,  in  our  turn,  be  outstripped,  and  in  our 
turn  be  envied.  It  may  well  be,  in  the  twentieth  century,  that  the 
peasant  of  Dorsetshire  may  think  himself  miserably  paid  with  twenty 
shillings  a  week;  that  the  carpenter  at  Greenwich  may  receive  ten 
shillings  a  day;  that  laboring  men  may  be  as  little  used  to  dining 
without  meat  as  they  now  are  to  eat  rye  bread ;  that  sanitary  police 
and  medical  discoveries  may  have  added  several  more  years  to  the 
average  length  of  human  life ;  that  numerous  comforts  and  luxuries 
which  are  now  unknown,  or  confined  to  a  few,  may  be  within  the 
reach  of  every  diligent  and  thrifty  workingman.  And  yet  it  may 
then  be  the  mode  to  assert  that  the  increase  of  wealth  and  the  progress 
of  science  have  benefited  the  few  at  the  expense  of  the  many,  and 
to  talk  of  the  reign  of  Queen  Victoria  as  the  time  when  England  was 
truly  merry  England,  when  all  classes  were  bound  together  by 
brotherly  sympathy,  when  the  rich  did  not  grind  the  faces  of  the 
poor,  and  when  the  poor  did  not  envy  the  splendor  of  the  rich. 

403.     The  Banquet  of  Life^^ 

BY  WILLIAM   GRAHAM   SUMNER 

In  1886  a  society  published  a  set  of  analytical  topics  covering  the 
field  of  social  science.  Among  the  topics  which  the  student  is  invited 
to  discuss  is  this :  "The  Banquet  of  Life,  a  Collation  or  an  Exclusive 
Feast."    The  antithesis  which  is  intended  is  undoubtedly  that  between 

i^Adapted  from  "The  Banquet  of  Life"  (1887),  reprinted  in  Earth-Hunger 
and  Other  Essays,  pp.  217-21,  from  the  Independent,  XXXIX,  yyz-  Copyright 
by  the  Independent  and  Yale  University  Press. 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  937 

» 
a  supply  for  all  and  a  supply  for  a  limited  number.    If  there  is  any 
banquet  of  life,  the  question  certainly  is,  whether  it  is  set  for  an 
unlimited  or  for  a  limited  number. 

If  there  is  a  banquet  of  life,  and  if  it  is  set  for  an  unlimited  num- 
ber, there  is  no  social  science  possible  or  necessary ;  there  would  then 
be  no  limiting  conditions  on  life,  and  consequently  no  problem  of  how 
to  conquer  the  difficulties  of  living.  There  would  be  no  competition, 
no  property,  no  monopoly,  no  inequality.  Fresh  air  and  sunlight  are 
provided  gratuitously  and  superabundantly,  not  absolutely,  but  more 
nearly  than  any  other  material  goods,  and  therefore  we  see  that  only 
in  very  exceptional  circumstances,  due  to  man's  action,  do  these  things 
become  property.  If  food  were  provided  in  the  same  way,  or  if  land, 
as  a  means  of  getting  food,  were  provided  in  the  same  way,  there 
would  be  no  social  question,  no  classes,  no  property,  no  monopoly,  no 
difference  between  industrial  virtues  and  industrial  vices,  and  no 
inequality.  When,  therefore,  it  is  argued  that  there  is,  or  was,  or 
ought  to  be,  a  banquet  of  life,  open  to  all,  and  that  the  fact  that  there 
is  no  such  thing  now  proves  that  some  few  must  have  monopolized  it, 
it  is  plain  that  the  whole  notion  is  at  war  with  facts,  and  that  its  parts 
are  at  war  with  each  other. 

The  notion  that  there  is  such  a  thing  as  a  boon  of  nature,  or  a 
banquet  of  life,  shows  that  social  science  is  still  in  the  stage  that 
chemistry  was  in  when  people  believed  in  a  philosopher's  stone ;  or 
medicine,  when  they  believed  in  a  panacea ;  or  physiology,  when  they 
believed  in  a  fountain  of  youth,  or  an  elixir  of  life.  Many  of  the 
phenomena  of  the  present  seem  to  indicate  that  this  group  of  facts 
is  just  coming  under  the  dominion  of  science.  The  discord  and  con- 
fusion which  we  perceive  are  natural  under  the  circumstances.  Men 
never  cling  to  their  dreams  with  such  tenacity  as  at  the  moment  when 
they  are  losing  faith  in  them,  and  know  it,  but  do  not  yet  dare  to 
confess  it  to  themselves. 

If  there  was  such  a  thing  as  a  banquet  of  life,  open  to  all  comers, 
to  which  each  person  was  entitled  to  have  access  just  because  he  was 
born,  and  if  this  right  could  be  enforced  against  the  giver  of  the 
banquet,  that  is,  against  nature,  then  we  should  have  exactly  what  we 
want  to  make  this  earth  an  ideal  place  of  residence.  We  should  have 
first  of  all,  a  satisfaction  which  cost  no  effort,  which  is  the  first  de- 
sideratum of  human  happiness,  and  which  we  have  not  hitherto  ever 
seen  realized  at  all  except  in  the  narrow  domain  of  luck.  Secondly, 
we  should  have  abstract  justice  in  nature,  which  we  have  never  had 
yet,  for  luck  is  of  all  things  the  most  unjust.  We  should  also  have 
equality,  which  hitherto  we  have  never  found  in  nature.    Finally,  we 


938  CURRENT  ECONOMIC  PROBLEMS 

should  have  a  natural  right  which  could  be  defined  and  enforced,  not 
against  men,  but  against  nature — the  trouble  with  natural  rights 
hitherto  has  been  that  they  could  not  be  defined,  that  nature  alone 
could  guarantee  them,  and  that  against  nature  they  could  not  be  en- 
forced. 

If  we  take  the  other  alternative  and  conceive  of  the  banquet  of 
life  as  a  limited  feast,  then  we  see  at  once  that  monopoly  is  in  the 
order  of  nature.  The  question  of  weal  or  woe  for  mankind  is :  what 
are  the  conditions  of  admission?  How  many  are  provided  for? 
Can  we,  by  any  means  open  to  us,  increase  the  supply?  But  when 
we  take  the  question  in  this  form  we  see  that  we  are  just  where  we 
and  our  fathers  always  have  been ;  we  are  forced  to  do  the  best  we 
can  under  limited  conditions,  and  the  banquet  of  life  is  nothing  but 
a  silly  piece  of  rhetoric  which  obscures  the  correctness  of  our  con- 
ception of  our  situation. 

When  men  reasoned  on  social  phenomena  by  guessing  how  things 
must  have  been  in  primitive  society,  it  was  easy  for  them  to  conceive 
of  a  "state  of  nature"  or  a  "golden  age" ;  but,  as  we  come  to  learn 
the  facts  about  the  primitive  condition  of  man  on  earth  we  find  that 
he  not  only  found  no  banquet  awaiting  him  here,  and  no  natural 
rights  adjusted  to  suit  him,  but  that  he  found  the  table  of  Nature 
already  occupied  by  a  very  hungry  and  persistent  crowd  of  other 
animals.  The  whole  table  was  already  occupied — there  was  not  room 
for  any  men  until  they  conquered  it.  It  is  easy  for  anyone  now  to 
assure  himself  that  this  is  the  true  and  only  correct  notion  to  hold  on 
that  matter.  If  land  ever  was  a  boon  of  Nature  to  anybody  it  was 
given  away  to  the  plants  and  animals  long  before  man  appeared  here. 
When  man  appeared,  he  simply  found  a  great  task  awaiting  him :  the 
plants  and  animals  might  be  made  to  serve  him,  if  he  could  conquer 
them ;  the  earth  would  be  his  if  he  could  drive  off  his  competitors. 
He  had  no  charter  against  Nature,  and  no  rights  against  her ;  every 
hope  in  his  situation  had  an  "if"  in  it — if  he  could  win  it. 

We  look  in  vain  for  any  physical  or  metaphysical  endowment  with 
which  men  started  the  life  of  the  race  on  earth.  We  look  in  vain  for 
any  facts  to  sustain  the  notion  of  a  state  of  primitive  simplicity  and 
blessedness,  or  natural  rights,  or  a  boon  of  material  goods.  All  the 
facts  open  to  us  show  that  man  has  won  on  earth  everything  which 
he  has  here  by  toil,  sacrifice  and  blood ;  all  the  civilization  which  we 
possess  has  been  wrought  out  by  work  and  pain.  All  the  rights,  free- 
dom, and  social  power  which  we  have  inherited  are  products  of  his- 
tory. Our  institutions  are  so  much  a  matter  of  course  to  us  that  it  is 
only  by  academic  training  that  we  learn  what  they  have  cost  ante- 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  939 

cedent  generations.  If  serious  knowledge  on  this  subject  were  more 
widespread,  probably  we  should  have  a  higher  appreciation  of  the 
value  of  our  inheritance,  and  we  should  have  less  flippant  discussion 
of  the  question :  What  is  all  this  worth  ?  We  should  also  probably 
better  understand  the  conditions  of  successful  growth  or  reform,  and 
toleration  for  schemes  of  social  reconstruction. 

Civilization  has  been  of  slow  and  painful  growth.  Its  history 
has  been  marked  by  many  obstructions,  reactions,  and  false  develop- 
ments. Whole  centuries  and  generations  have  lost  their  changes  on 
earth,  passing  through  human  existence,  keeping  up  the  continuity 
of  the  race,  but,  for  their  own  part,  missing  all  share  in  the  civiliza- 
tion which  had  been  previously  attained,  and  which  ought  to  have 
descended  to  them.  It  is  easy  to  bring  about  such  epochs  of  social 
disease  and  decline  by  human  passion,  folly,  blunders,  and  crime. 
It  is  not  easy  to  maintain  the  advance  of  civilization ;  it  even  seems 
as  if  a  new  danger  to  it  had  arisen  in  our  day.  Formerly  men  lived 
along  instinctively,  under  social  conditions  and  customs,  and  social 
developments  wrought  themselves  out  by  a  sort  of  natural  process. 
Now  we  deliberate  and  reflect.  Naturally  we  propose  to  interfere 
and  manage  according  to  the  product  of  our  reflection.  It  looks  as 
if  there  might  be  danger  soon  lest  we  should  vote  away  civilization 
by  a  plebiscite,  in  an  effort  to  throw  open  to  everybody  this  imaginary 
"Banquet  of  Life." 

404.     Wanted:   A  New  Symbolism^" 

BY  ALVIN  S.  JOHNSON 

The  aristocracies  have  vanished,  we  shall  never  know  them  again. 
The  work  of  supplying  the  world,  now  and  for  the  future,  has  become 
one  of  such  complexity,  requiring  so  broad  a  diffusion  of  general 
intelligence,  that  merely  personal  dignitaries  can  never  again  acquire 
their  ancient  influence  over  man's  mind,  their  ancient  hold  on  his 
conduct.  There  remains  in  the  world  only  the  common  man.  Differ- 
ences in  natural  endowment,  in  culture  and  in  wealth  persist ;  but 
these  can  not  alter  the  fact  of  a  fundamental  democracy.  So  far  as 
we  serve,  we  serve  the  common  man. 

But — and  this  we  must  fix  in  our  minds — the  common  man  of 
today  is  not  the  obscure  citizen  of  earlier  epochs.  The  same  com- 
mercial process  which  has  broken  down  the  earlier  class  organiza- 
tion has  produced  a  differentiation  in  economic  structure,  an  interde- 
pendence of  parts,  which  compels  us  to  conceive  of  economic  society 

2oAdapted  from  "An  Ethical  Aspect  of  the  New  Industrialism,"  South 
Atlantic  Quarterly.  XII,  9-11.    Copyright,  1912. 


940  CURRENT  ECONOMIC  PROBLEMS 

as  a  living  organism.  The  common  man  of  today  compares  with 
his  prototype  of  yesterday  as  the  cell  in  an  organized  tissue  com- 
pares with  the  cell  in  the  half -coherent  mass  of  protoplasm.  The 
functions  of  the  individual  are  now  organic  functions,  far  transcend- 
ing the  narrow  confines  of  his  own  personality.  The  pilot,  the  en- 
gineer, the  steel  worker,  the  coal-heaver,  are  significant,  not  in  them- 
selves, but  in  the  social  work  they  perform.  With  the  progress  of 
time,  a  constantly  increasing  share  of  the  population  assumes  func- 
tions essentially  social. 

In  serving  the  common  man,  then,  we  are  performing  a  work 
far  more  worth  while  than  that  of  supplying  the  needs  of  an  indi- 
vidual, of  whatever  personal  worth.  We  are  serving  a  social  func- 
tionary in  the  last  analysis,  society  itself.  Our  work,  then,  is  sig- 
nificant or  meaningless  according  as  we  conceive  society  itself  as 
worthy  or  not.  If  we  are  constrained  to  think  of  our  society  as  ninety 
million  persons,  chiefly  knaves  and  fools,  the  service  will  be  irksome, 
to  be  shirked,  if  possible.  If  the  society  we  serve  is  full  of  brutality 
and  injustice,  disfigured  with  poverty  and  ignorance,  corrupted  with 
cynicism  and  self-indulgence,  it  can  not  inspire  us  with  loyalty  in 
its  service.  The  exhausting  toil  of  the  long  day,  the  hopeless  mis- 
ery of  the  sweatshop,  the  sordid  depravity  of  the  slum,  can  not  much 
longer  cumber  the  earth  if  society  is  to  command  the  best  efforts 
of  its  servitors.  We  are  not  now  concerned  with  the  question  of 
justice  to  those  who  live  and  toil  in  wretchedness.  That  question 
is  worth  considering  in  its  proper  place ;  it  is  sufficient  here  to  indi- 
cate that,  for  the  orderly  progress  of  industry  in  the  coming  era,  we 
must  remove  conditions  that  destroy  our  faith  in  society.  Men  in 
the  service  of  society  will  give  their  best  efforts  only  if  society  is 
worth  serving. 

But  it  is  not  sufficient  that  society  should  be  worth  serving,  the 
worth  of  society  and  the  worth  of  work  in  its  service  must  be  given 
concrete  expression  if  these  values  are  to  mold  men's  conduct.  Today 
these  values  are  perceived,  but  dimly ;  they  exercise  an  influence  in 
limited  fields.  Men  in  the  service  of  the  railways,  as  a  rule,  endeavor 
honestly  to  realize  the  ideal  of  continuous  and  adequate  service.  Coal 
miners  are  loth  to  strike  at  the  opening  of  winter.  Their  social  func- 
tion plays  a  part — though  unfortunately  a  minor  part — in  controlling 
their  economic  policy.  As  a  rule,  however,  the  servants  of  society, 
employers  and  employees  alike  regard  any  peculiar  dependence  of 
society  upon  their  services  as  an  element  strengthening  their  bar- 
gaining position,  a  peculiar  opportunity  for  gain.  The  wheat  is  fall- 
ing from  the  head ;  the  fruit  is  rotting  on  the  tree ;  an  excellent  time 


CONTROL  OF  INDUSTRIAL  DEVELOPMENT  941 

for  a  concerted  demand  for  higher  wages!  An  industrial  city  has 
been  built  upon  the  expectation  of  the  continuous  supply  of  material : 
what  an  opportunity  for  the  material  producers  to  levy  tribute !  A 
whole  nation  lives  from  day  to  day  upon  the  fruits  of  its  mechanical 
industries ;  coal  is  its  bread.  A  dazzling  prospect  of  gain  lies  before 
those  who  can  possess  themselves  of  the  mastery  of  the  mines.  Re- 
sponsibility of  function  is  oportunity  for  gain ;  so  prevalent  is  this 
conception  that  when  we  assert  that  the  use  of  responsibility  for  gain, 
not  for  service,  is  a  species  of  treason,  we  seem  to  be  harking  back 
to  the  middle  ages.  And  so  we  are.  But  there  is  much  in  the  mediaeval 
industrial  spirit  that  is  eternal :  much  that  must  be  restored  to  our 
society  after  the  disorders  of  an  era  of  expansion  and  exploitation. 

The  worth  of  society  and  of  work  in  its  service — these  are  the 
social  values  that  must  govern  in  the  new  industrialism.  As  mere 
abstract  ideas  they  can  have  no  potency.  As  abstract  ideas  the  kings 
and  nobles  of  an  earlier  age  had  no  potency ;  they  were  invested  with 
the  power  of  social  values  by  the  work  of  architects  and  sculptors, 
poets  and  philosophers.  The  poets,  as  it  were,  created  kings  and 
knights — ideals  toward  which  actual  rulers  and  nobles  sought  to 
elevate  themselves.  Architects  and  sculptors,  painters  and  poets,  can 
transform  social  man  and  society  into  values  capable  of  dominating 
industry.  The  task  may  be  difficult ;  but  it  is  no  more  difficult  than 
that  of  vesting  glory  in  the  House  of  Atreus  or  the  House  of  Bourbon. 

The  ultimate  need  of  the  new  industrialism,  then,  is  not  more 
trained  skill,  more  applied  science — although  these  two  are  good 
things  in  their  way — but  artists  and  poets  who  shall  translate  society 
and  social  man  into  terms  of  values  worth  serving.  When  these  have 
done  their  work  we  shall  hear  less  of  the  deterioration  of  labor  and 
the  abuse  of  responsibility,  of  industrial  decay  and  social  corruption, 
of  irreconcilable  conflict  and  threatened  revolution.  A  revolution 
will  have  been  accomplished :  a  revolution  in  ideals  and  in  values. 


APPENDIX  A 

READINGS  OMITTED  IN  REVISION 

The  following  list  includes  the  readings  in  the  first  edition  of  this 
book,  for  which  space  could  not  be  found  in  the  revision.  While  they  are 
less  relevant  than  the  readings  included  in  this  volume,  most  of  them  still 
possess  value.  They  are  given  here  for  the  convenience  of  readers  who 
have  access  to  the  first  edition: 

I.    The  Antecedents  of  Modern  Industrialism    p^^^  ^^ 

Reading  First  Edition 

2.    Christian    Teaching    and    Industrial    Development.      William 

Cunningham 5 

17.  The  Usurer's  Fate.     Caesarius  of  Heisterbach 32 

18.  Usury  versus  the  Boycott.     Innocent  III 33 

19.  The    Characteristics    of    Mercantilist    Doctrine.      John    Kells 
Ingram  33 

II.    The  Industrial  Revolution 

20.  The  Characteristics  of  the  English  People.    Alfred  Marshall. . .     37 
25.   The  Significance  of  the  Revolution.    Grant  Robertson 51 

III.    Social  Control  in  Modern  Industrialism 

51.    The  Unscientific  Character  of  Laissez  Faire.    J.  E.  Cairnes...  105 
56.    Social  Reform  and  Self-Reliance.    W.  Lyon  Blease 115 

58.  A  Program  of  Social  Reform.     Woodrow  Wilson 120 

59.  Arrested  Constitutional  Development.     Myron  T.  Watkins,..,   123 

60.  The  Anti-Paternalism  of  the  Government.     Missouri  Supreme 
Court  124 

62.  Public  Enemies.    Walt  Mason 128 

63.  The  Dominance  of  the  Entrepreneur  View-Point 128 

IV.    The  Pecuniary  Basis  of  Economic  Organization 

73.    The  Ethics  of  Competition.    J.  A.  Hobson 152 

76.    Price-Fixing  by  Commission.     Martin  Luther 158 

85.    The  Utility  of  Cotton  Futures.    Alfred  B.  Shepperson 170 

89.    The   Experience   of    Germany   with    Stock    Exchanges.     The 

Hughes  Committee 178 

042 


APPENDIX  943 

V.    Problem  of  the  Business  Cycle  p^^^  „, 

Reading  First  Edition 

93.   The  Ethics  of  Corporate  Management.    Henry  Rogers  Seager. .   187 
The  Corporation  and  Personal  Efficiency.    George  W.  Perkins. .   189 

The  Periodicity  of  Commercial  Crises.    J.  S.  Nicholson 208 

The  Causes  of  the  Panic  of  1893.    W.  Jett  Lauck 216 

Industrial  Conditions  Preceding  the  Panic   (1907).     Moody's 

Magazine   221 

The  Course  of  the  Panic  of  1893.    Alexander  D.  Noyes 225 

A   Week   of   Financial   History.     Commercial  and   Financial 

Chronicle   232 

General  Industrial  Conditions  in  a  Crisis.     Bradstreet's 233 

The  Premium  on  Currency  in  1893.    Commercial  and  Financial 

Chronicle   235 

The  Hoarding  of  Currency  in  1893.    J.  DeWitt  Warner 235 

Estimate  of  Money  Hoarded  in  1907.    Moody's  Magazine. .. .  236 

Economies  in  Credit.    Atlanta  Clearing  House 236 

Shipment  of  Currency  to  the  Interior.    Commercial  and  Finan- 
cial  Chronicle 237 

The  Fruits  of  the  Exploitation  of  Labor.    Frank  K.  Foster. . . .  240 
The  Impossibility  of  Over-Production.     John  Stuart  Mill....  242 

Sun-Spots  and  Crises.     W.  Stanley  Jevons 243 

The  Neo-Jevonian  Theory.    Alvin  S.  Johnson 245 

Capitalization  and  Crises.    Frank  A.  Fetter 246 

The  Lagging  Adjustment  of  Interest.    Irving  Fisher 247 

Inelasticity  of  Credit  under  the  National   Banking   System. 

Harold  G.  Moulton 249 

Provisions  for  Elasticity  in  the  New  Currency  Act.     L.  M. 

Jacobs,  Jr 253 

Emergency  Elasticity  of  Note  Issue.    Fred  M.  Taylor 257 

The  Part  of  Individual  Responsibility.    Theodore  E.  Burton . . .  260 

VI.    Problems  of  Inxernational  Trade 

The  Theory  of  International   Exchange 275 

The  Reciprocal  Character  of  International  Trade.     Fred  M. 

Taylor   281 

Remember  Colorado.     Denver  Times 286 

What  the  State  Owes  to  Industry.    George  B.  Curtiss 289 

The  Universal  Fruits  of  Free  Trade.  Andrew  Yarrington ....  294 
Protection  and  Industrial  Transformation.  Friederich  List. . .  295 
Present   Validity  of  the   Young-Industry  Argument.     Frank 

William  Taussig 298 

American    Free    Trade    and    American    Prosperity.      George 
Baden-Powell 324 


944  CURRENT  ECONOMIC  PROBLEMS 

Page  in 
Reading  First  Edition 

165.    Woolens  and  Welfare.    N.  T.  Folwell 328 

170.  Producers'  Costs  and  Tariff  Duties.     William  C.  Redfield....  335 

171.  Investigation  and  Tariff  Legislation.     Henry  C.  Emery 340 

VII.    The  Problem  of  Railway  Regulation 

173.  The  Extent  of  American  Railway  Interests.    I.  Leo  Sharfman. .  346 

177.  Types  of  Railway  Discrimination.     George  H.  Lewis 355 

178.  Discrimination  Between  Commodities.     Albert  N.  Merritt....  357 

179.  Discriminations  in  the  Transportation  of  Oil.     Commissioner 

of  Corporations 358 

180.  Recent  Forms  of  Railway  Discrimination.    William  Z.  Ripley. .  361 
187.    Competitive  Factors  in  Rate-Making.     Emery  R.  Johnson  and 

Grover  C.  Huebner 372 

195.  The   Drift   Toward    Government   Ownership.     Frank   Haigh 
Dixon   388 

196.  Government  Ownership  as  a  Refuge.    Railway  World 389 

197.  The  Economies  of  Government  Ownership.    Frank  Parsons...  391 

198.  The  Inexpediency  of  Government  Ownership.    Samuel  O.  Dunn  392 

Vni.    The  Problem  of  Capitalistic  Monopoly 

207.  The  Law  of  Monopoly  Price.    Henry  Rogers  Seager 418 

208.  The  Limits  of  Monopoly  Price.    J.  A.  Hobson 420 

216.  Dissolution  of  the  Standard  Oil  Company.    H.  C.  Folger,  Jr. . .  435 

217.  The  Result  of  the  Dissolution.    Arthur  Jerome  Eddy 436 

IX.    The  Problem  of  Population 

224.   The  Social  Crises  at  the  Time  of  Malthus.    Francesco  S.  Nitti . .  455 

231.  American  Appraisals  of  Immigration 472 

234.  Living  Conditions  Among  Home  Laborers.    Charles  Dickens. .  477 

235.  The    Standard   of   Living   of   the    New    Immigrants.     I.    A. 
Hourwich 478 

236.  Immigration  and  Wages.     I.  A.  Hourwich 480 

240.  The  Menace  of  the  Immigrant  Farmer.    Robert  D.  Ward 489 

242.    Consular  Inspection  as  a  Means  of  Regulation.     Broughton 

Brandenburg  490 

245.   Wanted — An  Immigration  Policy.    New  Republic 496 

X.    The  Problem  of  Economic  Insecurity 

258.   Wanted :    A  Labor  Exchange.    Gregory  Mason 526 

260.  Insurance  Against  Unemployment.     William  F.  Willoughby, .  533 

261.  An  Appraisal  of  Unemployment  Insurance.    William  F.  Wil- 
loughby     533 


APPENDIX  945 

Page  in 
Reading  First  Edition 

270.    Old- Age  Pensions  in  New  Zealand.    W.  P.  Reeves 548 

272.   A  Wage-Earner's  Budget.     Louise  Boland  More 552 

2-J2,-    Life  at  $1.65  a  Day.    Margaret  F.  Byington 554 

274.    A  "Fair  Living  Wage."     Louise  Boland  More 557 

277.    The  Progress  of  the  Minimum  Wage.    Florence  Kelley 562 

279.    Wage-Settlement  by  External  Authority.     S.  J.  Chapman 567 

281.   Arbitration  in  New  Zealand.    Hugh  H.  Lusk 571 

XL    The  Problem  of  Trade  Unionism 

287.    The  Sons  of  Martha.     Rudyard  Kipling 588 

290.  The  Undemocratic  Character  of  Trade  Unions.     Charles  W. 
Eliot 596 

291.  An  Employer's  View  of  Trade  Unions.    Andrew  Carnegie....  599 

309.  The  Monopoly  of  Labor.    William  H.  Taft 630 

310.  The  Charter  of  Industrial  Freedom.     Samuel  Gompers 632 

311.  Legal  Exemption  of  Labor  Combinations.    Allyn  A.  Young...  634 

313.  Industrial  versus  Trade  Unionism.    Mary  K.  O'Sullivan 641 

315.  The  General  Strike.    Arthur  D.  Lewis 644 

XII.     Social  Reform  and  Legal  Institutions 

320.  The  Development  of  the  Right  of  Property.    George  B.  New- 
comb   658 

321.  Property  and  Stewardship.     Saint  Basil 660 

322.  The  Ethics  of  Property.     Pierre  Joseph  Proudhon 660 

327.    Contract  and  Co-operation.     Henry  Sidgwick 670 

332&.  The  Supremacy  of  the  Police  Power.    Nebraska  Supreme  Court  679 

334.  The  Danbury  Hatters'  Case.     Harry  W.  Laidler 682 

335.  A  Legal  Criticism  of  the  Injunction.    Charles  Claflin  Allen. . .  685 


338 
339 
342 

343 
344 
345 

346 

347 

348 
350 


XIII.     Social  Reform  and  Taxation 

Taxation  as  a  Means  of  Social  Control.    Adolph  Wagner....  693 

Taxation  and  Technical  Development.    J.  R.  McCuUoch 695 

Incidence  and  Industrial  Organization.     A.  W.  Flux 699 

The  Burden  of  the  Tariff  Tax.    Liberal  Party  Pamphlet 702 

The  Incidence  of  the  Customs  Tax.    Edwin  R.  A.  Seligman. ..  704 
Defects  of  the  General  Property  Tax.     National  Tax  Asso- 
ciation    706 

Multiple  Taxation.    Theodore  Sutro 708 

The  Massachusetts  Corporation  Tax.     Commissioner  of  Cor- 
porations    710 

The  Federal  Income  Tax.    Edwin  R.  A.  Seligman 713 

The  Increase  in  Land  Values 720 


946  CURRENT  ECONOMIC  PROBLEMS 

Page  in 
Reading  First  Edition 

351.  The  Social  Injustice  of  Rent.     Harry  George 724 

352.  The  Theoretical  Basis  of  the  Single  Tax.    C.  B.  Fillebrown. ..  725 

353.  A  Criticism  of  the  Single  Tax.     Charles  J.  Bullock 726 

XIV.    Comprehensive  Schemes  of  Social  Reform 

357.  Scrub-Humanity.    Solon  Lauer 736 

358.  The  Promise  of  Co-operation.     Francis  G.  Peabody 737 

359.  "U.  S.  Steel"  and  Labor.    Raynal  C.  Boiling 739 

360.  Labor  and  "U.  S.  Steel."    John  A.  Fitch 742 

361.  Marx's  Theory  of  the  Development  of  Capitalism.     Werner 
Sombart 745 

363.   The    Distinction    Between    Socialism    and    Communism.      M. 

Tugan-Baranowsky   75 1 

365.    Property  and  Industry  under  Socialism.     John  Spargo 754 

367.   "My  Papa  Is  a  Socialist."    Harvey  P.  Moyer 758 

370.  The  National  Platform  of  the  Socialist  Party 761 

371.  Municipal  and  State  Program.    Socialist  Campaign  Book 766 

374.    Some  Objections  to  Socialism.     William  Graham 773 


INDEXES 


INDEX  TO  AUTHORS 

[The  references  are  to  pages] 


Ac  worth,  W.  M.,  392 

Adams,  Henry  Carter,  161,  798 

Adams,  Thomas  Sewall,  821 

Amonson,  Louis  S.,  515 

Amos,  832 

Andrews,  John  B.,  556 

Aquinas,  St.  Thomas,  91 

Aristotle,  432,  482 

Arnold,  Edwin,  120 

Ashley,  Sir  William  J.,  61,  72 

Ayres,  Clarence  E.,  256 

Bagehot,  Walter,  240 
Baker,  S.  Josephine,  606 
Ball,  John,  833 
Bastiat,  Frederic,  324 
Benedict,  Roswell  A.,  323 
Benson,  Allan  A.,  121 
Benthara,  Jeremy,  36 
Beveridge,  W.  H.,  554 
Blackstone,  William,  32 
Brandeis,  Louis  D.,  449,  791 
Brown,  William  Garrott,  48 
Brown,  W.  Jethro,  57 
Bryce,  James,  18,  22,  47,  130 
Biicher,  Carl,  64,  112 
Bullock,  Charles  J.,  443 
Burgess,  George  K.,  270 

Campbell,  Janet  M.,  671 
Cannan,  Edwin,  30,  118,  142,  374 
Canning,  J.  B.,  192 
Carver,  Thomas  Nixon,  293 
Chamberlain,  Joseph  P.,  580 
Chapman,  S.  J.,  160,  803 
Chevrillon,  Andr6,  274 
Child,  Sir  Josiah,  482 
Chiozza-Money,  L.  G.,  902 
Claghorn,  Kate  H.,  514 
Clapham,  J.  H.,  107 
Clark,  J.  Maurice,  166,  412,  908 
Clay,  Henry,  195 


Clutton-Brock,  A.,  927 
Cole,  G.  H.  D.,  866 
Colver,  William  B.,  366 
Commons,  John  R.,  641 
Conant,  Charles  A.,  183 
Conway,  Sir  Martin,  528 
Cooke,  Maurice  L.,  707 
Cooley,  Charles  H.,  158,  620,  930 
Coulton,  G.  G.,  83 
Crowder,  General  Enoch,  279 
Culpepper,  Sir  John,  434 
Cummings,  John  Raymond,  899 
Cunningham,  William,  102 

Davenport,  Herbert  J.,  115,  807 
Dawson,  Miles  M.,  572 
Defoe,  Daniel,  321,  482 
Dicey,  Albert  V.,  38 
Downey,  E.  H.,  566,  575 
Drew,  Walter,  695 
Dunn,  Samuel  O.,  405 
Dunne,  Peter  Finley,  47,  354 
Durand,  E.  Dana,  474 

Engels,  Frederick,  836 

Fairbanks,  Arthur,  156 
Fairbanks,  Charles  W.,  315 
Farnam,  Henry  W.,  518 
Fetter,  Frank  A.,  522 
Field,  James  A.,  532,  541 
Fisher,  Irving,  729 
Fitch,  John  A.,  421 
Forrest,  J.  Dorsey,  71,  74,  no 
Frankel,  Lee  K.,  572 
Frankfurter,  Felix,  691 
Friday,  David,  299 

Gallacher,  W.,  860 

Gates,  John  W.,  173 

Gay,  Edwin  F.,  924 

Gettell,  Raymond  Garfield,  364 


949 


950 


CURRENT  ECONOMIC  PROBLEMS 


Gide,  Charles,  309 
Gillette,  King  G.,  900 
Giovannitti,  Arturo  M.,  677 
Godwin,  William,  35 
Goldsmith,  Oliver,  834 
Gower,  John,  432 
Green,  Thomas  Hill,  52,  775 
Gunton,  George,  435 

Hadley,  Arthur  T.,  230,  384,  769,  777 

HaU,  P.  E.,  S13 

Hamilton,  Walton  H.,  550,  917 

Hammond,  M.  B.,  393 

Harris,  Ralph  Scott,  228 

Harris,  W.  Willis,  859 

Hastings,  Charles  J.,  605 

Hauser,  Henri,  134 

Hill,  James  J.,  912 

Hirst,  Frances  W.,  180 

Hobhouse,  L.  T.,  19,  54,  490 

Hobson,  John  A.,  197,  549,  841 

Holcombe,  A.  N.,  591 

Holmes,  Oliver  W.,  757 

Howland,  Harry  J.,  173 

Hoxie,  Robert  F.,  622,  628,  638,  711 

Hoyt,  Homer,  471,  758 

Hughes,  Elizabeth,  26 

Hull,  George  H.,  232 

Hume,  David,  433 

Huxley,  Thomas,  481 

Ingalls,  John  J.,  37 
Isaiah,  832 

Jacobstein,  Meyer,  452 

Jeffrey,  Richard,  834 

Johnson,  Alvin,  137,  280,  328,  337,  423, 

827,  939 
Jones,  Grosvenor  M.,  360 

Kellogg,  Paul  M.,  598 
Kellor,  Frances  A.,  539 
Kendall,  Henry  P.,  739 
Kennedy,  William,  800 
Kingsley,  Charles,  159 
Kirkup,  Thomas,  547,  849 

Lape,  Esther  Everett,  520 
Lauck,  W.  Jett,  510 
Luaer,  Solon,  652 


Laughlin,  J.  Laurence,  596 

Lee,  Frederic  S.,  714 

Leffingwell,  Albert  J.,  326 

Le  Rossignol,  James  Edward,  602 

Levine,  Louis,  681 

Littlefield,  George  E.,  858 

Loria,  Achille,  753 

Lough,  W.  H.,  Jr.,  222 

Lum,  Dyer  D.,  657 

Luther,  Martin,  321,  434 

Lyon,  W.  Hastings,  188 

McAdoo,  William  G.,  411,  418 
Macaulay,  Thomas  Babington,  47,   76, 

935 
Macdonald,  J.  Ramsey,  847 
Mclntire,  Ruth,  608 
McMaster,  J.  B.,  835 
McPherson,  Logan  G.,  397,  398 
Macrosty,  Henry  W.,  439 
Magee,  James  D.,  426 
Malthus,  Thomas  Robert,  485 
Marshall,  Leon  C,  215,  278,  288 
Meiklejohn,  Alexander,  933 
MUl,  John  Stuart,  40 
Miller,  A.  C,  809 
Miller,  Frieda  S.,  131 
Mitchell,  John,  636,  650 
Mitchell,  Wesley  C,  190,  200,  206,  208, 

216,  239,  245,  904 
Montagu,  Edwin,  269 
More,  Paul  Elmer,  762 
More,  Sir  Thomas,  833 
Moulton,  Harold  G.,  211,  243,  275,  281, 

286 
Mudge,  George  P.,  529 
Mun,  Thomas,  315 

Nitti,  Francesco  Saverio,  660 
North,  S.  N.  D.,  352 
Nourse,  Edwin  G.,  171 

Ogbum,  W.  F.,  588 
Ogg,  F.  A.,  SCO 
Orth,  Samuel  P.,  126 

Parry,  David  M.,  764 
Paton,  J.,  860 
Paton,  W.  A.,  248 
Paul,  St.,  90 


INDEXES 


951 


Pierson,  N.  G.,  852 
Plato,  521 
Portenar,  A.  J.,  654 
Pound,  Roscoe,  754,  780 
Powell,  Thomas  Reed,  793 

Ravenstone,  Piercy,  36,  488 

Regensburg,  Berthold  von,  83 

Ripley,  William  Z.,  386 

Roberts,  Peter,  502 

Root,  Elihu,  915 

Ross,  Edwin  Allsworth,  492,  504,  507 

Rossiter,  William  S.,  505 

Rousseau,  J.  J.,  33,  834 

Rubinow,  I.  M.,  581 

Ruggles,  C.  O.,  388 

Salzman,  L.  F.,  85 

Seager,  Henry  Rogers,  454 

Seligman,  Edwin  R.  A.,  226,  811,  815 

Shadwell,  Arthur,  122 

Sharfman,  I.  Leo,  379 

Shibley,  George  H.,  899 

Simons,  A.  N.,  837 

Skelton,  O.  D.,  857 

Smalley,  Harrison  S.,  185,  338 

Smith,  Adam,  33,  252,  435,  802 

Smith,  Constance,  593 

Smith,  J.  Russel,  372 

Sombart,  Werner,  617 

Sprague,  O.  M.  W.,  804 

Stephens,  Albert  C,  178 

Steuart,  Sir  James,  484 

Stevens,  W.  H.  S.,  456,  458,  468,  469 

Stewart,  William  Downie,  602 

Stocks,  Mary,  673 

Stockton,  Frank  P.,  644 

Stoddard,  William  Leavett,  823 

Streightofif,  Frank  H.,  586 

Sullivan,  Mark,  266 

Sumner,  William  Graham,  936 

Sydenstricker,  Edgar,  584 


Tawney,  R.  H.,  892 
Taylor,  Fred  M.,  311 
Taylor,  Frederic  W.,  705 
Temple,  Sir  William,  483 
Thomas,  James  H.,  659 
Thompson,  R.  E.,  349 
Thompson,  Warren  S.,  583 
Toynbee,  Arnold,  98 
Tryon,  Rollo  Milton,  69 
Tufts,  James  H.,  648,  894 

Underwood,  John  Curtis,  610 
Underwood,  Joseph  H.,  46 

Van  Metre,  T.  W.,  415 
Veblen,   Thorstein,   113,   204,   284,  697, 
783 

Wame,  Frank  J.,  496,  651,  655 
Warren,  B.  S.,  584 
Washington,  George,  169 
Webb,  Beatrice,  561,  619 
Webb,  Sidney,  561,  619 
Weber,  Adna  F.,  577 
Webster,  Daniel,  334 
Wells,  H.  G.,  516 
Weyl,  Walter  E.,  524,  530,  535 
Whately,  Richard,  144 
Whitman,  William,  352 
Whitten,  Robert  H.,  404 
Williams,  Sidney  Charles,  389 
Willis,  H.  Parker,  357,  359 
Willoughby,  William  F.,  552 
Wilson,  Woodrow,  437,  515,  560 
Withers,  Hartley,  170,  316 
Witherspoon,  John,  165 
Wolman,  Leo,  626 
Wright,  Chester  W.,  441 
Wyman,  Bruce,  459 

Young,  Allyn  A.,  464 
Young,  Arthur,  482 


INDEX  TO  SUBJECTS 

[The  references  are  to  pages] 


Ability  theory,  804 

Accountancy,  146,  208,  299,  359,  377, 
400,  403,  476,  874 

Adamson  Act,  401 

American  Alliance  of  Labor  and  Democ- 
racy, 660 

Americanization,  518-22 

Arbitration,  compulsory,  602 

Assumption  of  risk,  573 

Balance  of  trade,  315,  316,  324 

"Banquet  of  life,"  936 

Boycott,  654 

British  Labor  Party,  program  of,  878-89, 

897 
British  National  Insurance  Act,  582 
Business  activity,  rhythm  of,  217 
Business  barometers,  245 
Business  cycle,  203-50,  561 
Business  enterprise,  144,  150,  197,  206, 

307,  847,  892,  917 

Canons  of  taxation,  802 

Capital,  no,  328,  423 

Capitalism,  1 10-15,  488,  847,  858,  888. 
See  also  Socialism 

Catholic  church,  72,  74,  83,  91,  874 

Chamber  of  Commerce  of  United  States, 
634,  870 

Chargmg  what  the  traflBc  will  bear,  393 

Child  labor,  605-14 

Class  consciousness,  617-20 

Classification  of  freight,  386 

Clayton  Act,  468,  469 

Closed  shop,  644,  648,  709,  788,  791 

Collective  bargaining,  641,  787,  788 

College,  function  of,  933 

Colorado  plan,  736 

Combination.    See  Monopoly 

Commercial  research,  368 

Comparative  costs,  law  of,  311 

Compensation,  workmen's.  See  Indus- 
trial accident 


Competition,  144, 156, 159,,  161,  19S,  384, 
439.    See  also  Laissez  faire 

Competition,  unfair,  452-59 

Complaints  against  railroads,  395 

Concessions,  131 

Conscription:  of  income,  804,  805;  of 
industries,  281;  of  men,  279 

Constitutional  law,  94,  95,  401,  408,  463, 
612,  757,  769,  785,  786,  788,  791 

Contract,  630,  775-84,  912 

Control:  agencies  of,  26;  basis  of  free- 
dom, 57;  by  education,  922-34;  in 
gild  period,  85;  individualistic  basis, 
52;  of  industrial  development,  890- 
941;  in  industrial  society,  1-56;  need 
for,  8,  48;   within  industry,  686-750 

Co-operation,  international  309;  prin- 
ciple of,  144,  158,  195.  See  also 
Laissez  faire 

Corporation,  185-94,  378 

Costs.  See  Accountancy,  Incidence, 
Price-fixing,  Prices,  Rates,  War 

Craft  economy,  64,  69,  80,  85,  115,  709 

Credit:  elasticity  of ,  243 ;  mechanism  of , 
211 

Crises,  215,  222,  226,  230,  248 

Dartmouth  College  case,  773 
Declaration  of  Independence,  93 
Demobilization,  295 
Depressions,  216,  232,  233 
"Dilution  of  labor,"  666 
Discriminations  in  railroad  rates,  383 
Doctrine  of  stewardship,  91,  892 
Domestic  system,  98,  115 

Economic  cycle.    See  Business  cycle 
Economic  insecurity,  545-614 
Economic  organization,  2,  141-62,  195- 

202,  203-22,  251-306,  309-11,  798 
Education,  874,  885,  908,  922-35 
Efficiency, 122, 126, 284, 288, 449, 705-16 
Eight-hour  day.    See  Hours  of  labor 
Elkins  Act,  397 


952 


INDEXES 


953 


Emigration,  539 

Employer's  liability.  See  Industrial 
accident 

Employment  management,  713,  745 

Employment  service.  See  Labor  ex- 
changes 

Espionage,  653 

Ethics:  of  competition,  159;  of  indus- 
trialism, 892,  894,  921,  939;  of  specu- 
lation, 176 

Eugenics,  5  2  7-3  5 
Evolution.    See  Progress 
Excess-profits  tax,  815,  821 
Exchanges.    See  Speculation 
Export  associations,  369 

Factory  system,  112 

Faculty  theory,  803  ^ 

Family,  29 

Federal  Trade  Commission,  469,  871 

Fellow-servant  rule,  574 

Finance:    national,  797-830,  888;    war, 

804-23;  839-47 
Free  trade,  313, 323, 324, 331, 350, 372  374 
Freedom  of  contract.    See  Contract 

Germany,  126,  134,  284,  286,  361 
Gild  ordinances,  66,  68,  69,  83 
Gild  socialism,  860-70 
Government,  theory  of,  30-59,  161,  751- 
96,  847-70,  892-99,  917 

Handicrafts.    See  Craft  economy 

Health,  578-86,  671,  714,  886 

Hedging,  178 

Hepburn  Act,  398 

Hours  of  labor,  401,  742,  743,  747,  784-87 

Housing,  885 

Immigration,  496-527,  53°,  59^ 
Incidence:    of  industrial  accidents,  574; 

of  sickness,  580;  of  war  finance,  807 
Income  tax,  811,  821 
Increasing  returns,  382 
Individualism,    5,    32-52,    122,    284-95, 

632,    762--96,   800,   912-17.     See   also 

Competition,  Laissez  faire 
Industrial  accident,  566-78 
Industrial  arts,  61-71,   103-18,   252-64, 

628,  697-716 
Industrial  councils,   716,  722,  731,  736, 

739 


Industrial  development,  5,  60-140 
Industrial  organization.     See  Economic 

organization 
Industrial  physiology,  714 
Industrial  revolution,  97-140 
Inflation,  809 
Inheritance  tax,  827 
Insecurity,  545-614 
Instincts,  729 

Insurance,  social,  552,  581,  582,  584,  888 
International  labor  standards,  746 
International  peace,  131,  137,  372,  374 
International  trade,  306-75,  873 
Interstate  Commerce  Act,  397 
Interstate  Commerce  Commission,  393, 

397-401 

Japan,  366,  535,  608 

Key  industries,  870 

Labor,  46,  89,  118-22,  278,  502-21,  545- 

796,  831-39 
Labor  exchanges,  556,  560 
Labor  policy,  663,  866 

Laissez  faire,  5,  32-59,  i44,  754,  757- 
See  also  Competition,  Individualism 

Law,  function  of,  758 

Legal  system,  751-796 

Liberty.  See  Bill  of  Rights,  Freedom  of 
contract,  Individualism,  Laissez  faire 

Literacy  test,  513-16 

Local  trade,  80,  319,  353,  354 

Luxuries,  tax  on,  819 

McAdoo  plan,  418  ^ 

Machine.    See  Industrial  arts.  Technique 

Malthus,  theory  of,  485-96 

Malthusians,  490 

Mann-EUcins  Act,  400 

Manorial  economy,  61-77 

Mediaeval  church.    See  Catholic  church 

Middlemen,  169,  170,  171 

Midvale  plan,  731 

Minimum  wage,  591-605,  742,  744,  793, 
876 

Mobilization,  274-95 

Modern  industrialism:  antecedents,  60- 
140;  characteristics,  2.  See  also 
Economic  organization 

Money  economy.  See  Pecuniary  organi- 
zation 


954 


CURRENT  ECONOMIC  PROBLEMS 


Monopolization,  conditions  of,  439-52 
Monopoly,  380,  429-78,  596 
Munitions,  264-74 

National  Association  of  Manufacturers, 
632 

National  budget,  823 
National  defense,  370,  372 
National  Industrial  Parliament,  727 
National  minimum.   See  Minimum  wage, 

Standards 
Natural  rights,  32,  92,  93,  764 
Negligence,  theory  of,  572 
Nonessentials,  286,  290,  293,  819 

Opportunity,  6,  37,  48 

Organic  nature  of  society,  xi,  3,  90,  204, 
215,  892,  927 

Ostracism,  655,  657 

Panaceas,  899-904 

Panics,  228,  240,  241 

Peace.    See  International  peace 

Pecuniary   organization,    141-202,    256, 

917.    See  also  Competition,  Economic 

organization 
Physiology,  industrial,  714 
Plantation  economy,  89 
Plumb  plan,  421 
Politics  in  industry,  686-750 
Population,  479-544 
Pre-industrial  society,  5,  60,  98 
Price-fixing,  163-66,  476 
Price-system,  146-56,  208,  917 
Primitive  culture,  130-40 
Priorities,  280 
Production,  180,  234,  239,  299,  443,  700, 

879.    See  also  Restriction  of  output 
Programs  of  reconstruction,  870-89 
Progress,  18-26,  156,  762,  834,  935 
Property,  17,  91,  762-75 
Prosperity,  321,  912 
Protection,  249,  270,  319,  334,  351-60 
Public  expenditures,  798 

Railroad  Administration,  United  States 
410-18  ' 

Railroads:  plans  for  return  to  owners, 
418-28;  rates,  386-95;  regulation^ 
376-428;  valuation,  402-10 


Rates,  railroad,  386-410 

Reconstruction,  5,  13,  161,  197-202,  240- 
50,  295-306,  370-375,  418-28,  471-79, 
516-27,  539-44,  545-614,  666-76,  686- 
750,  762-96,  822-30,  839-57,  860-941 

Restriction  of  output,  631,  695-700.  See 
also  Sabotage 

Restriction  of  trade,  452-59,  462-70 

Rights,  Bill  of,  92-96 

Sabotage,  677,  680,  697 

Saving.    See  War  thrift 

Scab,  652,  655,  657 

Scientific  management.    See  Efl&ciency 

Sex  war,  673 

Sherman  Anti-trust  Act,  462,  464 

Shipping,  364 

Sickness.    See  Health 

Social  insurance.    See  Insurance 

Social  order.    See  Economic  organization 

Social  reform  schemes,  528,  751,  797, 
831-89 

Social  surplus,  897 

Socialism:  gild,  860-70;  state,  847-60, 
877 

Socialization  of  knowledge,  908 

Speculation,  173-85 

Standard  of  living,  586-91,  610,  880 

Standardization,  113,  471 

Standards:  for  children  in  industry,  741- 

for  women  in  industry,  743 
Standards,  international  labor,  746 
State.    See  Government 
State  vs.  federal  control,  388,  825 
Statute  of  Laborers,  163 
Stewardship,  doctrine  of,  91,  892 
Strike,  650,  651,  653 
Supreme  court.   See  Constitutional  law 
Symbolism,  939 
Syndicalism,  624,  677-685,  838 

Tariff,  306,  375 

Tariff  Commission,  United  States,  347 

Tariff  history,  338-44,  347 

Taxation,  797-830,  871 

Technique,  46,  103,  107,  113,  270,  284, 

549,  566 
Tieing  agreements,  456 
Towns,  mediaeval,  66-69,  80,  85 
Trade  agreement,  641 


INDEXES 


955 


Trade  conflict,  130-40,  360-75 
Trades,  organization  of,  195,  197,  204 
Trade-unionism,  615-85,  880 
Transportation,  100,  no,  376-428 
Tricks  of  trade,  83,  357,  432 

Underwood-Simmons  Act,  344 

Unemployment,  121,  197,  222,  231,  554- 
66,  610,  749,  881 

Unionism.  See  Trade-unionism,  Syn- 
dicalism 

Unrest,  687-95,  832-34,  935 

Utopias,  481,  529,  899-904,  915 

Valuation  of  railroads,  402-10 
Vocational  education,  924 
Voluntary  enlistment:   of  factories,  275; 
of  industrial  laborers,  278;  of  men,  274 


Wage  contract,  615-85,  784-96 
Wage  system,  64,  121 
Wages,  334-38,  875.    See  also  Wage  con- 
tract. Minimum  wage 
War:   amateurs  at,  288;    business  cycle 
during,   234-40;   casualties,  596,  839; 
child    labor,    606;     concessions    and, 
137,     372,     374;      cost    of,     839-47; 
economic  strategy,  259,  286;   finance, 
804-23;     labor   policy   in,    663;    na- 
tional  unity   during,    687;     organiza- 
tion for,  251-306;  population  and,  492, 
541;     price-fixing   during,    166;     rail- 
roads in,  410-18;    standard  of  living 
during,  588;   thrift,  290-95;   unionism 
in,  659-66;   unrest  during,  691 
Webb-Pomerene  Act,  369,  473 
Whitley  councils,  716,  722,  725 
Women  in  industry,  666-76,  743,  874,  882 
Works  committees,  716,  722,  860,  876 


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